valid as on 20/10/2019

Section 141.Eligibility, qualifications and disqualifications of auditors
Effective from 01-04-2014 and font in blue from 09-02-2018

(1) A person shall be eligible for appointment as an auditor of a  only if he is a  in practice.

(2) Where a firm is appointed as an auditor of a company, only the partners who are Chartered Accountants in practice shall be authorised by the firm to act and sign on behalf of the firm.

(3) None of the following persons shall be eligible for appointment as an auditor of a company, namely:—

(a)  a ;

(b)  an  or employee of the company;

(c)  a person who is a partner, or who is in the employment, of an officer or employee of the company;

(d)  a person who, or his or partner—

(i)  is holding any of the company or its , or of its holding or or a subsidiary of such , of value in terms of such percentage ;

(ii)  is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company; or

(iii)  has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount ;

(e)  a person or a firm who has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature

(f)  a person whose relative is in the employment of the company as a   or ;

(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies 

(h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;

a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.

Explanation.—For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144

(i) any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided in section 144.

(4) Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the auditor.

2(20) Company means a company incorporated under this Act or under any previous company law
2(17) Chartered Accountant means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) who holds a valid certificate of practice under sub-section (1) of section 6 of that Act
2(11) Body Corporate includes a company incorporated outside India, but does not include—

(i) a co-operative society registered under any law relating to co-operative societies; and

(ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf

2(59) Officer includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act
2(77) Relative, with reference to any person, means any one who is related to another, if—

(i) they are members of a Hindu Undivided Family;

(ii) they are husband and wife; or

(iii) one person is related to the other in such manner as may be prescribed

2(81) Securities means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)
2(87) Subsidiary Company or Subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company—

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers  as may be prescribed.

Explanation.—For the purposes of this clause,—

(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

(c) the expression “company” includes any body corporate;

(d) “layer” in relation to a holding company means its subsidiary or subsidiaries.

2(6) Associate Company, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purpose of this clause—
(a) the expression “significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;
2(46) Holding Company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.

Explanation.- For the purposes of this clause, the expression “company” includes any body corporate;

Refer Rule 10 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
Refer Rule 10 of the Companies (Audit and Auditors) Rules, 2014.To view the rule,Click Here
Refer rule 10 of the Companies (Audit & Auditors) Rules,2014. To view the rule,Click Here
2(34) Director means a director appointed to the Board of a company
2(51) Key Managerial Personnel, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer;

(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and

(vi) such other officer as may be prescribed;

 Inserted vide Notification no. G.S.R. 464(E) dated 5th June 2015.

(The exceptions, modifications and adaptations provided above shall be applicable only to those Private Companies which has not committed a default in filing its financial statements under section 137 of the said act or annual return under section 92 of the said act with the registrar, vide notification dated 13th June 2017)

To view the notification,Click Here

Substituted vide Companies (Amendment) Act, 2017 dated 03.01.2018, effective from 09.02.2018. To view the notification,Click Here

10.1.10-Companies (Audit & Auditors) Rules,2014

10. Disqualifications of auditor. —

(1) For the purpose of proviso to sub-clause (i) of clause (d) of sub-section (3) of section 141, a relative of an auditor may hold securities in the company of face value not exceeding rupees one lakh:

Provided that the condition under this sub-rule shall, wherever relevant, be also applicable in the case of a company not having share capital or other securities:

Provided further that in the event of acquiring any security or interest by a relative, above the threshold prescribed, the corrective action to maintain the limits as specified above shall be taken by the auditor within sixty days of such acquisition or interest.

(2) For the purpose of sub-clause (ii) of clause (d) of sub-section (3) of section 141, a person who or whose relative or partner is indebted to the company or its subsidiary or its holding or  or a subsidiary of such holding company, in excess of rupees five lakh shall not be eligible for appointment.

(3) For the purpose of sub-clause (iii) of clause (d) of sub-section (3) of section 141, a person who or whose relative or partner has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of one lakh rupees shall not be eligible for appointment.

(4) For the purpose of clause (e) of sub-section (3) of section 141, the term “business relationship” shall be construed as any transaction entered into for a commercial purpose, except –

(i) commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act, 1949 and the rules or the regulations made under those Acts;
(ii) commercial transactions which are in the ordinary course of business of the company at arm’s length price – like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.

For the purposes of clause (i) of sub-section (3) of sectlon 143, for the financial years commencing on or after 1st April, 2015, the report of the auditor shall state about existence of adequate internal financial controls system and its operating effectiveness:

Provided that auditor of a company may voluntarily include the statement referred to in this rule for the financial year commencing on or after 1st April, 2014 and ending on or before 31st March, 2015.

2(6) Associate Company, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purpose of this clause—
(a) the expression “significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;
Inserted vide Companies (Audit and Auditors) Amendment Rules, 2014. dated 14.10.2014 . To view the notification,Click Here
Substituted vide Companies (Audit and Auditors) Amendment Rules, 2018 dated 07.05.2018 . To view the notification,Click Here

Commencement Notification dated 09.02.2018


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


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


Exemptions to Private Companies [Amendment to GSR 464(E)] dated 13/06/2017


Exemptions to private companies [GSR 464 (E)] dated 05/06/2015


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


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


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