Announcement


Regarding Clarification on Applicability of Rotation principles on a company as
per Section 139 of the Companies Act 2013 where the company ceases to fall
under the ambit of Rotation principles in subsequent years.


This is regarding the applicability of Rotation principles on a company as per Section 139 of
the Companies Act 2013 where the company ceases to fall under the ambit of Rotation
principles in subsequent years.


Provisions of the Companies Act 203 and Rules thereon







Section 139 (2) of the Companies Act 2013 provides that no listed company or a company
belonging to such class or classes of companies as may be prescribed, 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 terms of five consecutive years:


Further as per the "Companies (Audit and Auditors) Rules, 2014, for the purposes of sub-
section (2) of section 139, the class of companies shall mean the following classes of
companies excluding one person companies and small companies:-
(a) all unlisted public companies having paid up share capital of rupees ten crore or more;
(b) all private limited companies having paid up share capital of rupees fifty crore or more;
(c) all companies having paid up share capital of below threshold limit mentioned in (a) and
    (b) above, but having public borrowings from financial institutions, banks or public
    deposits of rupees fifty crores or more.







Issue


"A Chartered Accountant/ firm, an auditor in a company on which Rules relating to Rotation
of auditors were applicable, retired in the year 2017 and a new auditor appointed in the
same year. After amendment was brought as per Companies (Amendment) Act 2017, the
company do not meet principles of rotation of auditors in the year 2018.
Whether the auditor who was an auditor of the company in the year 2017 can be
reappointed by the company as the company ceases to fall under the criteria of rotation of
auditors?"


View


The Corporate Laws & Corporate Governance Committee at its 43rdmeeting held on 7th
January, 2019 discussed the issue and was of the view that since the requirement of
rotation of auditors is not applicable on the company subsequently, therefore the auditor
who was the auditor in the company earlier in the year 2017 can be reappointed without
prejudice to the other provisions of the Companies Act 2013.


In other words, once a company ceases to fall under the ambit of Rotation principles, the
company can appoint any chartered accountant/ firm as an auditor of the company
irrespective of the fact that the same chartered accountant/ firm was an auditor of the
company in previous years.




With Regards


CA. Debashis Mitra                                   CA. Dhinal A. Shah
Chairman, Corporate Laws &                           Vice Chairman, Corporate Laws &
Corporate Governance Committee                       Corporate Governance Committee
The Institute of Chartered Accountants               The Institute of Chartered Accountants
of India                                           of India