# Disqualifications of an Auditor — Section 141(3)
A person is disqualified from being appointed as auditor of a company in the following circumstances:
## 1. Business Relationship
A person who has a business relationship with:
The company, or its subsidiary, holding, associate company, or subsidiary of such holding company.
### Exceptions (NOT treated as business relationship)
Transactions in the ordinary course of business at arm's length price.
Professional services rendered in capacity as auditor.
## 2. Indebtedness / Security
A person whose relative is a Director or KMP of the company.
A person who, or his relative or partner, holds any security/interest in the company, subsidiary, holding, associate, or subsidiary of holding company (a relative may hold securities up to ₹1,00,000 face value).
Indebtedness exceeding ₹5,00,000, or guarantee/security given in connection with indebtedness of any third person exceeding ₹1,00,000.
## 3. Full-time Employment Elsewhere
A person in full-time employment elsewhere is disqualified.
## 4. Limit on Number of Audits
A person/partner of a firm holding appointment as auditor of more than 20 companies (excluding OPC, small companies, dormant companies, and private companies with paid-up capital less than ₹100 crore).
## 5. Conviction for Fraud
A person convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from date of conviction.
## 6. Disqualification under Section 144
A person providing any of the prohibited non-audit services under Section 144 directly or indirectly to the company, its subsidiary or holding.
## Consequence of Subsequent Disqualification
If an auditor incurs any disqualification after appointment, he shall be deemed to have vacated his office and such vacation shall be treated as a casual vacancy.
Worked example
### Example 1
Q: Mr. A's wife holds equity shares of face value ₹90,000 in XYZ Ltd. Can he be appointed as auditor?
A: Yes. A relative may hold securities up to face value of ₹1,00,000. Since ₹90,000 is within the limit, Mr. A is not disqualified under Sec 141(3)(d).
### Example 2
Q: Mr. B, a CA, is in full-time employment with ABC Bank. Can he accept appointment as auditor of PQR Ltd.?
A:No. A person in full-time employment elsewhere is disqualified under Section 141(3)(c).
### Example 3
Q: Mr. C was appointed auditor on 1.4.2025. On 1.10.2025, his son joined the audited company as a KMP. State consequences.
A: Mr. C is deemed to have vacated office on 1.10.2025 because his relative became KMP — disqualification incurred after appointment. The resulting vacancy is treated as a casual vacancy to be filled by the Board within 30 days.
⚠️ Common exam mistakes
Confusing the ₹1,00,000 securities limit (applicable only to relatives) with the ₹5,00,000 indebtedness limit.
Forgetting that 'professional services as auditor' and 'arm's length transactions in ordinary course of business' are EXCEPTIONS to business relationship disqualification.
Counting OPC, small companies, dormant companies and small private companies (paid-up capital < ₹100 cr) in the ceiling of 20 audits.
Treating subsequent disqualification as immediate removal under Sec 140 instead of casual vacancy under Sec 139(8).
Bare-Act text Section 141(3) · Companies Act, 2013 · click to expand
Section 141(3) — The following persons shall not be eligible for appointment as auditor of a company: (a) a body corporate other than LLP; (b) an officer or employee of the company; (c) a person who is a partner, or in employment, of an officer or employee of the company; (d) a person who, or his relative or partner (i) is holding any security of or interest in the company or its subsidiary, holding or associate company or subsidiary of such holding company (provided relative may hold security up to face value of ₹1,00,000); (ii) is indebted in excess of ₹5,00,000; (iii) has given guarantee in excess of ₹1,00,000; (e) has business relationship with the company; (f) whose relative is director or KMP; (g) is in full-time employment elsewhere or holds appointment as auditor of more than 20 companies; (h) convicted of fraud and 10 years not elapsed; (i) directly or indirectly renders services referred to in Section 144.