Companies Act §139 — Auditor appointment & rotation

An auditor is appointed at the AGM to hold office for FIVE years (no annual ratification since the 2017 amendment). MANDATORY ROTATION (§139(2)) applies to listed companies and prescribed classes: an INDIVIDUAL auditor may serve ONE term of 5 years; an audit FIRM may serve TWO terms of 5 years (max 10 years), followed by a 5-year COOLING-OFF period.

Key points

• §139(1) — at the first AGM every company appoints an auditor who holds office from that AGM until the conclusion of the SIXTH AGM (i.e. a 5-year term);
• the earlier requirement of annual ratification was OMITTED by the Companies (Amendment) Act 2017.
• §139(6) — the first auditor (other than a government company) is appointed by the BOARD within 30 days of incorporation;
• if the Board fails, the members appoint within 90 days.
• §139(2) — MANDATORY ROTATION applies to (a) all LISTED companies, and (b) prescribed classes (Rule 5): unlisted PUBLIC companies with paid-up capital ≥ ₹10 crore;
• PRIVATE companies with paid-up capital ≥ ₹50 crore;
• and any company having public borrowings from banks / FIs / public deposits ≥ ₹50 crore.
• For these: an INDIVIDUAL auditor cannot serve more than ONE term of 5 consecutive years;
• an audit FIRM cannot serve more than TWO terms of 5 consecutive years (10 years total).
• A 5-YEAR COOLING-OFF applies before re-appointment.
• Firms with a common partner to the outgoing firm are also barred during cooling-off.
• §139(8) casual vacancy;
• §139(9)-(10) re-appointment;
• §139(11) audit committee recommendation where applicable.

Reference: §139 Companies Act 2013 read with Rule 5 & 6 of Audit Rules 2014