Spacekid Private Ltd. reported a paid-up share capital of ₹10 crore and bank borrowings of ₹60 crore as at 31st March, 2019. Smithson & Co., the statutory auditors of the Company, have been auditing the Company from

Section 139(2) of the Companies Act, 2013 read with Rule 5 of the Companies (Audit and Auditor) Rules, 2014 provides that except one person companies and small companies, no listed company or a company belonging to the following classes of companies, shall appoint or re-appoint: an individual as an auditor for more than one term of five consecutive years; and an audit firm as auditor for more than two terms of five consecutive years. The following classes of companies excluding one person companies and small companies: all unlisted public companies having paid up share capital of rupees ten crore or more; all private limited companies having paid up share capital of rupees fifty crore or more; all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more. Considering Smithson & Co an individual auditor who has completed his five years term from FY 2014-15 to FY 2018-19 In the instant case, Spacekid Private Ltd has paid up share capital with the threshold of ₹10 Crore, but the bank borrowings are beyond the threshold limit of ₹50 Crore and hence the provisions relating to rotation of auditors will apply to the Company. Accordingly, Smithson & Co, who have been the statutory auditors of the Company for the last 5 years cannot be reappointed. The Company should go for a change of the auditors. OR Considering Smithson & Co an auditor firm who has completed his five years term from FY 2014-15 to FY 2018-19 An audit firm which has completed the two terms of five consecutive years shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term. Accordingly, in this case, Smithson & Co, being an auditor firm having completed only single term of 5 yrs in the Company, is eligible for reappointment.