Analysis of Applicability and other provisions of the National Financial Reporting Authority (NFRA), Rules, FAQ's
·
ATTENTION:
Form NFRA - 1 is Available for filing purpose
and last date of filing is 31st July 2019. Form is uploaded on NFRA website.
Link of notification
MCA has introduced National Financial
Reporting Authority Rules, 2018 vide notification dated 13th
November, 2018 to provide for matters relating to accounting and auditing
standards under the Companies Act, 2013.
Link of the notification:
·
Applicable Laws:
§ Section 132(2) :Constitution of National Financial Reporting
Authority.
§ Section 132(4) : Powers of National Financial Reporting Authority.
§ Section 139(1) : Appointment of Auditors
§ Section 469(1) : Power of Central Government
to Make Rules.
Companies mentioned Rule
3(2) and 3(3) of The National Financial Reporting Authority Rules, 2018
Rule 3(2) : (First time
return)
Due date is 31.07.2019
(form deployed on 01.07.2019)
Every existing body corporate other
than a company governed by these rules, shall inform the Authority within 30
days of the commencement of these rules, in Form NFRA-1, the particulars of
the auditor as on the date of commencement of these rules.
Rule 3(3) : (Regular
Return/ Annual Return)
Due date: Within 15 days
of appointment of an auditor under section 139(1)
Every Body
Corporate, other than a company
as defined in section 2 (20) , formed in India and governed under this rule
shall, within 15 days of appointment of an auditor under of section 139
(1), inform the Authority in Form NFRA-1, the particulars of the auditor
appointed by such body corporate:
Provided that a body
corporate governed under clause (e) of sub-rule (1) shall provide details of
appointment of its auditor in Form NFRA-1.
Rule 3(1)(e)
A body corporate incorporated or registered outside India,
which is a subsidiary or associate company of any company or body
corporate incorporated or registered in India as referred to in clauses
(a) to (d), if the income or networth of such subsidiary or associate
company exceeds twenty per cent. of the consolidated income or consolidated net
worth of such company or the body corporate, as the case may be, referred
to in clauses (a) to (d).
As per MCA
Circular no. NF-11/1/2019-OoSecy-NFRA dated 01.07.2019, Entities stated in Rule
3(2) and Rule 3(3) are required to file E form NFRA -1 in order to inform the
details of appointment of Auditor to the Authority.
MCA General Circular no. 12/2018 dated 13.12.2018 has clarified
that NFRA -1 has to be filed within 30 days of deployment of E form for all
Body Corporate governed by these rules (excluding Companies as defined under
Section 2(20) of the Companies Act 2013, which are not required to file NFRA-1
Form.
Link of the Circulars :
Definition of Body Corporate:
Section 2(11) of the Companies Act 2013
"body corporate" or
"corporation" includes a company incorporated outside India, but does
not include—
(i) a co-operative society registered under
any law relating to co-operative societies; and
(ii) any other body corporate (not being a
company as defined in this Act), which the Central Government may, by
notification, specify in this behalf;
·
Rule 3 applicability
to file NFRA-1 covers:
·
Insurance companies (LIC, , Reliance Life Insurance, Sahara Life
Insurance, - not registered under Companies Act, 2013)
·
Banking companies (SBI, PNB,UCO, SBOP etc.- not registered under
Companies Act, 2013)
·
Companies engaged in the generation or supply of electricity,
·
Companies governed by any special Act for the time being in
force (ICSI, ICAI) or
·
Bodies corporate incorporated by an Act in accordance with
clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the Act;
Section 1(4) of the
Companies Act 2013
(b) insurance companies, except in so far as
the said provisions are inconsistent with the provisions of the Insurance Act,
1938 (4 of 1938) or the Insurance Regulatory and Development Authority Act,
1999 (41 of 1999);
(c) banking companies, except in so far as the
said provisions are inconsistent with the provisions of the Banking Regulation
Act, 1949 (10 of 1949);
(d) companies engaged in the generation or
supply of electricity, except in so far as the said provisions are inconsistent
with the provisions of the Electricity Act, 2003 (36 of 2003);
(e) any other company governed by any special
Act for the time being in force, except in so far as the said provisions are
inconsistent with the provisions of such special Act; and
(f) such body corporate, incorporated by any
Act for the time being in force, as the Central Government may, by
notification, specify in this behalf, subject to such exceptions, modifications
or adaptation, as may be specified in the notification.
·
Interpretation of NFRA Rules :
1. As per Rule 3(1) : Authority has power to investigate
NFRA Authority shall have power to monitor and
enforce compliance with accounting standards and auditing standards, oversee
the quality of service under section
132(2) or undertake investigation under section 132(4) of the auditors of the following class of
companies and bodies corporate, as mentioned under clause (a) to (e) of the
Rule 3(1) of NFRA, Rules 2018.
2. Rule 3(2) and 3(3) deals with the applicability criteria.
3. Companies
not required to file NFRA-1
·
Companies registered in India under the Companies Act 2013/1956
· Unlisted Public Companies having paid-up capital of less than
Rs. 500 crores or having annual turnover less than Rs. 1000 crores or having,
in aggregate, outstanding loans, debentures and deposits less than Rs. 500
crores as on the 31st March of immediately preceding financial year;
a body corporate incorporated or registered outside India, which
is a subsidiary or associate company of any company or body corporate
incorporated or registered in India as referred to in clauses (a) to (d) of
Rule 3(1), if the income or networth of such subsidiary or associate company
does not exceeds 20% of the consolidated income or consolidated networth
of such company or the body corporate,
·
·
Annual Return is the
responsibility of the Auditor:
Every auditor referred to in rule 3 of
NFRA, Rules 2018 shall file a return with the Authority on or before 30th
April every year in such form as may be specified by the Central
Government.
·
Important Note:
Rule 3(4) : Applicability
criteria in case company ceases to meet
the eligibility criteria:
A company or a body corporate other than a
company governed under this rule shall continue to be governed by the Authority
for a period of 3 years after it ceases to be listed or its paid-up capital or
turnover or aggregate of loans, debentures and deposits falls below the limit
stated therein.
·
Punishment in case of
non-compliance.-
If a company or any officer of a company or an
auditor or any other person contravenes any of the provisions of these rules,
the company and every officer of the company who is in default or the auditor
or such other person shall be punishable as per the provisions of
section 450 of the Act.
Section 450: Punishment Where
No Specific Penalty or Punishment is provided.
If a company or any officer of a company or
any other person contravenes any of the provisions of this Act or the rules
made thereunder, or any condition, limitation or restriction subject to which
any approval, sanction, consent, confirmation, recognition, direction or
exemption in relation to any matter has been accorded, given or granted, and
for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company
who is in default or such other person shall be punishable with fine which
may extend to ten thousand rupees,
and where the contravention is continuing
one, with a further fine which may extend to one thousand rupees for every day after the first during which the
contravention continues.
·
Analysis of
FAQ’s on NFRA-1 prescribed by NFRA
1. Entities which falls under the definition
of Rule 3(1)(a), 3(1)(b) and 3(1)(c) of NFRA Rules 2018, has to filed NFRA-1
form if, the said entities has not filed ADT-1 with the MCA.
2. Entities falls under Rule 3(1)(e) , has to
filed the E-form NFRA-1, if the condition given in the Rule 3(1)(e) is
satisfied.
3. A foreign company which meets the condition
stated in para 3(1)(e) and has business in India, needs to file NFRA-1 form
w.r.t. its operations in India.
4. Applicability for strike off Entity: Such
entity need not file NFRA-1 subject to the condition that the strike off is
likely to occur with 3 months.
5.Entity may authorize Practising Company Secretary having an
Identification Number to file NFRA-1 Form on behalf of the Entity.
Important
Question on NFRA -1 Applicability
What is the
reason that NFRA is not applicable to the Company as defined under Section
2(20) of the Companies Act, 2013 ?
Interpretation
only
In E-form NFRA-1, details of Auditors is
required to be filed. As under Companies Act, MCA E-form ADT-1 is available for
the Companies register under Company Law to intimate the MCA (ROC) regarding
the Appointment of Auditor.
But there is no form is prescribed for body
corporate other than Company to register the particulars of appointment of
Auditor with the Authority (MCA/ROC).
Hence the form is made mandatory to be filed
by the Body Corporate (defined under section 2(11) of the CA, 2013) other than
Company (defined under Section 2(20) of the CA, 2013)
If any
suggestion/comment, please write.
The Author, Lalit Rajput
is a Company Secretary and can be reached at +91
8802581290 and lalitrajput537@gmail.com, for any query, please connect.
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