Rules 13 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.
Rule 13 is the procedure under section 143(12) for an auditor who has reason to believe that an offence of fraud is being or has been committed against the company by its officers or employees. A fraud of rupees one crore or above goes to the Central Government after the Board or Audit Committee has been told and given forty-five days to reply; a smaller fraud goes to the Audit Committee or the Board and is disclosed in the Board's report. Rule 14 sets how a cost auditor is appointed and paid. This article follows the rules as amended up to G.S.R. 359(E) dated 30 May 2025 (in force 14 July 2025) per the MCA e-book. Later amendments should be checked.
For a fraud involving individually an amount of rupees one crore or above, the auditor reports to the Board or Audit Committee immediately but not later than two days of his knowledge, seeking a reply within forty-five days, and then to the Central Government within fifteen days of receiving the reply, filing the report electronically in Form ADT-4 (rule 13(1) and (2)). A smaller fraud is reported to the Audit Committee or the Board within two days and disclosed in the Board's report (rule 13(3) and (4)). The cost auditor's remuneration is recommended by the Audit Committee, approved by the Board and ratified by shareholders (rule 14).
Rule 13(1) and (2): fraud of one crore rupees or above
Trigger (13(1)). If an auditor, in the course of performing his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been committed against the company by its officers or employees, he reports the matter to the Central Government.
Steps (13(2)).
| Step | Requirement |
|---|---|
| (a) | Report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than two days of his knowledge of the fraud, seeking their reply or observations within forty-five days |
| (b) | On receiving the reply or observations, forward his report and the reply or observations, with his comments on them, to the Central Government within fifteen days of receipt |
| (c) | If no reply or observations arrive within the forty-five days, forward his report to the Central Government with a note containing the details of the report earlier sent to the Board or Audit Committee, for which no reply was received |
| (d) | The report is filed electronically in Form ADT-4 |
Two features of the current rule should be noted. The two-day period for the first report replaced an earlier outer limit of sixty days from knowledge, and the report to the Central Government is now filed electronically in ADT-4 (the substitution took effect on 14 July 2025, along with the omission of the requirements on letter-head, signature and form of statement that used to appear as separate clauses). A step-by-step guide is in How to File Form ADT-4: Reporting of Fraud by Auditor, and a general discussion is in Reporting of Fraud by Auditor: 60-Day Rule and SFIO Intimation; use the rule text above for the periods now in force.
Rule 13(3) and (4): fraud below one crore rupees
- 13(3). In the case of a fraud involving less than the amount in sub-rule (1), the auditor reports the matter to the Audit Committee constituted under section 177, or to the Board, immediately but not later than two days of his knowledge, specifying: (a) the nature of the fraud with description; (b) the approximate amount involved; and (c) the parties involved.
- 13(4). The following details of each fraud so reported during the year are disclosed in the Board's report: (a) nature of the fraud with description; (b) approximate amount involved; (c) parties involved, if remedial action has not been taken; and (d) remedial actions taken. This is one of the matters the Board's report carries; the report's other contents are in Rule 8 of the Accounts Rules, and for an OPC or small company, Rule 8A.
Rule 13(5): cost and secretarial auditors
The provisions of the rule apply, with the necessary changes, to a cost auditor and a secretarial auditor in the performance of his duties under section 148 and section 204 respectively.
Rule 14: remuneration of the cost auditor
For section 148(3):
- 14(a) For a company required to constitute an audit committee: (i) the Board appoints an individual who is a cost accountant, or a firm of cost accountants in practice, as cost auditor on the recommendation of the Audit Committee, which also recommends the remuneration; (ii) the Board considers and approves the remuneration the Audit Committee recommends, and the shareholders ratify it subsequently.
- 14(b) For other companies not required to constitute an audit committee: the Board appoints an individual who is a cost accountant, or a firm of cost accountants in practice, as cost auditor, and the shareholders ratify the remuneration subsequently.
The words "who is a cost accountant" were substituted for "who is a cost accountant in practice" in 2018 in clause (a)(i) and also appear in clause (b). The appointment of the cost auditor under the Cost Records and Audit Rules is in Rule 6 of the Cost Records and Audit Rules, and the Act's provision is in Section 148: Cost Audit. The auditor's other reporting duties are in Rules 11 and 12.
A worked example
During the audit of Mangal Metals Limited (invented), the statutory auditor finds that an employee has diverted funds of rupees two crore. He reports to the Audit Committee within two days of knowing, seeking a reply within forty-five days. The committee replies on day thirty; within fifteen days of receiving it, the auditor files his report, the reply and his comments in Form ADT-4. In a separate engagement at Mangal Components Limited, he finds a smaller fraud, below one crore rupees; he reports it to the Audit Committee within two days, setting out the nature, approximate amount and parties, and the company includes the four items in its Board's report. Our legal consultation service can help a Board prepare its reply and remedial plan.
Practical points
- Treat the two-day clock seriously: it runs from the auditor's knowledge.
- The forty-five days are the Board's or committee's time to reply; silence does not stop the auditor from reporting.
- Keep a fraud register so that the Board's report items in 13(4) are ready at year-end.
- The same procedure applies to cost and secretarial auditors.
Need help when an auditor reports a fraud?
A report under rule 13 starts clocks for the Board and the committee, and the response is read by the Central Government. We can help management prepare its reply and observations, document remedial action and draft the Board's report disclosures through our legal consultation service. The cost auditor's appointment papers are covered in the Cost Records articles of this series.
Key takeaways
- Fraud of rupees one crore or above: Board or Audit Committee within two days, forty-five days to reply, Central Government within fifteen days of the reply, electronically in ADT-4.
- Smaller fraud: Audit Committee or Board within two days, details disclosed in the Board's report.
- The rule extends to cost and secretarial auditors.
- Cost auditor: Board appoints on the Audit Committee's recommendation where a committee exists; shareholders ratify the remuneration.
Read next
- How to File Form ADT-4: Reporting of Fraud by Auditor
- Section 148: Cost Audit
- Rules 11 and 12: other matters in the auditor's report
- Rule 6 of the Cost Records and Audit Rules: appointing the cost auditor
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.