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Section 139 of Companies Act, 2013: Impact on Auditors and Companies

Section 139 of Companies Act, 2013: Impact on Auditors and Companies

In This Article

The Companies Act of 2013 governs the legal framework for companies in India. Section 139 of the Companies Act is one of the important provisions relating to the appointment and rotation of auditors. If you are a business owner or an entrepreneur, you need to understand this section to avoid penalties and noncompliance.

This blog will explore Section 139 of the Companies Act, 2013, and its significance for businesses in India. If you’re starting a new business, or expanding your operations, this guide will walk you through the auditor appointment process.

What is Section 139 of Companies Act, 2013?

Section 139 introduces mandatory auditor rotation. Under this provision, an individual auditor can serve a company only for a maximum of 5 continuous years. For up to ten successive years, it can be served by a firm of auditors.

On completion of this term, the company shall name a new auditor. Five years later it is also preceded by a cooling-off period when the outgoing auditor cannot be reappointed.

These rotation rules make sure companies’ management will not use audits as a means to get acquainted which could result in biassed as well as compromised audits.

Importance of Auditor Appointment

Auditor Appointment

Financial integrity is maintained by the auditor. For the auditor the financial records and statements upon which he audits present a true and fair view of the company’s affairs. Not only is it important for regulatory compliance but it’s critical to build trust with investors, shareholders, or other stakeholders.

To avoid any legal complications, companies must adhere to the requirements of Section 139 of the Companies Act, 2013.

Auditor Rotation Rules

Section 139 also introduces the concept of mandatory auditor rotation. The provision under this is that an individual auditor should not serve any company for more than 5 frequent years. For up to 10 consecutive years, a firm of auditors can serve.

When the company completes this term, the company must appoint a new company auditor. It also has a five-year cooling-off period, in which the outgoing auditor cannot be reappointed.

These rotation rules make audits transparent to prevent auditors from becoming so familiar with the company’s managers that they could become biassed or compromised.

Procedure for Appointment of Auditors

Procedure for Appointment of Auditors

The process of appointing an auditor under Section 139 involves the following steps:

  • Board of Directors Meeting: The first auditor must be appointed by the company’s Board of Directors within 30 days of incorporation. If the board fails to do so, the members have the right to appoint an auditor at the Extraordinary General Meeting (EGM).
  • Shareholder Approval: From the moment the appointment is confirmed, the shareholders must confirm it at the first Annual General Meeting (AGM). It is going to have to be ratified again every year.
  • Filing with the Registrar of Companies (RoC): Form ADT-1 must be filed with the RoC by the company within 15 days of appointing the auditor.

At Apkireturn, we provide complete assistance in filing the necessary forms and ensuring your company’s compliance with the law. We are waiting for your call at +91 766 515 6000 for professional help.

Removal and Resignation of Auditors

Section 139 also outlines the process for the removal and resignation of auditors. The Central Government is automatically informed if the company seeks to remove an auditor before the completion of his term, and then the auditor must be removed by passing a special resolution at a general meeting.

If the auditor chooses to resign, he or she is supposed to write a letter of resignation to the concern and submit form ADT – 3 with the RoC indicating the reason for the resignation.

Penalties for Non-Compliance

Penalties for Non-Compliance

Section 139 is very important and if a company or the officers fail to comply with it can attract huge penalties. According to the rules, if a company doesn’t get an auditor appointed within the specified time frame, it can be charged a fine ranging from ₹25,000 to ₹5 lakh. Failing to comply with Section 139 can lead to fines ranging from ₹25,000 to ₹5 lakh for companies and ₹10,000 to ₹1 lakh for responsible officers and even Imprisonment in extreme cases.

In order to avoid such penalties you must keep up with your company’s compliance requirements. Apkireturn offers a wide range of services to help businesses meet their legal obligations without hassle. We’ll look after your audits, tax filings, and company establishment for you.

How ApkiReturn Can Help You!

At Apkireturn, our tax consultants in Jaipur understand how challenging it can be to keep track of your company’s compliance needs. That’s why we offer comprehensive services to help businesses in India meet the requirements of Section 139 of Companies Act, 2013, along with other legal mandates.

Our services include -: 

  • Company incorporation
  • GST filings
  • ITR filing
  • Auditor appointment and filing with the ROC
  • Legal compliance consultations

If what you’re looking for is professional help to navigate through your company’s legal obligations. By ensuring these services are timely and accurate, we ensure that your business operates fully compliant with the laws of India.

Conclusion

Section 139 of Companies Act, 2013 plays a pivotal role in regulating how companies appoint and rotate their auditors. Consequently, businesses can ensure transparency and trust between investors, while ensuring provisions of this section. However, on the flip side, keeping this lawsuit off can invite hefty penalties and it is very important to keep track of the legal requirements.

If you’re unsure about your company’s compliance status or need help with the auditor appointment process, reach out to ApkiReturn at +91 766 515 6000. Supporting all of your business needs is what our team of experts is here for.

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CA Himani Jethani
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