Appointment of Auditor Under the Companies Act, 2013

Who Can Be an Auditor Under the Companies Act, 2013?

A statutory auditor must meet the eligibility requirements under Section 141 of the Companies Act, 2013. A Chartered Accountant can be appointed as an auditor, and a firm or LLP of Chartered Accountants can also be appointed, subject to the applicable requirements. Many companies also rely on online chartered accountant services to identify and engage a qualified auditor. The proposed auditor must also provide written consent and an eligibility certificate before appointment. 

Auditor Eligibility and Disqualifications 

Section 141 also sets out circumstances that disqualify a person from being appointed as an auditor. Some common cases include:

• Being a director or employee of the company, or having certain prohibited relationships with its directors or key managerial personnel.
• Having specified financial interests in the company or its related entities.
• Being indebted to the company or its related entities beyond the prescribed limit.
• Providing certain guarantees or security in connection with the company’s or related entities’ indebtedness.
• Being convicted of an offence involving fraud where 10 years have not passed from the date of conviction.
• Providing services prohibited under Section 144 of the Companies Act, 2013.

The 20-company limit under Section 141(3)(g) also applies, subject to the exclusions discussed above for One Person Companies, dormant companies, small companies, and private companies with paid-up share capital below ₹100 crore.

Appointment of Auditor under the Companies Act, 2013: The Legal Framework

Auditor appointment sits within Chapter X (Sections 139-148) of the Companies Act, 2013. This chapter broadly governs audits and auditors. Here’s what this framework actually covers:

• Scope: Chapter X governs every company registered in India, private or public, listed or unlisted, government or otherwise. The specific rules differ by company type and size.
• Purpose: An independently appointed auditor helps maintain reliable financial reporting and supports compliance with applicable audit and independence requirements.
• Professional Standards: The Institute of Chartered Accountants of India (ICAI) issues auditing standards, guidance, and implementation resources that support statutory auditors in carrying out their responsibilities.
• Auditor’s Remuneration: Under Section 142, the remuneration of the auditor is fixed by the company in a general meeting or in the manner determined by the members. The remuneration may also include expenses incurred in connection with the audit, subject to the applicable provisions.
• Prohibited Services: Section 144 restricts statutory auditors from providing specified non-audit services to the company, its holding company, or subsidiary company, either directly or indirectly. These restrictions help maintain the auditor’s independence, and companies often keep their bookkeeping and accounting services separate from their statutory auditor for exactly this reason. 
• Auditor’s Liability: Section 147(2) provides for liability of an auditor who contravenes the applicable provisions of Sections 139 to 146. The auditor may be subject to the prescribed fine, and additional consequences can apply in cases involving fraud.

Section 139 of the Companies Act, 2013: First Auditor vs. Subsequent Auditor

Section 139 distinguishes between the appointment of a company’s first auditor and subsequent auditors. The timelines and procedures differ for each.

First Auditor (Non-Government Company)

• Under Section 139(6), the Board of Directors appoints the company’s first auditor within 30 days of incorporation.
• If the Board fails to do so, it must inform the members. The members then have 90 days from being informed to appoint the auditor at an extraordinary general meeting.
• The first auditor holds office until the conclusion of the company’s first AGM. This is not a full 5-year term.
• The revised filing expectation applies to companies incorporated on or after 14 July 2025. It is generally not applied retrospectively to earlier appointments.
• Companies should file Form ADT-1 for the first auditor as per the applicable case. The immediate risk is not a Section 147 penalty. Form AOC-4 validates the auditor’s ADT-1 particulars at the time of filing. A missing ADT-1 SRN can therefore block AOC-4 and stall the annual filing chain.
• Missing applicable filing or appointment requirements can attract penalties under the Companies Act.
• If no auditor is appointed or reappointed at an AGM at all, under Section 139(10), the existing auditor simply continues in office. This is a safety-net provision, not a loophole to rely on deliberately, but worth knowing it exists.

Subsequent Auditor

• The auditor is appointed at the first AGM. The auditor holds office from the conclusion of that meeting until the conclusion of the sixth AGM.
• The appointment is for a five-year term, subject to applicable auditor rotation rules.
• Written consent and an eligibility certificate must be obtained from the auditor before appointment, as required under Rule 4 of the Companies (Audit and Auditors) Rules, 2014.

Government companies follow a separate appointment process. This is covered in the next section.

Appointment of Auditor in Government and Private Company

Government companies follow a separate auditor appointment process under Section 139.

• Under Section 139(7), the CAG of India appoints the first auditor within 60 days of incorporation.
• If the CAG does not appoint one, the Board gets another 30 days to make the appointment.
• If the Board also fails, the members appoint the auditor within 60 days at an extraordinary general meeting.
• For subsequent auditors, the CAG appoints the auditor under Section 139(5).

This process differs from the standard appointment process for private companies.

Appointment of Auditor in a Private Limited Company

Private limited companies follow the general auditor appointment rules under the Companies Act, 2013. This applies whether the company is newly set up through Private Limited Company registration or has been operating for years. The key difference is whether mandatory auditor rotation applies.

• First auditor: The Board appoints the first auditor within 30 days of incorporation. If the Board fails, the members appoint one as prescribed under Section 139(6).
• Regular appointment: The auditor is appointed at the first AGM for a five-year term, subject to applicable rotation rules.
• Auditor rotation: Rotation applies to private companies with paid-up share capital of ₹50 crore or more. It also applies where the company has public borrowings from banks, financial institutions, or public deposits of ₹50 crore or more, subject to the Rule 5 conditions. Companies planning to increase authorized capital or complete an issue of shares that pushes them past this threshold should factor rotation requirements into that planning. 
• Exempt companies: One Person Companies and small companies are excluded from mandatory auditor rotation under Rule 5. If you’re considering One Person Company registration specifically, this exemption applies regardless of size. 
• Below the rotation threshold: A private company can generally reappoint the same auditor, subject to the auditor’s eligibility, willingness, and other requirements under Section 139.

For most private companies, the key consideration is whether the company falls within the Rule 5 rotation classes.

Auditor Appointment Procedure: Step-by-Step

The appointment process depends on the company type and the type of appointment. The main steps are as follows:

1. Obtain Written Consent and a Certificate

The proposed auditor must provide written consent confirming their willingness to accept the appointment and a certificate confirming their eligibility under Rule 4 of the Companies (Audit and Auditors) Rules, 2014. 

2. Confirm the Auditor isn’t Disqualified

The proposed auditor must not fall under any of the disqualifications prescribed under Section 141. Common examples include certain financial interests or indebtedness, prohibited relationships with the company, fraud-related convictions, and exceeding the applicable limit on auditor appointments. For the complete list of key disqualifications, refer to the section above.

3. Route the Appointment Through the Right Resolution

A first auditor or a casual vacancy is generally handled through a Board resolution. A regular appointment at the AGM is made through a members’ resolution.

4. Audit Committee’s Recommendation, If Applicable

If the company is required to constitute an Audit Committee, the Board considers its recommendation. The Board then recommends the auditor to the members.

5. File Form ADT-1 With the ROC

Where applicable, the company files Form ADT-1 within 15 days of the meeting in which the auditor is appointed. The filing requirements can differ for first auditors and certain casual vacancies, and are similar in spirit to the timelines governing Form INC-20A filing for commencement of business. 

6. Pay the Applicable Fees

The MCA filing fee for Form ADT-1 ranges from ₹200 to ₹600, depending on the company’s nominal share capital. You can estimate this using the MCA and ROC fees calculator. The auditor’s professional fee is separate and varies based on the scope and terms of the audit engagement, sometimes bundled with broader financial consultancy services. 

Auditor Rotation and Tenure Under Rule 5

Mandatory auditor rotation applies only to specific classes of companies under Rule 5 of the Companies (Audit and Auditors) Rules, 2014. These include:

• Listed companies
• Unlisted public companies with paid-up share capital of ₹10 crore or more
• Private companies with paid-up share capital of ₹50 crore or more
• Companies with aggregate public borrowings from banks, financial institutions, or public deposits of ₹50 crore or more

One Person Companies, small companies, dormant companies, and government companies are generally outside these rotation requirements, subject to the applicable provisions.

For companies subject to mandatory rotation:

• An individual auditor can serve for one term of five consecutive years.
• An audit firm can serve for two consecutive terms of five years each.
• A five-year cooling-off period applies before the same auditor or firm can be reappointed.

Auditor Appointment Timeline Under the Companies Act, 2013

The following table summarizes the key appointment, vacancy, resignation, and filing timelines covered under the Companies Act, 2013. Add these timelines to your business compliance calendar alongside your other statutory deadlines:

Event	Who Appoints	Deadline
First auditor, non-government company	Board of Directors	Within 30 days of incorporation
First auditor, if Board fails	Members at EGM	Within 90 days from intimation
First auditor, government company	CAG	Within 60 days of registration
Subsequent auditor	Members at AGM	Until the conclusion of the sixth AGM
Form ADT-1 filing	Company	Within 15 days of the meeting
Casual vacancy	Board of Directors	Within 30 days
Casual vacancy due to resignation	Members	Within 3 months from Board recommendation
Form ADT-3 by resigning auditor	Auditor	Within 30 days of resignation
Form ADT-2 for auditor removal	Company	Within 30 days of Board resolution

Auditor Rotation: Tenure Limits and Cooling-Off

Once a company falls under Rule 5’s rotation requirement, Section 139(2) sets limits on how long an individual auditor or audit firm can stay in place.

• An individual auditor can serve one term of 5 consecutive years. The auditor cannot be reappointed at the same company until a 5-year cooling-off period has passed.
• An audit firm can serve two terms of 5 consecutive years each, or 10 years in total. It then faces a 5-year cooling-off period before reappointment.
• A break of 5 continuous years satisfies the rotation requirement. The same auditor or firm can become eligible for reappointment after the cooling-off period.
• Joint auditors get some flexibility. A company can stagger its rotation so that they do not all complete their terms in the same financial year.

Rule 6’s Common-Partner Restriction

Rule 6 also restricts certain appointments involving common partners or firms.

• An incoming audit firm is ineligible for appointment if it has a common partner with the outgoing firm whose tenure has expired. This restriction applies for the same 5-year period.
• If a partner who is in charge of an audit firm and certifies the company’s financial statements joins another CA firm, the other firm may also be ineligible for 5 years.
• “Same network” has a broad meaning. It can include firms using the same brand or trade name or operating under common control.

Note: Rotation calculations depend on when the company becomes subject to the rotation requirements. If the company crosses the applicable threshold during an auditor’s tenure, the rules on the commencement of the rotation period must be applied based on the relevant financial year.

Casual Vacancy in the Office of Auditor

A casual vacancy arises when an auditor’s office becomes vacant before the end of their term due to resignation, death, or disqualification. Section 139(8) sets out the process for filling the vacancy. Where applicable, Section 139(11) also requires consideration of the Audit Committee’s recommendation.

The following rules apply depending on the reason for the vacancy:

• Board appointment within 30 days: The Board must fill the vacancy within 30 days.
• Resignation requires shareholder approval: If the vacancy is due to resignation, the Board’s appointment must be approved by the members at a general meeting within 3 months of the Board’s recommendation.
• Term ends at the next AGM: The replacement auditor holds office only until the conclusion of the next AGM. The company then makes the next appointment under Section 139.
• Resigning auditor must file ADT-3: Under Section 140(2), a resigning auditor must file Form ADT-3 with the Registrar within 30 days of resignation. For Government companies, the statement must also be filed with the CAG.
• ADT-1 filing: The company must file the applicable notice of appointment with the Registrar within the prescribed period.

The key distinction is whether the vacancy is caused by resignation. A resignation requires approval from the members at a general meeting. Other casual vacancies can generally be filled by the Board, in much the same way the Board handles a change in director between AGMs. 

Removal or Non-Reappointment of an Auditor

Removing an auditor before the end of their term requires additional approval under Section 140(1). Non-reappointment at the end of the term follows a separate procedure under Section 140(4). If you’re planning a change of auditor at your company, understanding which of these two processes applies is the first step. 

Removal of an Auditor Under Section 140(1)

An auditor can be removed before the end of their term only by following the prescribed procedure:

• Obtain Central Government approval: The company must seek prior approval from the Central Government by filing Form ADT-2 within 30 days of the Board’s resolution proposing the removal.
• Allow the auditor to be heard: The auditor must be given a reasonable opportunity to make representations before the removal is finalized.
• Pass a special resolution: After receiving Central Government approval, the company must pass a special resolution at a general meeting within 60 days of receiving the approval.

Penalties for Non-Compliance

The applicable penalties under Section 147 are:

Party	Penalty
Company	₹25,000 to ₹5,00,000
Every officer in default	₹10,000 to ₹1,00,000

These are fine-only penalties following the Companies (Amendment) Act, 2020.

Non-Reappointment of a Retiring Auditor Under Section 140(4)

Non-reappointment is different from removing an auditor during their existing term. However, it still involves specific procedural requirements. The following rules apply to an AGM resolution that appoints someone other than the retiring auditor or states that the retiring auditor will not be reappointed: 

• Special notice is required: The members must give special notice for the proposed resolution. This requirement does not apply when the retiring auditor has completed the full permitted tenure under Section 139(2).
• Notice must be sent to the retiring auditor: The company must promptly send a copy of the special notice to the retiring auditor.
• The auditor can submit a written representation: The retiring auditor may submit a representation to the company. If the auditor requests circulation, the company must send it to the members or read it at the meeting if there was not enough time to circulate it.
• No Central Government approval is required: Prior Central Government approval applies to removal before the end of the auditor’s term. It does not apply to ordinary non-reappointment at the end of the term.

Appointing an auditor in India isn’t a one-time formality. It is governed by specific deadlines, tenure limits, and rotation rules that vary by company type. Getting each requirement right and on time helps a company avoid compliance issues. In severe cases of prolonged non-compliance, this can lead to the winding up of a company or the need for revival of struck-off companies.