MCA continues to shower relaxations on private companies, by Vallari Dubey

MCA vide notification dated 22nd June, 2017[1] issued Companies (Audit and Auditors) Second Amendment Rules, 2017, effective immediately from the above date. The Rules are meant to further amend the Companies (Audit and Auditors) Rules, 2014. The amendment pertains to corresponding rule for Section 139(2), regarding rotation of auditors in the Company.

Relevant Extract of Section 139(2) of Companies Act, 2013:

No listed company or a company belonging to such class or classes of companies** as may be prescribed, shall appoint or re-appoint –

  • An individual as auditor for more than one term of five consecutive years; and
  • An audit firm as auditor for more than two terms of five consecutive years

** Prescribed under Rule 5 of Companies (Audit and Auditors) Rules, 2014

Rule 5 – Prior to the Amendment

Class of Companies

For the purposes of sub-section (2) of Section 139, the class of companies shall mean the following class of companies excluding one person companies and small companies:-

  • All unlisted public companies having paid up share capital of rupees ten crore or more;
  • All private limited companies having paid-up share capital of rupees twenty crore or more;
  • All companies having paid-up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.

Rule 5 – Post Amendment

Class of Companies

For the purposes of sub-section (2) of Section 139, the class of companies shall mean the following class of companies excluding one person companies and small companies:-

  • All unlisted public companies having paid up share capital of rupees ten crore or more;
  • All private limited companies having paid-up share capital of rupees fifty crore or more;
  • All companies having paid-up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.

Impact

The amendment has extended further relaxation to private companies. Rotation of auditors will be applicable only for private companies if the paid up capital or public borrowings is rupees 50 crore or above.


[1] http://www.mca.gov.in/Ministry/pdf/CompaniesAuditandAuditorsSecondAmendmentRules2017.pdf

by Vallari Dubey (vallari@vinodkothari.com)

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