# Meaning of 'Indirectly' (Section 141 Context)

When the Companies Act, 2013 prohibits an auditor from holding a 'business relationship' or 'security/interest' directly or indirectly, the term indirectly has a defined scope. This is critical because disqualifications cannot be circumvented merely by routing interests through relatives or related entities.

## Indirect Connection — Two Branches

### A. Through an Individual

If the auditor (the individual / partner) is connected through:

Relative of the individual, OR
Any other person connected with the individual

…then the interest/relationship is treated as indirectly held by the auditor.

### B. Through a Firm / Entity

If the auditor (firm) is connected through:

Partners of the firm,
Associated entity, or
Any other entity in which the firm has significant influence (20%+ voting power = significant influence),
Any other connected person/entity

…then the interest/relationship is treated as indirectly held by the firm.

## Key Threshold

Significant Influence = 20% or more of voting power (used to identify associated/connected entities).

## Why It Matters

This prevents an auditor from arguing 'the shares are held by my wife / my partner / a sister firm, not me.' The disqualification under Section 141 extends to such indirect holdings.

Worked example

### Example 1

Example 1: Mr. A is appointed as auditor of XYZ Ltd. His wife (relative) holds shares in XYZ Ltd worth ₹2 lakh. → This is an indirect security holding. Mr. A is disqualified u/s 141.

### Example 2

Example 2: M/s PQR & Co., Chartered Accountants, holds 25% voting power in ABC Pvt Ltd. ABC Pvt Ltd has a business relationship with the auditee company. → Since PQR & Co. has significant influence (≥20%) over ABC, the business relationship is indirectly with PQR & Co. → Disqualification triggered.

### Example 3

Example 3: A partner of the audit firm has a personal loan from the auditee company. → Even though the firm is the auditor, the connection through the partner makes it indirect → Disqualified.

⚠️ Common exam mistakes

Assuming 'indirect' is loose/undefined — students forget it specifically extends to relatives, partners, associated entities, and entities under significant influence.
Confusing 'significant influence' threshold — it is 20% (not 25% or 51%).
Failing to apply the 'indirectly' test through the firm route (partners + associated entities), focusing only on individual relatives.
Ignoring that the disqualification applies even if the auditor does not personally hold the interest.

Bare-Act text Section 141 (read with Rule 10 of Companies (Audit & Auditors) Rules, 2014) · Companies Act, 2013 · click to expand

An auditor shall not have any business relationship or hold any security/interest directly or indirectly. 'Indirectly' covers connections via relatives, partners, associated entities, and entities in which significant influence (20% voting power) is exercised.

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Meaning of 'Indirectly' under Section 141 (Auditor Disqualification)

Worked example

⚠️ Common exam mistakes