Eligibility, qualifications and disqualifications of auditors

(1)

A person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant in practice.

(2)

Where a firm is appointed as an auditor of a company, only the partners who are Chartered Accountants in practice shall be authorised by the firm to act and sign on behalf of the firm.

(3)

None of the following persons shall be eligible for appointment as an auditor of a company, namely:—

(a)

a body corporate;

(b)

an officer or employee of the company;

(c)

a person who is a partner, or who is in the employment, of an officer or employee of the company;

(d)

a person who, or his relative or partner—

(i)

is holding any security of the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company, of value in terms of such percentage as may be prescribed;

(ii)

is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or

(iii)

has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;

(e)

a person or a firm who has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;

(f)

a person whose relative is in the employment of the company as a director or key managerial personnel;

(g)

a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupees

(h)

a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;

(i)

a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.

Explanation

For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144

(i)

any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided in section 144.

(4)

Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the auditor.

Notes, amendments & references (7)

(ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf

Refer Rule 10 of the Companies (Audit and Auditors) Rules, 2014.To view the rule, Click Here

Refer rule 10 of the Companies (Audit & Auditors) Rules,2014. To view the rule, Click Here

Inserted vide Notification no. G.S.R. 464(E) dated 5th June 2015.

(The exceptions, modifications and adaptations provided above shall be applicable only to those Private Companies which has not committed a default in filing its financial statements under section 137 of the said act or annual return under section 92 of the said act with the registrar, vide notification dated 13th June 2017)

To view the notification, Click Here

(i) Substituted vide Companies (Amendment) Act, 2017 dated 03.01.2018, effective from 09.02.2018. To view the notification, Click Here