Companies Act Section 139

Companies Act Section 139: Appointment of Auditors

1. Requirement for Appointment of Auditors at the First Annual General Meeting (AGM)

Every company governed by the Companies Act, 2013, is legally required to appoint an auditor at its first annual general meeting (AGM).

This appointed auditor who may be an individual auditor or a firm of auditors shall hold office:

From the conclusion of the first AGM,

Until the conclusion of the sixth AGM.

After the initial six-year period, the company must either re-appoint the same auditor (where permissible) or appoint a new auditor at every sixth AGM.

2. Process for Selection and Appointment of Auditor

The manner and procedure for selection and appointment of auditors must follow the rules prescribed by the Central Government.

Prior to finalizing the appointment, the company must obtain:

A written consent from the proposed auditor, confirming their willingness to accept the appointment.

A certificate from the proposed auditor or audit firm, confirming that the appointment complies with all conditions prescribed under the Act, including criteria set out in Section 141 (which defines auditor qualifications, disqualifications, and eligibility criteria).

The auditor’s certificate must also confirm that the auditor satisfies the independence and qualification criteria under Section 141.

Once appointed, the company must:

Formally notify the auditor of their appointment.

File a notice of appointment with the Registrar of Companies (ROC) within fifteen days of the relevant AGM.

3. Definition of "Appointment"

For the purpose of Section 139, the term “appointment” also includes re-appointment.

4. Limitations on Auditor Tenure for Listed and Prescribed Companies

For certain companies specifically listed companies and other prescribed classes of companies (as defined under rules by the Central Government) there are restrictions on the maximum consecutive tenure of auditors.

Such companies may not:

Appoint or re-appoint the same individual auditor for more than one term of five consecutive years.

Appoint or re-appoint the same audit firm for more than two terms of five consecutive years each.

Once these maximum terms are completed:

An individual auditor cannot be re-appointed as auditor in the same company for a cooling-off period of five years.

An audit firm cannot be re-appointed as auditor in the same company for a cooling-off period of five years.

Additionally, if a company’s outgoing audit firm shares common partners with a prospective new audit firm (whose tenure has just expired), the new firm cannot be appointed as auditor for five years.

5. Transitional Compliance for Existing Companies

Companies that existed before the commencement of the Companies Act, 2013, and are subject to the auditor rotation rules, must comply with these rotation requirements no later than the first AGM held after three years from the commencement of the Act.

6. Removal and Resignation of Auditors

The removal of an auditor before the expiry of their term or an auditor’s voluntary resignation does not override the provisions of this section. Both actions must follow the prescribed process under the Act.

7. Additional Options for Auditor Rotation or Joint Audits

The members of a company (through a resolution) may also decide to implement additional controls such as:

Requiring the rotation of audit partners and their teams within the same audit firm at specified intervals.

Appointing more than one auditor to conduct a joint audit.

8. Rules for Auditor Rotation

The Central Government may prescribe detailed rules that further specify how companies must rotate their auditors under sub-section (2).

9. Special Provisions for Government Companies

In the case of:

Government Companies, or

Companies owned or controlled (directly or indirectly) by the Central Government, any State Government(s), or a combination of both,

The Comptroller and Auditor-General of India (CAG) shall appoint the statutory auditor for each financial year.

This appointment must be made within 180 days from the commencement of the financial year, and the appointed auditor will hold office until the conclusion of the next AGM.

10. First Auditor Appointment in Non-Government Companies

For all companies other than Government companies, the first auditor must be appointed by the Board of Directors within thirty days from the date of the company’s registration.

If the Board fails to appoint the first auditor, the company’s members must appoint the auditor at an extraordinary general meeting (EGM) within ninety days. This auditor will hold office until the conclusion of the first AGM.

11. First Auditor Appointment in Government Companies

For Government companies and companies controlled by the Central or State Government(s), the first auditor must be appointed by the Comptroller and Auditor-General of India (CAG) within sixty days from the date of registration.

If the CAG fails to make this appointment, the Board of Directors has a further thirty days to appoint the auditor.

If the Board also fails, the company’s members must appoint the first auditor at an extraordinary general meeting (EGM) within the next sixty days. This auditor will hold office until the conclusion of the first AGM.

12. Filling Casual Vacancies in Auditor’s Office

If a casual vacancy arises in the office of the statutory auditor:

In non-Government companies, the Board of Directors shall fill the vacancy within thirty days.

However, if the vacancy arises due to resignation, the appointment must also be approved by members at a general meeting, convened within three months of the Board’s recommendation. The newly appointed auditor will hold office until the conclusion of the next AGM.

In the case of Government companies, the vacancy must be filled by the Comptroller and Auditor-General of India (CAG) within thirty days. If the CAG fails to fill the vacancy, the Board of Directors must do so within the next thirty days.

13. Re-Appointment of Retiring Auditors

Subject to the provisions of sub-section (1) and relevant rules, a retiring auditor may be re-appointed at an AGM if:

They are not disqualified from re-appointment.

They have not notified the company in writing about their unwillingness to be re-appointed.

The company’s members have not passed a special resolution appointing someone else or explicitly preventing re-appointment.

14. Failure to Appoint or Re-Appoint an Auditor at AGM

If no auditor is appointed or re-appointed at an AGM, the existing auditor shall continue to hold office until a successor is appointed.

15. Role of the Audit Committee (Where Applicable)

For companies that are required to constitute an Audit Committee under Section 177, all appointments of auditors including filling casual vacancies must be made based on the recommendations of the Audit Committee.