valid as on 20/10/2019

Section 139.Appointment of auditors
Effective from 01-04-2014

(1) Subject to the provisions of this Chapter, every  shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the of the company at such meeting shall be such :

Provided further that before such appointment is made, the written consent of the auditor to such appointment, and a from him or it that the appointment, if made, shall be in accordance with the conditions , shall be obtained from the auditor:

Provided also that the certificate shall also indicate whether the auditor satisfies the criteria provided in section 141:

Provided also that the company shall inform the auditor concerned of his or its appointment, and also of such appointment with the Registrar within  of the meeting in which the auditor is appointed.

Explanation.—For the purposes of this Chapter, “appointment” includes reappointment.

 No listed company or a company belonging to such class or classes of companies , shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years:

Provided that—

(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:

Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the , shall be appointed as auditor of the same company for a period of five years:

Provided also that every company, existing on or before the commencement of this Act which is required to comply with provisions of this sub-section, shall comply with the requirements of this sub-section within three years from the date of commencement of this Act:

Provided also that, nothing contained in this sub-section shall prejudice the right of the company to remove an auditor or the right of the auditor to resign from such office of the company.

(3) Subject to the provisions of this Act, members of a company may resolve to provide that—

(a) in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members; or

(b) the audit shall be conducted by more than one auditor.

(4) The Central Government may, , prescribe the manner in which the companies shall rotate their auditors in pursuance of sub-section(2).

Explanation.—For the purposes of this Chapter, the word “firm” shall include a limited liability partnership incorporated under the Limited Liability Partnership Act, 2008.

(5) Notwithstanding anything contained in sub-section (1), in the case of a or owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, the Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under this Act, within a period of one hundred and eighty days from the commencement of the financial year, who shall hold office till the conclusion of the annual general meeting.

(6) Notwithstanding anything contained in sub-section (1), the first auditor of a company, other than a Government company, shall be appointed by the  within thirty days from the date of registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

(7) Notwithstanding anything contained in sub-section (1) or sub-section (5), in the case of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government, or Governments, or partly by the Central Government and partly by one or more State Governments, the first auditor shall be appointed by the Comptroller and Auditor-General of India within sixty days from the date of registration of the company and in case the Comptroller and Auditor-General of India does not appoint such auditor within the said period, the Board of Directors of the company shall appoint such auditor within the next thirty days; and in the case of failure of the Board to appoint such auditor within the next thirty days, it shall inform the members of the company who shall appoint such auditor within the sixty days at an extraordinary general meeting, who shall hold office till the conclusion of the first annual general meeting.

(8) Any casual vacancy in the office of an auditor shall—

(i) in the case of a company other than a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India, be filled by the Board of Directors within thirty days, but if such casual vacancy is as a result of the resignation of an auditor, such appointment shall also be approved by the company at a general meeting convened within three months of the recommendation of the Board and he shall hold the office till the conclusion of the next annual general meeting;

(ii) in the case of a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India, be filled by the Comptroller and Auditor-General of India within thirty days:

Provided that in case the Comptroller and Auditor-General of India does not fill the vacancy within the said period, the Board of Directors shall fill the vacancy within next thirty days.

(9) Subject to the provisions of sub-section (1) and the rules made thereunder, a retiring auditor may be re-appointed at an annual general meeting, if—

(a) he is not disqualified for re-appointment;

(b) he has not given the company a notice in writing of his unwillingness to be re-appointed; and

(c) a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed.

(10) Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company.

(11) Where a company is required to constitute an Audit Committee under section 177, all appointments, including the filling of a casual vacancy of an auditor under this section shall be made after taking into account the recommendations of such committee.

2(20) Company means a company incorporated under this Act or under any previous company law
2(55) Member in relation to a company, means—

(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;

(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;

(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository

Refer rule 3 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
Omitted vide Companies (Amendment) Act, 2017 dated 03.01.2018,  effective from 07.05.2018. To view commencement notification,Click Here

To view the notification of Companies Amendment Act,2017 Click Here

Refer rule 4 & Form No.ADT-1 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
Refer Rule 4 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
Refer rule 5 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
To be be read as thirty days for IFSC Private and IFSC Public company vide GSR 8(E)and GSR 9(E) dated 04.01.2017.To view the notification Click Here
All provisos to sub section (2) are not applicable for IFSC Private and IFSC Public company vide GSR 8(E)and GSR 9(E) dated 04.01.2017.To view the notification Click Here
Refer Rule 5 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
2(41) Financial Year, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:

Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:

Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause

Provided also that in case of a Specified IFSC public company, which is a subsidiary of a foreign company, the financial year of the subsidiary may be same as the financial year of its holding company and approval of the Tribunal shall not be required.

Provided also that in case of a Specified IFSC private company, which is a subsidiary of a foreign company, the financial year of the subsidiary may be same as the financial year of its holding company and approval of the Tribunal shall not be required.

Substituted vide order date 30.06.2016.To view the notification,Click Here
Refer rule 6 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
2(45) Government company means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company
Refer General Circular 33/2014. To view the circular,Click Here
2(10) Board of Directors, in relation to a company, means the collective body of the directors of the company

10.1.3-Companies (Audit & Auditors) Rules,2014

3.Manner and procedure of selection and appointment of auditors.-

(1) In case of a company that is required to constitute an Audit Committee under section 177, the committee, and, in cases where such a committee is not required to be constituted, the Board, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company:

Provided that while considering the appointment, the Audit Committee or the Board, as the case may be, shall have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court.

(2) The Audit Committee or the Board, as the case may be, may call for such other information from the proposed auditor as it may deem fit.

(3) Subject to the provisions of sub-rule (1), where a company is required to constitute the Audit Committee, the committee shall recommend the name of an individual or a firm as auditor to the Board for consideration and in other cases, the Board shall consider and recommend an individual or a firm as auditor to the members in the annual general meeting for appointment.

(4) If the Board agrees with the recommendation of the Audit Committee, it shall further recommend the appointment of an individual or a firm as auditor to the members in the annual general meeting.

(5) If the Board disagrees with the recommendation of the Audit Committee, it shall refer back the recommendation to the committee for reconsideration citing reasons for such disagreement.

(6) If the Audit Committee, after considering the reasons given by the Board, decides not to reconsider its original recommendation, the Board shall record reasons for its disagreement with the committee and send its own recommendation for consideration of the members in the annual general meeting; and if the Board agrees with the recommendations of the Audit Committee, it shall place the matter for consideration by members in the annual general meeting.

(7) The auditor appointed in the annual general meeting shall hold office from the conclusion of that meeting till the conclusion of the sixth annual general meeting, with the meeting wherein such appointment has been made being counted as the first meeting:

that such appointment shall be subject to ratification in every annual general meeting till the sixth such meeting by way of passing of an ordinary resolution.

For the purposes of this rule, it is hereby clarified that, if the appointment is not ratified by the members of the company, the Board of Directors shall appoint another individual or firm as its auditor or auditors after following the procedure laid down in this behalf under the Act.

Omitted Companies (Audit and Auditors) Amendment Rules, 2018 dated 07.05.2018 . To view the notification,Click Here
Omitted Companies (Audit and Auditors) Amendment Rules, 2018 dated 07.05.2018 . To view the notification,Click Here

10.1.4-Companies (Audit & Auditors) Rules,2014

4. Conditions for appointment and notice to Registrar. —

(1) The auditor appointed under rule 3 shall submit a certificate that –

(a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder;

(b) the proposed appointment is as per the term provided under the Act;

(c) the proposed appointment is within the limits laid down by or under the authority of the Act;

(d) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

(2) The notice to Registrar about appointment of auditor under fourth proviso to sub-section (1) of section 139 shall be in 

 

MCA vide its Circular dated 13.05.2019 has clarified that the companies which had filed Form ADT-1 through GNL-2 as an attachment (by selecting ‘others’) during the period from 01.04.2014 to 20.10.2014 may file Form ADT-1 for appointment of Auditor for the period upto 31.03.2019 without fee, till 15.06.2019. To view the circular, Click Here.

Substituted vide, the Companies (Audit and Auditors) Amendment Rules, 2018 dated 16.02.2018. To view the notification,Click Here. To view the return,Click Here


10.1.5-Companies (Audit & Auditors) Rules,2014

5. Class of Companies.-

For the purposes of sub-section (2) of section 139, the class of companies shall mean the following classes of companies excluding one person companies and small companies:-

(a) all unlisted public companies having paid up share capital of rupees ten crore or more;

(b) all private limited companies having paid up share capital of rupees twenty  crore or more;

(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.

Substituted vide Companies (Audit and Auditors) Second Amendment Rules, 2017 [GSR 621(E)] dated 22nd June, 2017 . To view the notification,Click Here

10.1.6-Companies (Audit & Auditors) Rules,2014

6. Manner of rotation of auditors by the companies on expiry of their term—
(1) The Audit Committee shall recommend to the Board, the name of an individual auditor or of an audit firm who may replace the incumbent auditor on expiry of the term of such incumbent.
(2) Where a company is required to constitute an Audit Committee, the Board shall consider the recommendation of such committee, and in other cases, the Board shall itself consider the matter of rotation of auditors and make its recommendation for appointment of the next auditor by the members n annual general meeting.
(3) For the purpose of the rotation of auditors-
(i) in case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may be;
(ii) the incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.
Explanation. I- For the purposes of these rules the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.
Explanation. II-For the purpose of rotation of auditors,-
(a) a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation;
(b) if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.
Illustration  1:-
Illustration explaining rotation in case of individual auditor
Number of consecutive years for which an individual auditor has been functioning as auditor in the same company [ in the first AGM held after the commencement of provisions of section 139(2)] Maximum number of consecutive years for which he may be appointed in the same company (including transitional period) Aggregate period which the auditor would complete in the same company in view of column I and II
I II III
5 years (or more than 5 years) 3 years 8 years or more
4 years 3 years 7 years
3 years 3 years 6 years
2 years 3 years 5 years
1 years 4 years 5 years
Illustration 2:-
Illustration explaining rotation in case of audit firm
Number of consecutive years for which an audit firm has been functioning as auditor in the same company [in the first AGM held after the commencement of provisions of section 139(2) ] Maximum number of consecutive years for which the firm may be appointed in the same company (including transitional period) Aggregate period which the firm would the firm would complete in the same company in view of column I and II
I II III
10 years (or more than 10 years) 3 years 13 years or more
9 years 3 years 12 years
8 years 3 years 11 years
7 years 3 years 10 years
6 years 4 years 10 years
5 years 5 years 10 years
4 years 6 years 10 years
3 years 7 years 10 years
2 years 8 years 10 years
1 years 9 years 10 years
Note: 1. Audit Firm shall include other firms whose name or trade mark or brand is used by the firm or any of its partners.
2. Consecutive years shall mean all the preceding financial years for which the firm has been the auditor until there has been a break by five years or more.
(4) Where a company has appointed two or more individuals or firm or a combination thereof as joint auditors, the company may follow the rotation of auditors in such a manner that both or all of the joint auditors, as the case may be not complete their term in the same year.


Companies (Removal of Difficulties) Third Order, 2016 [S.O. 2264 (E)] dated 30/06/2016


Commencement Notification dated 07/05/2018


Companies (Audit and Auditors) Amendment Rules, 2018 [GSR 432 (E)] dated 07/05/2018


Companies (Audit and Auditors) Second Amendment Rules, 2017 [GSR 621(E)] dated 22/06/2017


Enforcement Notification S.O. 902(E) dated 26/03/2014


Exemption to Specified IFSC Private company [GSR 09(E)] dated 04/01/2017


Exemption to Specified IFSC Public company [GSR 08(E)] dated 04/01/2017


The Companies (Amendment) Act, 2017 (Effective from 03.01.2018)


The companies (Audit and Auditors) Amendment Rules, 2018 dated 16.02.2018


Clarification for form ADT-1 filed through GNL-2 under the Companies Act, 2013 dated 13.05.2019


Corrigendum to Notification No. G.S.R. 432(E) dated 17.05.2018


General Circular 09/2014


General Circular 33/2014


Form No. ADT-1 (w.e.f., 16.02.2018)


FORM NO. ADT-1 Notice of appointment of auditor by the company


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