To file or not to file NFRA – 1 still a puzzle. It seems thumb rule, if you as body corporate file Form ADT-1, do not file NFRA – 1. We will try to understand the NFRA Rules, 2018, NFRA FAQs and the Form NFRA – 1.
Whoever visited the NFRA site may recall this chart:
NFRA-1 Applicability Chart (Official)
I appreciate NFRA for this chart as a pictorial explanation is always good and easy to grasp. What may be missing is the logic to reach the conclusion given in the chart. We will examine this also.
Applicability of NFRA – 1
NFRA – 1 is applicable to the bodies corporate mentioned in Rule 3(3) and Rule 3(2), in this sequence only.
General Non-Applicability [Rule 3(3)]
It reads:
“Every body corporate, other than a company as defined in clause (20) of section 2, formed in India and governed under this rule shall, within fifteen days of appointment of an auditor under sub-section (1) of section 139, inform the Authority in Form NFRA-1, the particulars of the auditor appointed by such body corporate.”
The first point here is NFRA – 1 shall not be filed by a company as defined in clause (20) of section 2 of the Companies Act, 2013.
It means the NFRA -1 is not applicable to companies incorporated under the Companies Act, 2013, The Companies Act, 1956, The companies Act, 1913 and other previous Companies Act including the Sikkim Companies Act etc and law applicable Goa, Daman, Div, Pondicherry etc for the companies on which presently the Companies Act, 2013 is applicable.
All companies file Form ADT – 1. Therefore, it is a general exception from NFRA – 1.
First Applicability
Form NFRA – 1 is applicable to all bodies corporate formed in India and governed under NFRA Rules 2018. Except as discussed hereinabove, it is applicable to bodies corporate other than companies. [Rule 3(3)].
I may refer it as Pan – India applicability.
We can list all bodies corporate including LLP, Societies, Trusts, Multistate cooperative societies and bodies corporate incorporated by special laws.
Second Applicability
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) is applicable to certain subsidiaries and associates of Indian companies, Indian bodies corporate incorporated or registered outside India if these foreign bodies corporate exceed 20% of the consolidated income or net worth of Indian bodies corporate (or company) on which NRFA Rules are applicable. It read:
“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 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).”
The test is not the applicability of Form NFRA – 1 but the applicability of NFRA Rules on the holding Indian bodies corporate (including companies) under clause (a) to (d) of Rule 3(1).
Here, I would like to add that FAQs restrict such applicability to these foreign subsidiaries and associates only if they have operations in India.
I do not find any basis of condition their operation in India except general understating of territorial jurisdiction of Indian Government and enforcement issue. MCA may please make amendment in these rules to reflect true applicability in the proviso to 3(3).
Further, FAQs clarify that in case of these bodies corporate, From NFRA – 1 is applicable only if auditors of these bodies corporate are Indian auditors means Chartered Accountants who are members of The Institute of Chartered Accountants of India.
This is a clearly understandable jurisdictional issue and MCA may please make amendment in these rules to reflect true applicability in the proviso to 3(3).
Please note bodies corporate registered outside India become foreign companies under the Companies Act, 2013 if they have business operation in India. These foreign companies require appointing Indian auditors.
Due dates
Bodies corporate on which Form NFRA – 1 is applicable shall file the form as under:
- within thirty days of the commencement of these rules (deployment of Form hence 31st July 2019) the particulars of the auditor as on the date of commencement of these rules.[Rule 3(2)]
- within fifteen days of the appointment of an auditor. [Rule 3(3)]
Here is a drafting error, when we exclude companies from NFRA, how section 139(1) may come into the picture? This needs correction in these rules.
NFRA-1 form needs to be filed online. It is not a PFD form.
Jurisdiction of NFRA vs Applicability of NFRA – 1
Applicability of NFRA and NFRA -1 is quite different and not interchangeable for any purpose.
For the companies referred to in clause (a) to (c) of Rule 3(1) of NFRA Rules, NFRA authority has jurisdiction but Form NFRA – 1 is not applicable. For Bodies Corporate referred in clause (d) and (e) of Rule 3(1) of NFRA Rules, NFRA authority has jurisdiction and Form NFRA – 1 is also applicable.
All bodies corporate incorporate or registered outside India on which clause of (e) of Rule 3(1) of NFRA Rules is NOT applicable are outside jurisdiction of NFRA and applicability of From NFRA – 1.
In case of any query and discussion please use the comment box below this post.
CS Aishwarya Mohan Gahrana
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