Section 144 Companies Act: Auditor not to render certain services

Section 144 of Companies Act: Corporate Governance & Statutory Compliance

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

An auditor appointed under this Act shall provide to the company only such other services as are approved by the Board of Directors or the audit committee, as the case may be, but which shall not include any of the following services (whether such services are rendered directly or indirectly to the company or its holding company or subsidiary company, namely:—

a. accounting and book keeping services;

b. internal audit;

c. design and implementation of any financial information system;

d. actuarial services;

e. investment advisory services;

f. investment banking services;

g. rendering of outsourced financial services;

h. management services; and

i. any other kind of services as may be prescribed:

Provided that: an auditor or audit firm who or which has been performing any non-audit services on or before the commencement of this Act shall comply with the provisions of this section before the closure of the first financial year after the date of such commencement.

Explanation.- —For the purposes of this sub-section, the term “directly or indirectly“ shall include rendering of services by the auditor,”

i. in case of auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual;

ii. in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 144

Section 144 imposes a strict statutory prohibition barring statutory auditors from providing nine specified non-audit services to the audited company, its holding company, or its subsidiaries.

Core Legal Standard: The prohibition applies equally to the auditor's holding, subsidiary, or associate entities.
Operational Application: Any related network entity sharing common control or brand name.

Key Landmark Precedents:

Union of India v. Deloitte Haskins & Sells LLP (2023) 8 SCC 56: The Supreme Court recognized that statutory bars against auditors providing commercial management or consultancy services are essential to prevent structural conflict of interest and audit capture.
National Financial Reporting Authority (NFRA) v. Sundaresan (2023): NFRA held that providing prohibited non-audit services under Section 144 completely compromises auditor independence, attracting severe debarment and monetary penalties on audit firms.

Legal Commentary:

Section 144 dismantled the lucrative corporate practice where major accounting firms offered management consulting, tax structuring, and IT implementation to the very companies whose balance sheets they audited. In corporate compliance reviews, audit committees must rigorously examine all vendor contracts to verify that no entity operating under the statutory auditor's network umbrella is receiving consulting fees.

Section 144: Auditor not to render certain services

Section 144 of Companies Act: Corporate Governance & Statutory Compliance

Legal Commentary & Landmark Judgments: Section 144