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PREFACE
It is my pleasure to present to the readers fifteenth edition of the book Company Law. This edition incorporates all the amendments introduced by Companies (Amendment) Act, 2020, Companies (Amendment) Act, 2018, amendments to relevant rules under Companies Act, 2013 including Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 and provisions of Insolvency and Bankruptcy Code, 2016 as applicable to companies. I thank my esteem colleagues and students for the tremendous response to the earlier editions of this book. Your feedback and suggestions have gone a long way in making this edition more reader friendly by putting the convoluted legal provisions in a more simplified and concise manner. Case laws and illustrations have been given at appropriate places to enable an easy comprehension for the readers. Flow charts have been included at different places to give a bird’s eye view of the legal processes. At the end of each chapter, important case laws are given to facilitate easy recall. I wish to dedicate my efforts to my esteemed readers, well-wishers and friends.
This book is designed primarily to serve as a text book on ‘Company Law’ for the undergraduate students of B. Com. (Hons.), B. Com. (Programme), BBA, BBE of Delhi University and other universities. The students of IPCC and MBA would also find the book equally useful. The book contains 13 Chapters in all. While the first three chapters introduce the basic concepts, administration of the law and kinds of companies, chapter four of the book outlines the steps to float a company. Subsequent chapters from five to twelve seek to give a legal framework in which companies operate viz. memorandum of association, articles of association, prospectus including book building, shares including dividend, general meetings, management of companies and powers of directors. Chapter 13 contains the concept and modes of winding up of companies. The
examination questions and case problems are given at the end of each chapter to enhance the utility of this book for the students preparing for their semester examinations.
Feedback from readers is solicited and would be thankfully acknowledged.
January 1, 2026
ANIL KUMAR
Previous Exam Questions at a glance (2019-2025) [B.
CHAPTER 11
AUDIT
Auditor: Appointment and Rotation
Auditors’ Report
Auditor’s Power
Auditor: Appointment and Rotation
Qualification for Appointment as Auditor of a Company
According to section 141(1) of the Companies Act, 2013 “a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant within the meaning of Chartered Accountants Act, 1949 and holds a valid Certificate of Practice. A firm shall also considered to appointed by its firm name whereof majority of partners practicing in India are qualified for appointment as auditor of a company. Where a firm including a limited liability partnership is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorised to act and sign on behalf of the firm” [Section 141(2)].
Disqualification of Auditor
As per section 141(3) of the Companies Act, 2013, following persons shall not be eligible as auditor of the company:
(i)A body corporate other than LLP registered under the LLP Act, 2008
(ii)An officer or employee of the company.
(iii)A person who is partner or who in the employment, of an officer or employee of the company.
(iv)A person who or his relative or partner:
-is holding any security/interest in the company or its subsidiary or of its holding or associate company or subsidiary of such holding company. It has been further provided that a relative may hold
security or interest in the company of face value not exceeding ` one lakh.
- is indebted to the company or its subsidiary, or its holding or associate company or subsidiary of such holding company, in excess of ` 5 lakhs.
- has given guarantee or provide any security in connection with the indebtedness of any third person to the company or its subsidiary, or its holding or associate company or a subsidiary of such holding company for value in excess of ` 1 lakh.
(v) A person or a firm who (whether directly or indirectly) has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company. The business relationship shall be construed as any transactions enter into for a commercial purpose except:
- Commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm by the professional bodies regulated such members.
- Commercial transactions which are in ordinary course of business of the company at arm’s length price as customer.
(vi) A person whose relative is a director or is in the employment of the company as a director or key managerial personnel.
(vii) A person:
- who is in full time employment elsewhere or
- a person or a partner holding appointment as its auditor is at the date of such appointment or reappointment holding appointment as auditor for more than 20 companies.
(viii) A person who has been convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from the date of such conviction.
(ix) Any person who directly or indirectly renders any service (referred in section 144) to the company or its holding company or its subsidiary company.
Where a person appointed as auditor of the company incurs any of the disqualification mentioned in section 141(3) of the Companies Act, 2013 after his appointment, he shall vacate his office as such auditor and such vacancy shall be deemed to be casual vacancy in the office of the auditor [Section 141(4)].
Appointment of Auditors
First Auditor
The first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within 30 days from the date of registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within 90 days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting [section 139(6)].
Subsequent Auditor
The Companies Act, 2013 and the Companies (Audit & Auditors) Rules, 2014 provide as under:
1. Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting [section 139(1)]:
Provided that such appointment shall be subject to ratification by members at every general meeting till the sixth such meeting by way of passing of an ordinary resolution.
Explanation: If the appointment is not ratified by the members of the company, the Board of Director shall appoint another individual or firm as its auditor after following a laid down procedure.
2. The manner and procedure of selection of auditors by the members of the company at such meeting shall be as per the prescribed rules.
3. The written consent of the auditor to such appointment and a certificate from him or it that the appointment, if made, shall be in accordance with the prescribed conditions, shall be obtained from the auditor before such appointment is made.
4. The certificate shall also indicate whether the auditor satisfies the eligibility qualifications as laid down by section 141 of the Companies Act, 2013.
5. The company is required to inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar within 15 days of the meeting in which the auditor is appointed.
Reappointment
Subject to the provisions of the Act, a retiring auditor may be reappointed at an annual general meeting, if:
(a) he is not disqualified for reappointment;
(b) he has not given the company a notice in writing of his unwillingness to be reappointed; and
(
c) a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be reappointed.
Where at any annual general meeting, no auditor is appointed or reappointed, the existing auditor shall continue to be the auditor of the company.
Recommendations of Audit Committee
Where a company is required to constitute an Audit Committee under section 177, all appointments, including the filling of a casual vacancy of an auditor under this section shall be made after taking into account the recommendations of such committee. [Section 139(11)]
Casual Vacancy
Any casual vacancy in the office of an auditor shall be filled by the Board of Directors within 30 days, but if such casual vacancy is as a result of the resignation of an auditor, such appointment shall also be approved by the company at a general meeting convened within 3 months of the recommendation of the Board and he shall hold the office till the conclusion of the next annual general meeting [Section 139(8)].
Rotation of Auditors
Section 139(2) of the Companies Act provides for compulsory rotation of auditors for the following companies:
All listed companies;
All unlisted public companies having paid-up share capital of ` 10 crore or more;
All private limited companies having paid-up share capital of ` 20 crore or more;
All companies having public borrowings from financial institutions, banks or public deposits of ` 50 crores or more
The above companies shall not appoint or reappoint:
(a) an individual as auditor for more than one term of 5 consecutive years; and
(b) an audit firm as auditor for more than two terms of 5 consecutive years:
Provided that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.
Subject to the provisions of this Act, members of a company may resolve to provide that [section 139(3)]:
(a) in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members; or
(b) the audit shall be conducted by more than one auditor.
Cooling off Period
(
i) an individual auditor who has completed his term of 5 years shall not be eligible for reappointment as auditor in the same company for 5 years from the completion of his term;
(ii) an audit firm which has completed its term shall not be eligible for reappointment as auditor in the same company for 5 years from the completion of such term:
Appointment of Auditor in Government Company
In the case of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, the Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under this Act, within a period of 180 days from the commencement of the financial year, who shall hold office till the conclusion of the annual general meeting [section 139(5)].
The first auditor shall be appointed by the Comptroller and Auditor-General of India within 60 days from the date of registration of the company and in case the Comptroller and Auditor-General of India does not appoint such auditor within this period, the Board of Directors of the company shall appoint such auditor within the next 30 days; and in the case of failure of the Board to appoint such auditor within the next 30 days, it shall inform the members of the company who shall appoint such auditor within the 60 days at an extraordinary general meeting, who shall hold office till the conclusion of the first annual general meeting.
Any casual vacancy in the office of an auditor shall be filled by the Comptroller and Auditor-General of India within thirty days. In case the Comptroller and Auditor-General of India do not fill the vacancy within the said period, the Board of Directors shall fill the vacancy within next thirty days.
Removal of Auditor [Section 140(1)]
First Auditor
The first auditor(s) of a company who have been appointed by Board of Directors can be removed by members in the general meeting without the approval of the Central Government. It is not necessary that the auditor(s) shall complete his term of appointment. In other cases
Any auditor may be removed from office before the expiry of his/her term by passing a special resolution. However, prior approval of the Central Government
shall be sought before removing the auditor in the general meeting. The auditor concerned shall be given a reasonable opportunity of being heard. Thus, it is very difficult to remove an auditor before the expiry of his term since adequate grounds must exist to prove the government that the person sought to be removed is unsuitable for continuing as the auditor.
Appointment of New Auditor in place of Retiring Auditor [Section 140(4) and (5)]
The Companies Act, 2013 lays down the following procedure for appointment of new auditor in place of a retiring auditor:
A special notice to retiring auditor of such a resolution.
Notice to members at least 14 clear days before the date of meeting. If it is not practicable, then the company can give such a notice either by advertisement in a newspaper having an appropriate circulation or in any other mode prescribed.
Retiring auditor is given the opportunity to make written representation to the company.
The company shall send a copy of such representation to every member along with the notice.
If representation could not be sent then it may be read out at general meeting.
If the Tribunal, on application either of company or any other aggrieved person, is satisfied that the auditor is securing needless publicity of a defamatory manner, then it may exempt the company from sending the copy of representation to the members or reading out at general meeting.
Retiring auditor has the right to be heard at meeting.
At general meeting, the resolution to remove the auditor is required to be passed.
ICAI advised that where an auditor willing for reappointment has not been reappointed shall file with ICAI a copy of representation. The incoming auditor should, before accepting the appointment, obtain a copy of such communication from the company and consider it before accepting the appointment.
Removal of Auditor by the Tribunal
In certain cases, the Tribunal may direct a company to remove the auditors. The Tribunal can direct a company to change the Auditor when it is satisfied that auditor of the company has directly or indirectly acted in a fraudulent manner or has abetted or colluded in any fraud. The Tribunal may pass such order either:
Suo motu
Application by other concerned person
Application by the Central Government
In case Tribunal is satisfied that the auditor is required to be removed, it shall within 15 days of receipt of such application pass the order for removal of such auditor, and another auditor in his place will be appointed by Central Government.
Rights/Powers of Auditor
The statutory rights are the various rights conferred upon the auditor by the Companies Act, 2013. These rights cannot be limited, abridged or curtailed in any way. Any resolution limiting the powers of the auditor or any such provision in the Articles of Association will be void.
1. Right of Access to Books, Accounts and Vouchers of the Company at All Times [Sec. 143(1)]
Every auditor shall have a right of access at all times to books, accounts and vouchers of the company whether kept at head office or elsewhere.
‘Voucher’ includes all documents, correspondence, agreements, etc., which support any transaction or data disclosed in financial statements, directly or indirectly.
‘Books’ include financial, statutory and statistical books. Auditors may also refer to quantitative records relating to production, sales, stores, etc.
‘At all times’ means an auditor can inspect books, accounts and vouchers at any time during the period he acts as auditor of company. However, all times implies only normal business hours.
2. Right to Obtain Information and Explanation [Sec. 143(1)]
The auditor shall be entitled to get from the officer of the company such information and explanation as the auditors thinks necessary for performance of his duties.
In case any information or explanation is not given to him, he should mention this fact in his audit report.
3. Right to Visit Branch Office [Sec. 143(8)]
The auditor is entitled to visit branch offices of the company if he deems it necessary to do so for the performance of his duties as auditor.
The auditor shall have the right of access to the books, accounts and vouchers of the company maintained at the branch offices.
In case of banking company having foreign branches, it would be sufficient if the auditor is allowed to access the books and account of the branch as have been transmitted to the principal office of the company in India.
4. Right to Sign the Audit Report
Only the person appointed as auditor of the company or where a firm is so appointed, only the partner in the firm practicing in India, may sign the Auditor’s Report and/or sign/authenticate any other document.
5. Right to Receive Notices and to Attend General Meeting (Sec.146)
The auditor has a right to receive all notice of any general meeting of a company as are sent to the members of the company.
The auditor can also attend any general meeting like a member. However, he can speak only on the matters concerning him as an auditor.
6. Right to Receive Remuneration
Auditors has statutory right to receive remuneration which cannot be limited either by articles or resolution of the members.
Other Rights
The auditor of a company is entitled to seek legal and technical advice, which is required in the performance of conduct of audit/ discharge of his duties.
The auditor is considered to be the officer of the company for many purposes. As an officer, he has the right to be indemnified out of the assets of the company against any liabilities incurred by him in defending himself against any Civil/Criminal proceeding by the company if he is held not guilty by law.
Auditors’ Report
Section 143(2) of the Companies Act provides that the auditor shall make a report to the members of the company on the accounts examined by him and on every financial statement which are required by or under this Act to be laid before the company in general meeting and the report shall take into account: — the provisions of this Act, — the accounting and auditing standards, — matters which are required to be included in the audit report under the provisions of this Act or any rules made there under, and
— to the best of his information and knowledge, the said accounts, financial statements give a true and fair view of the state of the company’s affairs as at the end of its financial year and profit or loss and cash flow for the year and such other matters as may be prescribed.
The auditor’s report shall also state:
(
a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
(
b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
(
c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;
(
d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
(e) whether, in his opinion, the financial statements comply with the accounting standards;
(
f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;
(g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
(i) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
(j) such other matters as may be prescribed.
Where any of the matters required to be included in the audit report under this section is answered in the negative or with a qualification, the report shall state the reasons therefor.
Other matters to be included in auditors report
The auditor’s report shall also include their views and comments on the following matters, namely:
(a) whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement;
(
b) whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts;
(
c) whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company.
Reporting of frauds by auditor
In case the auditor has sufficient reason to believe that an offence involving fraud, is being or has been committed against the company by officers or employees of the company, he shall report the matter to the Central Government immediately but not later than sixty days of his knowledge and after following the procedure indicated herein below:
(1) The auditor shall forward his report to the Board or the Audit Committee, as the case may be, immediately after he comes to knowledge of the fraud, seeking their reply or observations within forty-five days;
(i) on receipt of such reply or observations the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central Government within fifteen days of receipt of such reply or observations;
(ii) in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he failed to receive any reply or observations within the stipulated time.
(2) The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed post followed by an e-mail in confirmation of the same.
(3) The report shall be on the letter-head of the auditor containing postal address, e-mail address and contact number and be signed by the auditor with his seal and shall indicate his Membership Number.
(4) The report shall be in the prescribed form.
Auditor to sign audit reports, etc.
Section 145 of the Companies Act, 2013 provides that the person appointed as an auditor of the company shall sign the auditor’s report or sign or certify any other document of the company. The auditors’ report and the qualifications, observations or comments on financial transactions or matters, which have any
adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.
Secretarial Audit
A Secretarial Audit is a compliance audit to check the compliance of a company to the provisions of the Companies Act and other applicable laws, rules, and regulations.
Provisions of the Companies Act regarding Secretarial Audit
Section 204(1) of the Act lays down that secretarial audit is compulsory for the following companies:
Every listed company.
Public company with paid-up share capital of ` 50 crores or more.
Public company with turnover of ` 250 crores or more.
Private company which is a subsidiary of a public company which falls under the above categories.
Material unlisted subsidiary companies of listed companies (as per SEBI (LODR) Regulations)
Section 204(1) also states that only a practicing Company Secretary who is a member of the Institute of Company Secretaries of India (ICSI) can conduct statutory secretarial audit of these companies.
The Secretarial Audit Report is required to be annexed with the Board’s Report in the prescribed form (M-3.R).
Appointment of Secretarial Auditor
As per Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, Secretarial Auditor is appointed by means of resolution passed at meeting of Board of Directors of the company. The resolution for appointment is required to be filed with Registrar of Companies within 30 days in E-form MGT-14.
Scope of the Secretarial Audit
The Secretarial Auditor is required to review and report on the compliance with the following five laws:
The Companies Act, 2013 and the rules made thereunder.
Securities Contracts (Regulation) Act, 1956 and the rules made thereunder. Depositories Act, 1996, and the rules made thereunder.
Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder.
Securities and Exchange Board of India Act, 1992 along with the Regulations and Guidelines prescribed thereunder.
Other than above the secretarial auditor reviews and reports the compliance of the company with the following:
Secretarial standards issued by the Institute of Company Secretaries of India.
Compliances with the Listing Agreement.
Compliance of Other laws as may be specifically applicable to the company.
Compliance with general laws like labour laws, competition law, environmental laws.
Reporting on whether
- the Board of Directors of the company is duly constituted,
- the changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act,
- adequate notice is given to all directors to schedule the board meetings,
- agenda and detailed notes on agenda were sent at least seven days in advance.
REVIEW QUESTIONS
1. Who can be appointed as auditor of a company?
2. How are the auditors of a company appointed? Explain the provisions of the Companies Act, 2013 on rotation of auditors.
3. What are the matters to be included in the auditors’ report?
4. Can a properly appointed auditor be removed before the expiry of the team? If so, explain the procedure of such removal.
5. What are the statutory rights of a company auditor?
6. Is it compulsory to appoint a company secretary? What is the scope of secretarial audit?
7. Write a note on ‘Secretarial Audit’.
Company Law
AUTHOR : Anil Kumarl
PUBLISHER : Taxmann
DATE OF PUBLICATION : December 2025
EDITION : 15th Edition | 2026
ISBN NO : 9789375610236
No. of Pages : 308
BINDING TYPE : Paperback
Rs. 475
DESCRIPTION
Company Law is a comprehensively revised and academically authoritative textbook that presents the law relating to companies in India in a clear, systematic, and student-centric manner. Anchored in the Companies Act 2013, this Edition incorporates all significant legislative and regulatory developments. The book is not a mere reproduction of statutory text. It is designed as a structured academic exposition that explains the conceptual foundations, procedural mechanisms, and practical operation of company law. By integrating statutory interpretation with judicial reasoning, illustrations, flowcharts, and applied exercises, the book enables readers to understand both the substance of the law and its working within the corporate regulatory framework. Prepared in alignment with the National Education Policy (NEP), the book emphasises outcome-based learning, analytical understanding, and skill development, making it especially suitable for undergraduate commerce and management programmes.
This book is expressly designed to meet the academic and examination requirements of:
• Undergraduate Commerce & Management Students
• Postgraduate & Professional Learners
• Faculty Members & Academic Institutions
• University Libraries & Institutional Buyers
• The book is especially valuable for non-law students, as it translates legal complexity into an intelligible academic narrative without diluting statutory precision
The Present Publication is the 15th Edition | 2026, authored by Prof. Anil Kumar, with the following noteworthy features:
• [Comprehensive and Current Legal Coverage]
o Covers all major amendments to the Companies Act and allied Rules
o Integrates applicable provisions of the Insolvency and Bankruptcy Code, 2016
• [Conceptual Clarity with Legal Precision]
o Topics are introduced through conceptual explanations before statutory analysis
o Complex doctrines and procedures are explained through structured narratives and illustrations
• [Strong Pedagogical Framework]
o Extensive use of flowcharts to explain procedural sequences such as incorporation, prospectus issue, bookbuilding, and insolvency resolution
o Contextual placement of illustrations and case references
• [Integrated Case Law Learning]
o Important judicial decisions are discussed at relevant points within chapters
o Each chapter concludes with a curated list of important case laws for focused revision
• [Examination-oriented Design]
o Examination questions and case problems at the end of each chapter
o Dedicated section on Chapter-wise Previous Exam Questions (2019–2025) to help students:
Identify frequently tested areas
Understand the framing of university questions
Prioritise preparation based on past trends