## Rotation of Auditors [Section 139(2) & 139(12)]

### Applicability: Which Companies Must Rotate? [Section 139(2)]

Rotation is mandatory for the following (including listed companies, excluding OPC and Small Companies):

Category	Threshold
All unlisted public companies	Paid-up share capital ≥ ₹10 crores
All private limited companies	Paid-up share capital ≥ ₹50 crores
Companies below the above thresholds	Public borrowings from FIs / banks / public deposits ≥ ₹50 crores

---

### Maximum Tenure [Section 139(12)]

Type of Auditor	Maximum Consecutive Term
Individual as auditor	One term of 5 consecutive years
Audit Firm as auditor	Two terms of 5 consecutive years (i.e., 10 years total)

Cooling Period: 5 years from the completion of the term (auditor/firm cannot be re-appointed during this period).

---

### Common Partners Rule

On the date of appointment, no audit firm that has common partners with the outgoing audit firm (whose tenure just expired in the immediately preceding FY) shall be appointed as auditor of the same company for 5 years.

Worked example

### Example 1

Example – Individual vs Firm: XYZ Ltd. (listed) appoints CA Ramesh as auditor in 2020. For how long can he continue?

Answer: An individual can serve a maximum of one term of 5 consecutive years, i.e., until 2025. After that, he must observe a cooling period of 5 years (cannot be re-appointed until 2030).

### Example 2

Example – Common Partners Rule: M/s ABC & Co. (whose tenure as auditor of PQR Ltd. expired in FY 2024–25) has a common partner with M/s DEF & Co. Can DEF & Co. be appointed as auditor of PQR Ltd. in 2025?

Answer: No. Since DEF & Co. shares a common partner with ABC & Co. (whose tenure just expired), DEF & Co. is barred from appointment for 5 years.

### Example 3

Example – Applicability: A private company has a paid-up capital of ₹30 crores but has public deposits of ₹60 crores. Is rotation mandatory?

Answer: Yes. Even though paid-up capital is below ₹50 crores, the public deposits of ₹60 crores (≥ ₹50 crores) trigger the rotation requirement.

⚠️ Common exam mistakes

Students state the firm limit as '10 years' without mentioning it is two terms of 5 years each — the structure matters for exam answers.
Forgetting that OPC and Small Companies are excluded from rotation requirements despite being listed under Section 139(2).
Applying the individual 5-year limit to firms (firms get 10 years = 2 terms × 5 years).
Ignoring the 'common partners' rule entirely — this is a favourite exam question.

Bare-Act text Section 139(2) and 139(12) · Companies Act, 2013 · click to expand

No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint— (a) an individual as auditor for more than one term of five consecutive years; and (b) an audit firm as auditor for more than two terms of five consecutive years.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Rotation of Auditors [Section 139(2) and 139(12)]

Worked example

⚠️ Common exam mistakes