Liabilities of an auditor in India: civil liability, criminal liability under the Companies Act, action by the Tribunal under section 140(5), NFRA and professional misconduct under the Chartered Accountants Act

Liabilities explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

An auditor in India can be answerable in four directions at once: to the company and its members for loss, to the State for offences, to the Tribunal and the audit regulator for misconduct in the audit, and to the professional body for breach of its standards. This article maps those exposures and shows what the Companies Act provides, in the consolidated text as amended to 29 July 2022 consulted on 4 October 2026. It names what each section does and leaves the penalty and imprisonment terms to the linked section posts. Check later amendments and rules before acting. If you need advice on a specific notice or claim, our legal consultation service is available.

The Companies Act reaches the auditor through section 147 (contravention of sections 139 to 145, with refund of remuneration and damages after a conviction, and joint liability of partners who acted fraudulently), section 140(5) (the Tribunal can direct a change of auditors for fraudulent conduct or collusion), section 245 (class action against the auditor for a misleading audit report), section 132 (NFRA investigation of misconduct), and sections 447 and 448 (fraud and false statements). Professional misconduct is dealt with under the Chartered Accountants Act. Reporting fraud is dealt with separately under section 143(12).

The four directions of liability

Section 147: contravention, refund and damages

Section 147(1) deals with contravention of sections 139 to 146 by the company and its officers. Section 147(2) deals with the auditor who contravenes section 139, 143, 144 or 145, and adds a higher consequence where the contravention is knowing or wilful with the intention to deceive the company, its shareholders, creditors or tax authorities. Section 147(3) says that an auditor convicted under sub-section (2) is also liable to refund the remuneration received and to pay damages to the company, statutory bodies or authorities or to members or creditors for loss arising out of incorrect or misleading statements of particulars made in the audit report. Section 147(4) lets the Central Government specify a body or officer to ensure prompt payment of the damages. Section 147(5) makes the partner or partners of an audit firm who acted in a fraudulent manner, abetted or colluded in fraud, and the firm, jointly and severally liable, civilly or criminally, while a proviso limits criminal liability other than fine to the partners concerned. The consequences for each sub-section are set out in our post on section 147.

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Section 140(5): the Tribunal can direct a change of auditor

Under section 140(5), if the Tribunal is satisfied, on its own motion or on an application by the Central Government or any person concerned, that the auditor acted fraudulently, directly or indirectly, or abetted or colluded in fraud by or in relation to the company or its directors or officers, it may direct the company to change its auditors. Provisos deal with applications by the Central Government, with a bar on the auditor's eligibility after a final order, and with action under section 447; the explanations extend liability to the firm and every partner who acted in the manner described. The detail is in our post on section 140, which also covers removal and resignation of auditors.

Section 245: class action

Section 245 allows members or depositors, in the numbers or proportions the section and rules lay down, to apply to the Tribunal for orders, including a claim for damages or compensation or other suitable action against the auditor, including an audit firm, for any improper or misleading statement of particulars in the audit report or for any fraudulent, unlawful or wrongful act or conduct. Where relief is sought against an audit firm, the liability is of the firm and of each partner involved in the improper or misleading statement or who acted in a fraudulent, unlawful or wrongful manner (section 245(2)). The mechanics of a class action are covered in our post on section 245.

Sections 447 and 448: fraud and false statements

Section 447 provides punishment for fraud and defines fraud widely, to include any act, omission, concealment of fact or abuse of position, committed with intent to deceive, to gain undue advantage from or to injure the interests of the company, its shareholders, creditors or any other person, whether or not there is any wrongful gain or loss. Section 448 makes a person who makes in any return, report, certificate, financial statement or other document required under the Act a statement that is false in a material particular, knowing it to be false, or that omits a material fact, knowing it to be material, liable under section 447. An audit report is a report required by the Act, so a knowingly false statement in it falls within section 448. See our posts on section 447 and sections 448 and 449 for the consequences.

NFRA: section 132

Section 132 provides for the National Financial Reporting Authority, which makes recommendations on accounting and auditing standards, monitors and enforces compliance with them, oversees the quality of service of the professions, and under section 132(4) has the power to investigate matters of professional or other misconduct by a member or firm of chartered accountants, with civil-court powers for the purpose, and, where misconduct is proved, to order a penalty and to debar the member or firm from audit for a period. The section also provides that no other institute or body shall initiate or continue proceedings in such matters where NFRA has begun an investigation. For the amounts and periods see our post on section 132.

Fraud reporting: section 143(12) to (15)

Section 143(12) requires an auditor who has reason to believe that an offence of fraud involving the prescribed amount is being or has been committed in the company by its officers or employees to report to the Central Government in the prescribed manner and time, and a proviso lets lesser frauds go to the audit committee or Board. Section 143(13) says that a report made in good faith is not a breach of any duty, and section 143(15) lays down a consequence for non-compliance. The thresholds and periods change by rules, so we leave them to our posts on fraud reporting by auditors and the SA 240 series.

Professional misconduct

Separately from the Act, a chartered accountant is answerable to ICAI under the Chartered Accountants Act, 1949, and its Schedules. See our posts on section 21 and the Disciplinary Directorate, on due diligence and gross negligence under clause (7) of the Second Schedule and on the Second Schedule's items on insufficient information and audit departures.

What reduces exposure in practice

Clear engagement terms matter most; our hub on audit, review, agreed-upon procedures and compilation explains why the label of an engagement limits what a report can be taken to say. The practical steps are these.

• Compliance with the Standards on Auditing, and a file that shows it (see our posts on documentation and evidence).
• Written terms of engagement, with management's responsibilities, and signed representations.
• Escalation of unresolved disagreements with management in writing, and communication with those charged with governance.
• Qualified or adverse opinions where the evidence requires them, and not softened wording.
• Care over fraud indicators and over use of the work of experts and other auditors.
• Insurance and firm quality-control, as a matter for each firm.

Worked example (illustrative)

Meridian Foods Pvt Ltd, an invented company, collapses after its lender finds that receivables were inflated by invoices to related parties. The statutory audit firm had signed an unmodified report after relying on management's confirmation of receivables without independent confirmation. A group of members applies to the Tribunal alleging a misleading audit report and seeks damages from the firm and the signing partner; an NFRA investigation is opened separately; and the lender complains to ICAI. The auditor's defence rests on the file: if it shows risk assessment, confirmation requests and follow-up of non-replies, the case is on different footing from a file that shows nothing. If a regulator finds that the partner knew of the inflation and signed anyway, the criminal sections may be invoked. The example is invented and describes only how the provisions open different routes.

Need help with an auditor, a notice or a dispute?

If you are a company worried about its auditor's conduct, an auditor facing a notice or a member or lender considering a claim, early legal advice on the right forum and the documents to preserve makes a large difference. Our team can discuss the position and the route; see our legal consultation service.

Key takeaways

• Auditor exposure runs in four directions: civil, criminal, regulatory and professional.
• Section 147(3) adds refund of remuneration and damages after a conviction under section 147(2).
• Partners who acted fraudulently are jointly and severally liable with the firm (section 147(5)).
• The Tribunal can direct a change of auditors under section 140(5).
• Penalties, terms and thresholds are in the linked section posts; do not rely on memory.

Read next

• Audit of government companies
• Section 147, penalty for contravention by auditor
• Section 140, removal and resignation of auditor
• Section 132, NFRA

Disclaimer: Based on the Standards on Auditing, the review, assurance and related services standards, the Compendium of Standards on Internal Audit (as on 1 October 2022) and the Compendium of Forensic Accounting and Investigation Standards (as on September 2025) issued by the Institute of Chartered Accountants of India, in the versions named in the article, as consulted on 4 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org and the Companies Act provisions referred to. This article is general information, not legal advice; check the official text before acting.