As per section 226 of the Companies Act, 1956, any person who is a officer or employee of the company cannot be appointed as statutory auditor of the Company. Further, as per section 2(30) of the Companies Act, 1956, the term 'officer', interalia, includes director of the Company. Thus, a director of a Company (Whether public or private), cannot be appointed as its statutory auditor even though he does not hold substantial interest in that company.
A CA can hold the office of director in any company provided neither he or his firm or any of his partners are appointed as statutory auditors of that company. Else, it constitutes a professional misconduct under clause IV of Schedule II to the CA Act, 1949.
Pursuant to amendment made to the CA Act in 2006, a CA can be appointed as a WTD/MD of a Company engaged in management consultancy services.
A CA cannot hold the office of director in a company in which any of his relatives has substantial interest. This is for the reason that a auditor is required to maintain highest standards of intergrity and both be and appear to be independant. If he hold such office, it will constitute professional misconduct under CA Act, 1949.
The term 'Relative' has the same meaning as assigned u/s 2(41) of the Companies Act,1956. The term 'Substantial Interest' is neither defined in the CA Act or Companies Act. In my opinion, any holding which can be construed as being able to influence the indepence of a auditor can be regarded as substantial interest.
The aforesaid provisions are applicable to all companies, whether public or private.