Applicability of NFRA – body corporates under strict scanner

(This article was published in Moneylife at


By CS Nitu Poddar (


With the intent to tap financial scams that the nation witnessed and considering the existence of independent audit regulators in global economies, MCA has, after much mulling and debate, finally rolled out National Financial Reporting Authority Rules, 2018 (Rules), effective from 14.11.2018. The enforcement of the Rules are followed by the coming into force of the third and final phase of section 132 on 24.10.2018.

National Financial Reporting Authority (NFRA / Authority), supposed to be single independent authority regulating the audit of the companies and the auditors, have been endowed with wide ranging powers, inter alia, to monitor and enforce compliance of both accounting and auditing standards, to investigate into matters of professional misconduct of the auditors and to initiate disciplinary proceedings towards an auditor.

Class of entities to be regulated?

The class of companies to be regulated by the Authority is prescribed by way of the Rule 3(1) viz

Class of company(ies)

a.Listed companies including companies having securities listed on foreign stock exchange;

b.Unlisted public company having

  • Paid up capital of capital of not less than 500 cr; or
  • Annual turnover of not less than 1000 cr; or
  • Aggregate outstanding loans, debentures and deposits of not less than 500 cr as on 31st March of preceding financial year.

c.Insurance companiesg.

d.Banking companies

e.Companies engaged in the generation of supply of electricity

f.Companies governed by any special Act, like

  • Reserve Bank of India under Reserve Bank of India Act, 1934;
  • State Bank of India under State Bank of India Act, 1955;
  • Life Insurance Corporation of India under incorporated under Life Insurance Corporation Act, 1956;
  • Unit Trust of India under The Unit Trust of India Act, 1963;

g.Company(ies) referred to NFRA by the Central Government;

h. Associate / subsidiary of the aforesaid companies, incorporateed outside India, income / net worth of which is more than 20% of           the consolidated income / net worth of the aforesaid company

Class of body corporate(s)

i.Body corporates incorporated by any Act notified by Central Government;

j.Body corporate(s) referred to NFRA by the Central Government;

k.Associate / subsidiary of the aforesaid body corporates, incorporated outside India, income / net worth of which is more than 20%       of the consolidated income / net worth of the aforesaid company

Class of person(s)

l. person(s) referred to NFRA by the Central Government

If the companies or body corporates getting qualified under Rule 3(1), as enlisted above, under the criteria of listing or limits with respect to paid-up capital, turnover, outstanding liability, ceases to be so fall within the criteria, it is to be noted that, pursuant to Rule 3(4), such companies and body corporates “will continue to be governed by NFRA” for a period of 3 years after such cessation.

Big size foreign companies, incorporated in a private company set up, still out of ambit of NFRA

As a matter of fact, foreign companies set up subsidiaries in India in a private company format and generally are big size in terms of turnover. However, since these companies are neither listed nor public companies, the audit of such companies remain unregulated.

Filing of NFRA-1 only by the regulated “body corporates”

Rule 3(2) and 3(3) mandates filing of e-Form NFRA-1 intimating the particulars of the auditor of the regulated body corporates.

Seemingly a plain reading of the said clauses have rendered a wrong notion in the corporate fraternity that the filing of the said e-Form is required to be done by companies other than the ones listed in Rule 3(1) i.e regulated by NFRA, however, a patient reading of the same clauses (along with the punctuations provided) especially the phrase – “… body corporate other than a company governed by these rules…” helps in interpreting the provisions right.

Accordingly, while three kinds of class of entities will be regulated by NFRA viz “companies”, “body corporates” and “persons”, however, only “body corporates” of such regulated entities will be required to do filing of NFRA-1, (a) once within 30 days from the commencement of the Rules i.e within 13.12.2018; and thereafter (b) within 15 days of appointment of the auditor.

There is no question of the filing being mandated on a private company or any other company which is not regulated by NFRA since all companies appointing auditor will have to anyway file e-Form ADT-1 informing the details about the auditor.

Requirement of Global Location Number (GLN) by the body corporates for filing

Since the filing is mandated for body corporates only (other than companies), it is to be noted that such body corporates will require a GLN to do the filing. Body corporates that are not companies does not have a CIN No allotted by the Ministry of Corporate Affairs and therefore will have to necessarily have a GLN obtained so as to proceed with the filing.

With the last date of filing nearing, and considering that obtaining of GLN may also take some time, it seems that the body corporates should obtain the same soonest.

Also, since the filing is to be done by body corporates, it is quite likely for the e-form (not yet available) to have practical gaps, which will be detected only once the form is being filled and filed.



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