SECTION 141. ELIGIBILITY, QUALIFICATIONS AND DISQUALIFICATIONS OF AUDITORS

1.  A person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant. Provided that a firm whereof majority of partners practicing in India are qualified for appointment as aforesaid may be appointed by its firm name to be auditor of a company.
2.  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 authorized to act and sign on behalf of the firm.
3. The following persons shall not be eligible for appointment as an auditor of a company, namely:—

1. A body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (6 of 2009);
2. An officer or employee of the company;
3. A person who is a partner, or who is in the employment, of an officer or employee of the company;
4. A person who, or his relative or partner—

1.  directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.
2. is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or
3. Has given a guarantee or provided 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 such amount as may be prescribed;
4. 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 of such nature as may be prescribed;
5. who is a director or is in the employment of the company as a director or key managerial personnel;
6.  who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies;
7. who has been convicted by a court of an offence involving fraud and a period of 10 yearshas not elapsed from the date of such conviction;
8. Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services as provided in section 144.
9. Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the auditor.

4. Disqualifications of auditor.—

1. 1. A relative of an auditor may hold securities in the company of face value not exceeding rupees one lakh:Provided that the condition under this sub-rule shall, wherever relevant, be also applicable in the case of a company not having share capital or other securities:
   2. Provided further that in the event of acquiring any security or interest by a relative, above the threshold prescribed, the corrective action to maintain the limits as specified above shall be taken by the auditor within 60 days of such acquisition or interest.
   3. A person who or whose relative or partner is indebted to the company or its subsidiary or its holding or associate company or a subsidiary of such holding company, in excess of rupees 5 lakh shall not be eligible for appointment.
   4. A person who or whose relative or partner has given a guarantee or provided 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, in excess of 1 lakh rupees shall not be eligible for appointment.
   5. Commercial transactions which are in the ordinary course of business of the company at arm’s length price – like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.