1. Statutory Limits under the Companies Act, 2013

• As per Section 139(2) of the Companies Act, 2013, Public Limited Companies are required to rotate their audit firms after a specified period.
  
• An individual audit firm can be appointed as the statutory auditor for a maximum of 1 term of 5 consecutive years.
  
• An audit firm (including its network firms) can be reappointed only after a cooling-off period of 5 years.
  
• This rule is aimed at ensuring auditor independence and preventing long-term conflicts of interest.
  

2. Applicability of Mandatory Rotation

• The rotation requirement applies to the following types of Public Limited Companies:
  
  • All listed companies
    
  • Public companies having a paid-up share capital of ₹10 crore or more.
    
  • Companies with public borrowings from financial institutions, banks, or public deposits of ₹50 crore or more
    
• The law prohibits the reappointment of the same firm or its affiliates during the cooling-off period.
  

3. Audit Firm Network Restrictions

• The rule applies not just to the specific firm but to its entire network, which includes:
  
  • Any firms operating under the same brand name
    
  • Firms under the same ownership or control
    
• This prevents companies from bypassing the rule by rotating between affiliated firms.
  

4. Appointment and Rotation Procedure

• The company must obtain board and shareholder approval for the appointment or reappointment of auditors.
  
• Form ADT-1 must be filed with the Registrar of Companies (ROC) within 15 days of the appointment.
  
• The company must ensure compliance with tenure limits and avoid continuation beyond the permissible term.
  
• The Audit Committee or Board evaluates eligible audit firms before recommending an appointment.
  

5. Non-Applicability and Voluntary Rotation

• Companies not covered under the mandatory rotation (e.g., private companies or small public companies) may still adopt voluntary rotation as a good governance practice.
  
• Certain types of companies, such as one-person companies, small companies, or dormant companies, are exempt.
  
• Companies can rotate firms earlier than 5 years if desired, but reappointment rules and cooling-off periods still apply.