Appointment of Auditor

Sections 139 to 148 of the Companies Act, 2013 form the statutory framework governing company auditors: Section 139 (appointment), Section 140 (removal/resignation), Section 141 (eligibility and disqualifications), Section 143 (powers and duties, including fraud reporting), Sections 145-146 (signing of reports and attendance at AGM), Section 147 (penalties), and Section 148 (cost audit, a separate track).

Under Section 139(1), every company must appoint an auditor at the first AGM to hold office from the conclusion of that meeting until the conclusion of the sixth AGM. Section 139(2) imposes mandatory rotation on listed companies and prescribed classes of companies: an individual auditor may hold office for one term of five consecutive years, and an audit firm for two terms of five consecutive years each, after which a five-year cooling-off period applies before re-appointment of the same auditor or firm (or a firm with a common partner). The prescribed classes covered by rotation, per the Companies (Audit and Auditors) Rules, 2014, include unlisted public companies with paid-up share capital of ₹10 crore or more, private companies with paid-up share capital of ₹20 crore or more, and companies (public or private) with public borrowings from banks, public financial institutions or public deposits of ₹50 crore or more.

Section 144(b) separately bars a company's statutory auditor from also acting as its internal auditor, whether directly or through the same network, safeguarding independence between the two functions. Eligibility and disqualification criteria under Section 141 must be checked before every appointment, and any casual vacancy must be filled within the timelines prescribed under Section 139(8).

The appointment of an auditor is not a routine board item — it is a statutory process under the Companies Act 2013 with its own form, its own deadlines and its own eligibility rules. Under Section 139 of the Act, every company must appoint an auditor at its annual general meeting, for a term of five consecutive years in the case of an individual auditor and ten consecutive years for an audit firm, with the appointment notified to the Registrar in Form ADT-1 under Rule 4 of the Companies (Audit and Auditors) Rules 2014 within fifteen days of the appointment. The first auditor of a new company is appointed by the board within thirty days of incorporation under Section 139(6).

Getting the process right matters more than it appears. The auditor must meet the eligibility and disqualification conditions of Section 141 of the Act — including the independence tests — and the appointment must follow the required rotation and approval mechanics. An appointment that skips the AGM, misses the ADT-1 deadline, or falls to a disqualified firm leaves the company's audit reports on shaky legal ground precisely when they are relied on by banks and tax authorities.

Where an auditor resigns or is removed, Section 140 of the Act takes over: a resignation must be filed with the Registrar in the prescribed form, and removal generally requires the prescribed approvals. A company that simply lets the audit lapse, or keeps an auditor past the maximum term, drifts into non-compliance that surfaces at every MCA check and every lending review.

This service is for companies appointing a first auditor, filling a vacancy, rotating an auditor at the end of term, or managing a resignation or removal. We advise on eligibility under Section 141, prepare the board and AGM resolutions, file Form ADT-1 within the fifteen-day window under Rule 4 of the Companies (Audit and Auditors) Rules 2014, and handle the Section 140 paperwork when an auditor leaves.