National Financial Reporting Authority (“NFRA”) Rules

The Ministry of Corporate Affairs (MCA), Government of India has constituted an independent regulatory body named National Financial Reporting Authority (“NFRA”) and notified the National   Financial Reporting Authority Rules, 2018 (“Rules”) vide Notification dated November 13, 2018, effective from November 14, 2018. The National Financial Reporting Authority (NFRA) is a body constituted under the provisions of Section 132 of the Companies Act, 2013. The constitution of this authority is effective from 1st October 2018.After various recent scams like PNB scam and other financial scams and frauds in the country, NFRA is a very welcoming move by the present government.

 SCOPE OF THE NFRA

Classes of companies and bodies corporate governed by NFRA: NFRA shall have power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service or undertake investigation of the auditors of the following class of companies and bodies corporate, namely:

a.      Companies whose securities are listed on any stock exchange in India or outside India;

b.      Unlisted public companies having paid-up capital of not less than Rs 500 crores or having annual turnover of not less than Rs 1,000 crores or having, in aggregate, outstanding loans, debentures and deposits of not less than Rs 500 crores as on the 31st March of immediately preceding financial year;

c.   Insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act in accordance with section 1(4)(b) to (f) of the Act;

d.     Anybody corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the NFRA by the Central Government in public interest; and

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 net worth of such subsidiary or associate company exceeds 20% 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).

*A company or a body corporate other than a company governed under this rule shall continue to be governed by the NFRA 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. *

REPORTING TO NFRA

• Every existing body corporate other than a company governed by these rules, shall inform the NFRA 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;
• Everybody 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 section 139(1), inform the NFRA in Form NFRA-1, the particulars of the auditor appointed by such body corporate. However, a body corporate governed under sub-rule (1)(e) shall provide details of appointment of its auditor in Form NFRA-1.

 ANNUAL RETURN

A return with the NFRA on or before 30th April every year shall be filed with NFRA in such form as may be specified by the Central Government.

PUNISHMENT IN CASE OF NON-COMPLIANCE: 

lf 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.