Appointment of Auditor Within the Limit of Twenty Companies

Appointment of Auditor Within the Limit of Twenty Companies. Section 141(3)(g) of the Companies Act, 2013 
Section 141(3)(g) of the Companies Act, 2013 plays a major key role in improving the corporate governance by regulating the appointment of statutory auditors under the Companies Act, 2013 lays down stringent eligibility and disqualification criteria to ensure auditor independence, objectivity, and audit quality. Among these, Section 141(3)(g) imposes a statutory cap on the maximum number of companies in which an individual auditor or audit firm may hold office as auditor, a provision has direct implications for the appointment and reappointment of auditors, as well as for mandatory filings such as Form ADT-1, making it imperative for companies and professionals to clearly understand its scope, applicability, and compliance requirements.
Role Behind Section 141(3)(g)
The Companies Act, 2013 introduced a detailed and more stringent structure governing the eligibility, qualifications, and disqualifications of statutory auditors, replacing the comparatively liberal regime under the Companies Act, 1956. Section 141 of the Act specifically regulates the appointment and continuance of auditors so as to allow the independence, professional competence, and due diligence in the conduct of statutory audits. Especially Clause (g) of sub-section (3) of Section 141 addresses the issue of excessive audit engagements by prescribing a statutory limit on the number of companies in which an individual auditor or audit firm may be appointed as auditor, a provision is founded on the principle that an auditor entrusted with statutory audit functions must be in a position to devote adequate time, skill, and professional judgment to each audit assignment.
The object of Section 141(3)(g) is to prevent over-extension of auditors, which may otherwise impair the quality of audit, weaken professional skepticism, and adversely affect the reliability of financial reporting
Statutory Provision of Section 141(3)(g)
Section 141(3)(g) provides that a person shall not be eligible for appointment as an auditor of a company if, at the time of such appointment or reappointment, the person is already holding appointment as auditor of more than twenty companies.
This restriction applies not only to an individual Chartered Accountant but also to a partner of an audit firm. The law examines the position as on the date of appointment, meaning eligibility must exist at the exact point when the auditor accepts or is appointed to a new audit assignment. In simple terms, an auditor cannot accept a new audit appointment if doing so would result in auditing more than twenty companies with some exceptions. The ceiling limit of auditor appointment applies to:

Individual auditors

Partners of audit firms

In the case of a partnership firm, the ceiling is partner-specific, not firm-specific. Each partner’s audit assignments are counted individually because the responsibility for audit conduct and signing ultimately vests in the partner. Thus, even if a firm has multiple partners, no single partner can exceed the statutory cap of twenty companies.
Companies Excluded From the Ceiling Limit
For the purposes of determining compliance with the numerical ceiling prescribed under Section 141(3)(g) of the Companies Act, 2013, the Act read with the relevant rules and notifications provides that certain categories of companies shall be excluded from the computation of the limit of twenty companies. Accordingly, audit assignments held in the following classes of companies are not required to be counted while assessing the maximum permissible number of audits:

Audit of One Person Companies;

Audit of Small Companies as defined under Section 2(85) of the Act, as amended from time to time;

Audit of Dormant Companies; and

Audit of such classes of private companies as may be specified or exempted by the Central Government through notification.

The rationale behind these exclusions is to enable auditors to undertake audit assignments of smaller or relatively less complex entities without such engagements impacting their eligibility to accept audits of larger or more complex companies. However, auditors and companies are required to exercise due diligence in verifying the prevailing legal status of such entities at the time of appointment or continuation, as any change in classification may affect the applicability of the exclusion and, consequently, compliance with Section 141(3)(g).
Moreover, Eligibility under Section 141(3)(g) must be satisfied at the time of appointment or reappointment. This timing element is mandatory. If an auditor is within the limit at the time of appointment but later exceeds the limit due to subsequent appointments, the issue arises from the later acceptance. Conversely, if an auditor already exceeds the limit and is appointed, the appointment itself becomes invalid. Therefore, a real-time assessment of audit engagements is mandatory before accepting any new appointment.
Role of the Company before Auditor Appointment 
The obligation to ensure compliance with Section 141 of the Companies Act, 2013 does not rest exclusively with the auditor. The company proposing to appoint or re-appoint a statutory auditor is equally responsible for exercising due diligence prior to making such appointment.
Before proceeding with the filing of Form ADT-1, the company is required to:

obtain a written eligibility and consent letter from the auditor confirming compliance with the requirements of Section 141, including the ceiling prescribed under Section 141(3)(g);

independently verify that the proposed auditor satisfies all qualification and disqualification criteria under Section 141 of the Act;

place the auditor’s eligibility confirmation and consent before the Board of Directors and shareholders, as applicable, and record the same in the relevant Board and general meeting resolutions; and

ensure that accurate declarations, consent letters, and supporting particulars are duly attached and correctly disclosed in Form ADT-1 at the time of filing with the Registrar of Companies.

ADT-1 Filing and the Auditor Eligibility Declaration
Form ADT-1 is the statutory form filed with the Registrar of Companies to intimate the appointment, reappointment, or change of auditor. It must be filed within 15 days of the auditor’s appointment. A major element of ADT-1 compliance is the auditor’s eligibility certificate, which directly links to Section 141(3)(g).
For proper ADT-1 filing, the auditor must provide a declaration confirming:

They are eligible for appointment under Section 141

They are not disqualified under any clause of Section 141(3)

The appointment is within the limit of twenty companies as prescribed under Section 141(3)(g)

This certificate is not a mere formality. It is a statutory representation and carries legal responsibility for the auditor, must take before his appointment. 
More, While preparing ADT-1 documentation, ensure that:

The list of audit engagements is internally reconciled

Exempt companies are correctly identified and documented

Partner-wise audit counts are verified in firm cases

The declaration date matches the appointment date

The certificate language strictly mirrors Section 141 wording

Consequences of Breach of Section 141(3)(g)
If an auditor accepts an appointment in violation of the ceiling limit:

The appointment becomes legally defective

The auditor stands disqualified under Section 141

The company may be required to appoint another auditor

Regulatory action and penalties may be initiated

Financial statements audited by such auditor may face credibility issues

Compliance for Auditors and Companies
To improve the compliance with Section 141(3)(g), Auditors should maintain a real-time audit engagement register, clearly segregating exempt and non-exempt companies. Companies should insist on updated eligibility certificates and not rely on past confirmations. Audit firms should implement internal partner-wise tracking systems before onboarding new audit clients.
Therefore, we can say that Section 141(3)(g) of the Companies Act, 2013 plays a key or major role in maintaining the integrity and effectiveness of the statutory audit framework in India. By restricting auditors to a maximum of twenty company audits, the law ensures adequate professional focus, independence, and accountability. When combined with proper ADT-1 filings and eligibility declarations, this provision forms a mandatory compliance checkpoint for both auditors and companies under Companies Act 2013 while filing ADT-1 U/s 139.

Section 141(3)(g) of the Companies Act, 2013

Section 141(3)(g) of the Companies Act, 2013 plays a major key role in improving the corporate governance by regulating the appointment of statutory auditors under the Companies Act, 2013 lays down stringent eligibility and disqualification criteria to ensure auditor independence, objectivity, and audit quality. Among these, Section 141(3)(g) imposes a statutory cap on the maximum number of companies in which an individual auditor or audit firm may hold office as auditor, a provision has direct implications for the appointment and reappointment of auditors, as well as for mandatory filings such as Form ADT-1, making it imperative for companies and professionals to clearly understand its scope, applicability, and compliance requirements.

Role Behind Section 141(3)(g)

The Companies Act, 2013 introduced a detailed and more stringent structure governing the eligibility, qualifications, and disqualifications of statutory auditors, replacing the comparatively liberal regime under the Companies Act, 1956. Section 141 of the Act specifically regulates the appointment and continuance of auditors so as to allow the independence, professional competence, and due diligence in the conduct of statutory audits. Especially Clause (g) of sub-section (3) of Section 141 addresses the issue of excessive audit engagements by prescribing a statutory limit on the number of companies in which an individual auditor or audit firm may be appointed as auditor, a provision is founded on the principle that an auditor entrusted with statutory audit functions must be in a position to devote adequate time, skill, and professional judgment to each audit assignment.

The object of Section 141(3)(g) is to prevent over-extension of auditors, which may otherwise impair the quality of audit, weaken professional skepticism, and adversely affect the reliability of financial reporting

Statutory Provision of Section 141(3)(g)

Section 141(3)(g) provides that a person shall not be eligible for appointment as an auditor of a company if, at the time of such appointment or reappointment, the person is already holding appointment as auditor of more than twenty companies.

This restriction applies not only to an individual Chartered Accountant but also to a partner of an audit firm. The law examines the position as on the date of appointment, meaning eligibility must exist at the exact point when the auditor accepts or is appointed to a new audit assignment. In simple terms, an auditor cannot accept a new audit appointment if doing so would result in auditing more than twenty companies with some exceptions. The ceiling limit of auditor appointment applies to:

Individual auditors
Partners of audit firms

Companies Excluded From the Ceiling Limit

For the purposes of determining compliance with the numerical ceiling prescribed under Section 141(3)(g) of the Companies Act, 2013, the Act read with the relevant rules and notifications provides that certain categories of companies shall be excluded from the computation of the limit of twenty companies. Accordingly, audit assignments held in the following classes of companies are not required to be counted while assessing the maximum permissible number of audits:

Audit of One Person Companies;
Audit of Small Companies as defined under Section 2(85) of the Act, as amended from time to time;
Audit of Dormant Companies; and
Audit of such classes of private companies as may be specified or exempted by the Central Government through notification.

Moreover, Eligibility under Section 141(3)(g) must be satisfied at the time of appointment or reappointment. This timing element is mandatory. If an auditor is within the limit at the time of appointment but later exceeds the limit due to subsequent appointments, the issue arises from the later acceptance. Conversely, if an auditor already exceeds the limit and is appointed, the appointment itself becomes invalid. Therefore, a real-time assessment of audit engagements is mandatory before accepting any new appointment.

Role of the Company before Auditor Appointment

The obligation to ensure compliance with Section 141 of the Companies Act, 2013 does not rest exclusively with the auditor. The company proposing to appoint or re-appoint a statutory auditor is equally responsible for exercising due diligence prior to making such appointment.

Before proceeding with the filing of Form ADT-1, the company is required to:

obtain a written eligibility and consent letter from the auditor confirming compliance with the requirements of Section 141, including the ceiling prescribed under Section 141(3)(g);
independently verify that the proposed auditor satisfies all qualification and disqualification criteria under Section 141 of the Act;
place the auditor’s eligibility confirmation and consent before the Board of Directors and shareholders, as applicable, and record the same in the relevant Board and general meeting resolutions; and
ensure that accurate declarations, consent letters, and supporting particulars are duly attached and correctly disclosed in Form ADT-1 at the time of filing with the Registrar of Companies.

ADT-1 Filing and the Auditor Eligibility Declaration

Form ADT-1 is the statutory form filed with the Registrar of Companies to intimate the appointment, reappointment, or change of auditor. It must be filed within 15 days of the auditor’s appointment. A major element of ADT-1 compliance is the auditor’s eligibility certificate, which directly links to Section 141(3)(g).

For proper ADT-1 filing, the auditor must provide a declaration confirming:

They are eligible for appointment under Section 141
They are not disqualified under any clause of Section 141(3)
The appointment is within the limit of twenty companies as prescribed under Section 141(3)(g)

This certificate is not a mere formality. It is a statutory representation and carries legal responsibility for the auditor, must take before his appointment.

More, While preparing ADT-1 documentation, ensure that:

The list of audit engagements is internally reconciled
Exempt companies are correctly identified and documented
Partner-wise audit counts are verified in firm cases
The declaration date matches the appointment date
The certificate language strictly mirrors Section 141 wording

Consequences of Breach of Section 141(3)(g)

If an auditor accepts an appointment in violation of the ceiling limit:

The appointment becomes legally defective
The auditor stands disqualified under Section 141
The company may be required to appoint another auditor
Regulatory action and penalties may be initiated
Financial statements audited by such auditor may face credibility issues

Compliance for Auditors and Companies

To improve the compliance with Section 141(3)(g), Auditors should maintain a real-time audit engagement register, clearly segregating exempt and non-exempt companies. Companies should insist on updated eligibility certificates and not rely on past confirmations. Audit firms should implement internal partner-wise tracking systems before onboarding new audit clients.

Therefore, we can say that Section 141(3)(g) of the Companies Act, 2013 plays a key or major role in maintaining the integrity and effectiveness of the statutory audit framework in India. By restricting auditors to a maximum of twenty company audits, the law ensures adequate professional focus, independence, and accountability. When combined with proper ADT-1 filings and eligibility declarations, this provision forms a mandatory compliance checkpoint for both auditors and companies under Companies Act 2013 while filing ADT-1 U/s 139.