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.