National Financial Authority Reporting Rules, 2018- Form NFRA-1

NATIONAL FINANCIAL AUTHORITY REPORTING RULES, 2018 (NFRA RULES): FILING OF FORM NFRA-1

GOVERNING PROVISIONS:

Section 132 of the Companies Act, 2013 (“the Act”) and Rules made there under.

FUNCTIONS OF NATIONAL FINANCIAL AUTHORITY (NFRA) (SECTION 132(2)):

1. make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;

2. monitor and enforce the compliance with accounting standards and  in such manner as may be prescribed;

3. oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of service and such other related matters as may be prescribed; and

4. perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.

SCOPE OF THE NFRA (RULE 3(1) OF THE NFRA RULES):

The scope of the NFRA shall cover 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:

b.1) paid-up capital > 500 Crores OR

b.2) annual turnover > 1,000 Crores OR

b.3) borrowings and deposits > 500 Crores

as on the 31^st March of immediately preceding financial year;

c) insurance companies;

d) banking companies;

e) companies engaged in the generation or supply of electricity;

f) companies governed by any special Act for the time being in force;

g) bodies corporate incorporated by any Act for the time being in force in accordance with clauses (b), (c), (d), (e) and (f) of Sub-section (4) of Section 1 of the Act;

h) any body corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the Authority by the Central Government in public interest; and

i) 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 the above clauses.

REQUIREMENT TO FILE FORM NFRA-1:

> REPORTING OF EXISTING AUDITOR within thirty days of the deployment of the Form NFRA-1 (Rule 3(2) of the NFRA Rules):

Every existing body corporate other than a company as specified hereinabove shall inform the Authority within thirty days of the deployment of the Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.

> REPORTING OF APPOINTMENT OF AUDITOR within fifteen days of the appointment of an auditor (Rule 3(3) of the NFRA Rules):

Every body corporate, other than a company as defined in clause (20) of section 2 of the Act, formed in India and governed under this rule shall, within fifteen days of appointment of an auditor under Section 139(1) of the Act, 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 (i) above shall provide details of appointment of its auditor in Form NFRA-1.

TIME LIMIT FOR FILING FORM NFRA-1:

The NFRA, vide its circular dated July 01, 2019

(https://nfra.gov.in/sites/default/files/Last%20date%20of%20Filing%20NFRA%20-%20I.pdf)

has intimated that Form NFRA-1 has been deployed on the website of NFRA (please refer below) and that the last date of filing the same by entities concerned will be July 31, 2019.

CONTINUED APPLICABILITY (RULE 3(4) OF THE NFRA RULES):

A company or a body corporate other than a company governed hereinabove shall continue to be governed by the Authority for a period of three years after it ceases to be listed or its paid-up capital or turnover or aggregate of loans, debentures and deposits falls below the threshold limit.

NFRA PORTAL (http://nfra.gov.in):

Users need to create a unique login ID and password for each eligible company / body corporate for filing the form NFRA-1 on the NFRA e-form portal (https://eformnfra.nic.in/newuser.aspx). You can view the pre-requisites for filing form NFRA-1 on the home page (https://eformnfra.nic.in/default.aspx). Instructions for User Registration are available on

 https://taxguru.in/company-law/how-register-nfra-website-submit-nfra-1-form.html

The instructions provide that an Authorisation Letter is also required to be uploaded while registering the user, which is to be signed by a Key Managerial Personnel of the company / body corporate. A sample authorisation letter format is available for download on the portal while user registration (refer to the instructions provided above).

CONFUSION REGARDING APPLICABILITY FOR FILING NFRA-1:

There is confusion in the minds of the professionals as to which companies / bodies corporate are required to file form NFRA-1 for reporting of the existing auditor. Broadly speaking, there are two points of view:

a) Companies that are not covered in clauses (a) and (b) above, i.e. unlisted private companies and unlisted public companies that have a lesser paid-up capital, turnover or loans, debentures or deposits as specified above have to file form NFRA-1, as they are not specifically exempt from the provision.

b) Companies that are not covered in clauses (a) and (b) above, i.e. unlisted private companies and unlisted public companies that have a lesser paid-up capital, turnover or loans, debentures or deposits as specified above do not have to file form NFRA-1:

b.1) The words ‘Every existing body corporate other than a company’ have to be read together, which will essentially mean that every body corporate has to file the form.

b.2) One other contention is that since companies have already filed form ADT-1 regarding the appointment of auditors, filing form NFRA-1 will be a repetitive process.

b.3) The Ministry of Corporate Affairs, in its General Circular No. 12/2018 dated December 13, 2018 clarified that filing of Form NFRA-1 is applicable for all bodies corporate governed by the rule (excluding companies as defined under sub-section (20) of section 2 of the Companies Act, 2013, which are not required to file this Form).

b.4) Upon a reading of sub-rule 3 of Rule 3 of the National Financial Reporting Authority Rules’ 2018, it is evidently clear that companies do not have to file form NFRA-1 for intimation of appointment of auditors within fifteen days of appointment under sub-section (1) of section 139, therefore, why will the reporting of auditor be applicable on such companies?

CONCLUSION:

While the reporting of the existing auditors and subsequent appointment, as may be applicable, is a welcome move to track the activities of the bodies corporate and the auditors as well, clarity is required on the applicability for filing the form NFRA-1.