Section 139 of Companies Act, 2013

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Section 139 of the Companies Act, 2013 deals with provisions regarding Appointment of Auditors, Rotation of Auditors, Re-Appointment of retiring Auditor, Appointment under Casual Vacancy.

Section 139(1): Appointment of Subsequent Auditor in case of Non – Government Company

As per Sub section 1 of section 139, every company shall, at the first Annual General Meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting.

For eg, If Mr, X, has been appointed as Auditor of PQR Ltd. at AGM held on 1.8.2015 i.e he will be auditor of company from the Financial Year 2015-16 and he shall hold office as auditor of company till conclusion/decision of AGM of the Financial Year 2020-21.

Although, appointment of auditor will be made for 5 years but the matter relating to such appointment for ratification by members shall be placed at each AGM. 

The following points shall be noted in this regard:

  • Before such appointment is made, the written consent of the auditor to such appointment and a certificate from him or it that the his appointment shall be in accordance with the conditions as may be prescribed in this act, shall be obtained from the auditor.
  • The certificate shall also indicate whether the auditor satisfies the criteria provided in section 141.
  • The company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the registrar within 15 days of the meeting in which the auditor is appointment.

* ” Appointment” includes “Reappointment”

Section 139(2): Rotation of Auditor

No listed company or a company belonging to such class or classes of companies (read rule 5 of Companies (Audit and Auditors) Rules, 2014) shall appoint or re-appoint:

a. an individual as auditor for more than one term of five consecutive years, and

b. an audit firm as auditor for more than two term of five consecutive years.

Provided that:

  • an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term,

  • an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term

In simple words, company to whom Rotation of Auditor is applicable, such company can appoint an individual auditor for one term of five consecutive years and an auditor firm for two term of five consecutive years and after completion of said terms , a gap of 5 years shall be there (cooling off period) before appointment of same auditor can be made.

Important points to noted:

  • If as on date of appointment an audit firm having a partner who is common partner to other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall not be appointed as auditor of the same company for a period of five years.

eg: Mr. X is a partner in ABC & associates, whose tenure has expired as auditor in PQR Ltd. Mr. X is also a partner in XYZ & associates. Here, XYZ & Associates is also cannot be appointed as auditor of PQR Ltd till expiry of the term of 5 years since the firm have common partner with ABC & Associates.

  •   Every company, existing on or before the commencement of this Act which is required to comply with provisions of this sub-section, shall comply with the requirements of this sub-section within three years from the date of commencement of this Act.
  • Also that, nothing contained in this sub-section shall prejudice the right of the company to remove an auditor or the right of the auditor to resign from such office of the company.

Section 139(3) : Members power to rotation of auditors

Subject to the provisions of this Act, members of a company may resolve to provide that—

(a) in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members; or

(b) the audit shall be conducted by more than one auditor.

Section 139(4): Central Government to prescribe the rules regarding rotation

Central Government may, by rules, prescribe the manner in which the companies shall rotate the auditors in pursuance of section 139(2).

Section 139(5): Appointment of subsequent auditor in case of Government Company

Government company means a government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly  by one or more State Governments.

The Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as under this act, within a period of 180 days from the commencement of a financial year, who shall hold office till the conclusion of Annual General Meeting.

Section 139(6): Appointment of First Auditor in case of Non- Government Company

The first auditor of a company other than a government company shall be appointed by Board of Directors within 30 days of registration of company.

In case Board of Directors fails to appoint such auditor, it shall inform the members of the company, who shall appoint the first auditor within 90 days at an Extra Ordinary General Meeting, who shall hold office till the conclusion of first AGM.

Section 139(7): Appointment of First Auditor in case of Government Company

The first auditor in case of government company, shall be appointed by Comptroller and Auditor General of India within 60 days from the date of registration of company.

In case C&AG, fails to appoint such, the Board of Directors shall appoint such auditor within the next 30 days. Also in case Board fails to appoint such auditor, it shall inform members of the company who shall within 60 days at an EGM appoint such auditor who shall hold office till the conclusion of the first AGM.

Section 139(8): Filing of  casual vacancy

Any casual vacancy of the auditor shall :

  1. In case of  non-government company, be filled by the Board of Directors within 30 days. If such casual vacancy is result of  resignation of an auditor, such appointment shall be approved by company at an general meeting convened within 30 days from the recommendations of the board and such auditor shall hold office till conclusion of next AGM.
  2. In case of government company, to be filled by the Comptrollerand Auditor-General of India within 30 days. In case, the C&AG does not fill the vacancy within the above said period, the board shall file such vacancy within next 30 days.

Section 139(9): Re-Appointment of the retiring auditor

The retiring auditor may be reappointed at an AGM, if –

  • he is not disqualified for reappointment,
  • he has not given a notice in writing of his unwillingness to be reappointed, and
  • a special resolution has not been passed at the meeting appointing some other auditor or providing expressly that the retiring auditor shall not be reappointed.

Section 139(10)

Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company.

Section 139(11): Power of the Audit Committee

 Where a company is required to constitute an Audit Committee under section 177, all appointments, including the filling of a casual vacancy of an auditor under this section shall be made after taking into account the recommendations of such committee.

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Source: MCA

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