Auditors of certain categories of companies will need to make new filings with the NFRA
The Ministry of Corporate Affairs (the “MCA”) has published the National Financial Regulation Authority (Amendment) Rule, 2019 (“NFRA Amendment Rules”) for general information. The NFRA Amendment Rules amends the National Financial Regulatory Authority Rules, 2018 (“NFRA Rules”) and will come into effect on the date on which they are notified in the official gazette. The main changes brought by the NFRA Amendment Rules are:
(a) Auditors will be required to make filings with the NFRA: The NFRA Amendment Rules has introduced a new rule whereby all auditors of companies governed by the NFRA Rules (we have outlined the same below) will be required to file an annual return with the National Financial Regulatory Authority (“NFRA”), which is the regulator established by the MCA to ensure companies and auditors comply with the NFRA Rules. Auditors will be required to make the filings on or before the 30th of November of each year in the format prescribed in Form NFRA-2; and
(b) Extended time limit to dispose cases: The NFRA Rules stipulated that the division bench of the NFRA had to dispose of all cases brought to it within 90 (Ninety) days. However, the NFRA Amendment Rules have amended this whereby, the NFRA can give the division bench of the NFRA an additional period of 90 (Ninety) days to dispose of any case.
Companies to whom the NFRA Rules apply to:
The NFRA Rules are applicable to the following classes of companies:
(a) All public listed companies;
(b) Any unlisted company that (i) has a paid up share capital of more than INR 500 Crore, (b) has an annual turnover of more than INR 1,000 Crore, or (c) has in aggregate, outstanding loans, debentures and deposit of more than INR 500 Crore in the previous financial year;
(c) Any insurance company, banking company, companies involved in either distribution or generation of electricity, or any other company that is governed by a special legislation;
(d) Any other class of entities specified by the NFRA; and
(e) Every subsidiary or associate company of an Indian company that is registered outside India, where the income or net-worth of the subsidiary or associate exceeds 20% of the consolidated income of the body corporate.
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This is an obligation that all auditors of the classes of companies mentioned above will need to comply with. It is critical that auditors ensure compliance with the same because the NFRA Rules stipulate a penalty of INR 10,000/- for non-compliance which can extend to INR 1,000/- per day if the non-compliance is a continuing one.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.