Section 139 of the Companies Act, 2013 (“the Act”) governs the appointment, rotation, casual vacancy, and removal of auditors. The provision is designed to ensure the independence of the auditor, and it imposes a mandatory rotation requirement on certain classes of companies.
The First Auditor
The first auditor of a company, other than a government company, is appointed by the board within thirty days of incorporation. If the board fails, the shareholders appoint the auditor in an extraordinary general meeting within ninety days. In a government company, the Comptroller and Auditor General appoints the first auditor within sixty days.
The Subsequent Auditor
The subsequent auditor is appointed by the shareholders at the annual general meeting for a term of five consecutive years. An individual auditor can serve a maximum of one term of five years, and an audit firm can serve a maximum of two terms of five years each. The rotation requirement applies to listed companies, unlisted public companies with a paid-up share capital of ₹10 crore or more, and private companies with a paid-up share capital of ₹50 crore or more.
The Casual Vacancy
A casual vacancy in the office of the auditor may arise from resignation, death, or disqualification. Where the vacancy is caused by resignation, the board must fill it within thirty days, and the appointment must be approved by the shareholders at a general meeting within three months. Where the vacancy is caused by any other reason, the board may fill it, and the auditor so appointed holds office until the conclusion of the next annual general meeting.
The Removal
An auditor can be removed before the expiry of the term only by a special resolution of the shareholders, and the removal requires the prior approval of the Central Government. The auditor must be given a reasonable opportunity of being heard. The removal is a serious step, and it is reserved for cases where the auditor's conduct is such that the company cannot continue with the auditor.
A company that fails to appoint an auditor or that appoints an unqualified person is in breach of Section 139. The company and its officers are liable to penalty, and the auditor's report may be invalid.
Call to Action
Anuj Desai & Associates advises companies on the Section 139 auditor appointment regime—from the first auditor and the rotation requirements to the filling of casual vacancies and the removal procedure. If your company is due to appoint or rotate its auditor, we can help you comply with the statutory process.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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