Auditor Rotation under Section 139(2): Who Must Rotate and When (2026)

Who must rotate their auditor under section 139(2)

• Every listed company.
• Unlisted public companies with paid-up share capital of ₹10 crore or more.
• Private limited companies with paid-up share capital of ₹50 crore or more (raised from ₹20 crore by the MCA’s 22 June 2017 notification — confirm the current figure on the MCA portal if you are relying on an older article).
• Any public or private company below those capital lines that has aggregate outstanding public borrowings from banks, financial institutions or public deposits of ₹50 crore or more.
• Exempt outright: One Person Companies and small companies. The small-company definition itself widened from 1 December 2025 to paid-up capital up to ₹10 crore and turnover up to ₹100 crore, so more private companies now sit outside rotation than before.

How long an auditor can hold office, and the cooling-off rule

• Individual auditor: one term of 5 consecutive years at a given company, then not eligible for reappointment there for 5 years.
• Audit firm: up to two consecutive terms of 5 years each — 10 years total — then a 5-year cooling-off before that firm can return.
• Common-partner rule (Rule 6): an incoming firm that shares one or more partners with the outgoing rotated-out firm is treated as effectively the same firm and is barred for the same 5 years. A partner who signed for the outgoing firm and later joins a different firm carries the bar with them.
• Where rotation does not apply, the ordinary rule under section 139(1) still holds: an auditor is appointed for a single 5-year term at the first AGM, with no separate annual ratification resolution needed since the 2018 amendment.

First auditor and casual vacancies

• First auditor: appointed by the Board within 30 days of incorporation; if the Board misses that, members appoint at an EGM within 90 days. The first auditor’s term runs only until the conclusion of the first AGM.
• Government companies follow a separate route through the Comptroller and Auditor-General (C&AG) rather than Rule 5 rotation.
• Casual vacancy (death, disqualification, resignation): the Board fills it within 30 days. If the vacancy arose from resignation, the Board’s choice additionally needs member approval at a general meeting within 3 months. The replacement holds office only until the next AGM.
• Removing an auditor before their term ends (section 140(1)) is a higher bar than simply not reappointing them — it needs prior Central Government approval on Form ADT-2, with a hearing for the auditor, followed by a special resolution within 30 days of that approval.

What it costs

ADT-1 carries no special concession — it is charged at the standard authorised-capital slab, the same table used across MCA company forms:

Filed beyond 15 days of the AGM, the standard additional-fee ladder applies to that normal fee. An ADT-2 removal application carries its own fee under the Companies (Registration Offices and Fees) Rules, 2014 — the portal computes the exact figure off your authorised capital, so confirm it there rather than assuming a flat number.

Penalty for non-compliance

• Company (section 147(1)): fine of ₹25,000, extendable to ₹5,00,000, for contravening the appointment/rotation provisions.
• Every officer in default: fine of ₹10,000, extendable to ₹1,00,000 — fine-only since the 2020 decriminalisation amendment removed the imprisonment option for officers.
• Auditor (section 147(2)): fine of ₹25,000, extendable to ₹5,00,000, for contravening sections 139, 143, 144 or 145.
• If the auditor’s default was knowing or wilful with intent to deceive: imprisonment up to 1 year plus a fine of ₹1,00,000, extendable to ₹25,00,000.
• An outgoing auditor who does not file Form ADT-3 within 30 days of resigning faces a section 140(3) penalty of ₹50,000 or the audit remuneration (whichever is less), plus ₹500 per day of continuing failure, capped at ₹2 lakh — the ADT-3 guide covers it in full.

How to file ADT-1 on MCA V3

• Track the outgoing auditor’s term expiry proactively — MCA does not send a reminder.
• Board (or Audit Committee, where applicable) recommends an eligible incoming auditor, checking section 141 eligibility and the Rule 6 common-partner bar against the outgoing firm.
• Get the incoming auditor’s written consent and section 141 eligibility certificate.
• Pass the ordinary resolution appointing the new auditor at the AGM, for the applicable term.
• Log in to MCA V3, open the ADT-1 web-form, and fill in the appointment and resolution details — this is now mandatory even for first-auditor appointments since the 14 July 2025 rule change.
• Submit to generate an SRN, then get the form DSC-signed and upload the signed PDF within 15 days of the SRN, all within 15 days of the AGM.
• Pay the fee against the SRN and retain the challan, consent letter and eligibility certificate for the audit trail.

Primary sources

The dates and fees on this page are read off the statute and the MCA’s own published forms, not copied from other guides. You can check every one of them:

• General Clauses Act, 1897 — section 9 (commencement and termination of time)
• Companies Act, 2013 — full text (India Code)
• MCA — company forms and downloads
• MCA — official portal