In November, 2018 the Ministry of Corporate Affairs (MCA) notified the National Financial Reporting Authority (NFRA) Rules, 2018. This has brought to reality the 5 year proposal of the government to create and establish an independent one stop regulatory authority to monitor the quality of services rendered by chartered accountants / statutory auditors of certain types of large entities. The Authority has been proposed in order to protect and safeguard interests of various parties such as creditors, investors and others associated with companies / bodies corporates by ensuring there is effective accounting and auditing standards in place.

Vide the notification dated 13th November, 2018 the MCA has clearly laid down the scope, jurisdiction, applicability, functions, duties and responsibilities of the NFRA.

A detailed look at the same:

1. Scope of the NFRA

The NFRA has been proposed to be established to monitor the professional services of auditors, enforcement and monitoring of accounting and auditing standards and initiate investigation of work of the auditors of notified entities.

2. Applicability

The Rules shall be applicable to auditors of the following entities:

  1. All Listed entities / Listed body corporates
  2. Unlisted entities with paid up capital of not less that Rs. 500 crores or annual turnover of Rs. 1,000 crores or having loans, debentures or deposits of not less than Rs. 500 crores as of 31st March of the preceding financial year
  3. All Banks
  4. All Insurance companies
  5. All Electricity / Power companies
  6. All Foreign subsidiary / Associate company of an Indian company mentioned in any of the above points if the income / Net worth of such foreign subsidiary /Associate company exceeds 2% of the consolidate income / net worth of the above mentioned Indian companies
  7. Bodies corporate referred to it by the Central government

Once the NFRA rules become applicable to a company, then the applicability will continue for 3 more years even during such period the limits are reduced or the status of the entity changes.

3. Functions & Duties of the NFRA

  1. Collect and maintain details of auditors appointed by companies to which the NFRA rules are applicable
  2. Receive recommendations on amendments to existing accounting /auditing standards as well as new accounting / auditing standards from the Institute of Chartered Accountants of India (ICAI)
  3. Basis on the above, recommend accounting and auditing standards for approval by the central government
  4. Monitor and enforce compliance with accounting standards and auditing standards by way of review of financials as well as working papers of such bodies corporate, calling for additional information on internal control procedures, quality control and other procedures, seeking explanation from  concerned officials, personnel including the auditors
  5. Oversee the quality of service of compliance professions by suggesting recommendations on modifying the audit procedures and processes to such bodies corporate
  6. Ensure compliance with such standards and suggest measures for improvement in quality of service
  7. Liaison with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards
  8. Promote awareness in amidst bodies corporate in relation to compliance of accounting / auditing standards
  9. Investigate, either suo motu or on receipt from central government, any information of fraud and or professional misconduct by the body corporate and or auditor.
  10. Basis the investigation, issue show cause notice and initiate legal / disciplinary proceedings including but not limited to fines. This will include penalties and or debarring from professional practice

4. Complaint

  1. Every existing Body corporate other than companies governed by these Rules has to inform to the NFRA in the prescribed Form and prescribed timeline, details of the auditor appointed
  2. Every Auditor who comes under the ambit of these rules is required to submit a return in prescribed form or on before 30th April of every year


The enactment of the NFRA and rules actually sent mixed signals. Speculation was rife that the enactment of the authority will render the professional body of Chartered Accountants – the Institute of Chartered Accountants of India (ICAI) toothless tiger. Amidst uncertainty that the disciplinary powers of the ICAI will be clipped, the Ministry of Corporate Affairs clarified that the ICAI will still be the sole regulatory authority for sole proprietorships, Partnership Firms, LLP’s, Trusts, societies and private companies and unlisted public companies that do not fall under the threshold / limits prescribed in the NFRA Rules, 2018.  The Rules only divests ICAI’s disciplinary and monitory powers over auditors of companies that come under the ambit of the NFRA Rules.

Besides the Quality review Board (QRB), constituted under Section 28A of the Chartered Accountants Act, 1949 since 2007 will very much make its presence felt by functioning in accordance with objects for which it was established – monitoring, quality analysis and audit, review, making recommendations and suggestions to the auditors in improving services.

Effective governance mechanism - need of the hour

There are many questions on whether there is need for another regulatory body in addition to the host of regulatory bodies already in place – the ICAI, SFO, RBI, CBI and even the Courts. But a look at the alarming increase in Non-performing assets (NPO) (across large companies, banks, insurance companies) large scale frauds, scams and tax evasion, sudden exit of auditors from such companies seem to have left the government with no other option except to establish another independent regulatory authority.

In doing so, India is only adopting accounting healthy practices followed by large economies the world over – be it the financial reporting council (FRC) in U.K or the The Public Company Accounting Oversight Board (PCAOB) in the U.S.A.

By bringing in the NFRA, the government has clearly demarcated companies and auditors that will be governed by it. The remaining will be under the scrutiny of authorities such as ICAI, SFO etc. However, ensuring proper systems, mechanism and credible people to run these bodies only can ensure their effective functioning. Given the unwanted excess baggage that the economy is carrying, establishing an independent public regulatory body is a welcome move. Time to pull up socks!



On 2nd November, 2018 the government approved the Companies (Amendment) Ordinance, 2018 suggesting for implementation, a host of amendments and relaxations in compliance. This ordinance would have ceased to operate on and from 21st January, 2019.

Soon after the enactment of the Companies (Amendment) Ordinance, 2018, the Government introduced the Companies (Amendment) Bill, 2019 to replace the Companies (Amendment) Ordinance, 2018. The replacement of the Ordinance 2018 with the 2019 ordinance has been done with the dual objective of promoting ease of doing business and ensuring better compliance by corporates. The Companies (Amendment) Bill, 2019 was passed in the Lok Sabha on 4th January, 2019. However, it is pending for approval in the Rajya Sabha.

Since it was necessary to ensure continuity and the Bill, 2019 could not wait for formal approval in the Rajya Sabha when Parliament re- commenced, the President of India, under authority vested in him in Article 123 of the Constitution of India, has promulgated the Companies (Amendment), Ordinance 2019.

The Companies (Amendment) Ordinance, 2019 was issued on 12th January, 2019 after the cabinet cleared the proposal to re-issue the ordinance. Some of the key amendments approved:

  1. Small companies and one person companies (OPC’s) will pay only half the amount of fines / monetary penalties that normal companies pay.
  2. Incorporating and managing efficient online adjudication process and systems in a time bound manner.
  3. The Regional Director (RD) now has the power to compound offences for which penalties are up to a maximum of Rs. 25 lakhs (Previously, it was only up to Rs. 5 lakhs). This results in de-cluttering the NCLT and reducing the burden of routine cases. The Central government will now have power to approve the change in financial year as well as conversion from public company to private company.
  4. It is mandatory for all companies incorporated on or after 2nd November, 2018 to file a declaration of commencement of business (within 180 days from date of incorporation) and also intimate the correct address of the registered office. Else the companies are liable to be struck off. This has been re-introduced in order to curb the practice of running shell companies.
  5. There is an increase in compliance of corporate governance, public deposit declaration and creation, modification and satisfaction of Charges.
  6. If any director holds more than the required number of directorships, then it will become a ground for disqualification.
  7. Penalty prescribed for:
  • Section 53 – Issue of shares at discount
  • Section 64 – Alteration of share capital

8. Amendment in penalties for:

  • Section 102- Statement annexed to Notice of General meeting

9. Punishments have been substituted by penalties for the following:

  • Section 105 – Proxy
  • Section 115 – Registration of agreements / resolutions
  • Section 121 – Report on AGM
  • Section 137 – Copy of financial statement to be filed with the RoC
  • Section 140 – resignation / removal of auditor

Besides the above, there have been various other sections which have been amended.

The emphasis of promulgating the Companies (Amendment) Ordinance, 2019 is to reduce the burden of the special courts – the NCLT. To this effect, the powers of the Regional Director (RD) have been enhanced to try has been from punishments to fines and monetary penalties under various sections to ease the special courts from the burden of dealing with routine voluminous cases and focus on corporate offences of more serious nature.

With the re-issue / re promulgation of the amendment ordinance, offences under a total of 34 sections have been moved from special courts to in house adjudication. Such divesting of routine voluminous to the RD’s and making it an in house adjudication process, is believed to reduce at least 60% of the work load from the special courts thereby allowing them to give more time and attention to matters of serious nature. This will ensure speedy dispute redressal and also timely compliance. .Ease of doing business for companies as well as special courts.


Liquidation of the Company due to Insolvency

Judgement by NCLT, Chennai bench

IDBI Consortium & Suzler India Pvt. Ltd vs. Nagarjuna Oil Corporation Ltd. 10/2017

On 11th December, 2018 the Chennai bench of National Company Law Tribunal (NCLT) ordered for liquidation of the Nagarjuna Oil Corporation (NOCL), an associate company of Nagarjuna Oil Refinery.

Suzler India became the operational creditor as Nagarjuna Oil (Corporate debtor) had an outstanding debt of approximately Rs. 1.24 Crores to be paid to Suzler India.

This brought the curtains down on a case that was originally filed by Suzler India in the Madras High Court and got transferred to the Chennai bench of the NCLT in July, 2017 consequent to the enactment of the Insolvency and Bankruptcy Act. An Interim resolution professional was appointed in August, 2017. The first Committee of Creditors (CoC) meeting was held in October, 2017where in Expression of interests (EOI) were invited in the first round. Bharat Petroleum (BPCL) and Citax Energy submitted bids. BPCL’s bid amount was too low while Citax wanted a Bank guarantee which was not entertained by the CoC. Hence a second round of EOIs were invited to submit bids in April, 2018. Haldia Petrochemicals and Gulf Petroleum also submitted their bids in this round. Both were rejected. Both filed application with the NCLT which directed them to submit their bids. They resubmitted their bids in July, 2018. In the final CoC meeting in July, 2018, the bids were analysed and it was found that Gulf petroleum’s bid amount was much lesser than the liquidation value, while in the case of Haldia, there were several conditions precedent to releasing payment that made it look unstable. In that meeting, the CoC unanimously passed a resolution with a 100% vote, to liquidate the company. Consequently, the IRP moved the NCLT seeking an order to liquidate Nagarjuna Oil. In December, 2018 the Chennai bench of the NCLT passed an order directing the liquidation of Nagarjuna Oil Corporation Limited. it further directed the Company Liquidator to issue a public statement to that effect within 2 days from date of receipt of order.

Note: For the full text of the judgment refer


Auditor Rotation



To discover and disclose to a magistrate any secret crime.


Accumulation of unfilled orders.


In the civil law, property of an inheritable quality; property such as descends to an heir.


Damage; the loss or diminution of what is a man’s own, either by fraud, carelessness or accident.


Brothers in Arms




This 1993 movie is based on the true story of Guildford bombings in 1974 when members of the Irish Republican Army (IRA) detonated bombs in two popular pubs frequented by British soldiers. 4 soldiers and a civilian were killed while many were wounded. The bombings escalated tension in the already troubled Northern Ireland. In the backdrop of riots and unrest, four people – the “Guildford four” were arrested and convicted to life imprisonment. One of the four - Gerry Conlon vociferously protested against the conviction stating they were innocent and the police tortured them in to confessing to the bombings they never committed. To add further agony, Gerry Conlon’s father who had gone to Belfast to help his son with legal defence and few other family members were also arrested. Known as the “Maguire Seven”, they were convicted to life in prison as scientists falsely proved that they has nitro glycerine which was used in the bombs. In prison, Gerry meets the original perpetrator of the bombings who tells him that the police knew of the real criminals and yet covered up in order to save themselves from the embarrassment of a botched up investigation. When Gareth Pierce, a lawyer fighting human rights injustice takes on the case, things look hopeful for Gerry and his father as she begins systematically uncovering the truth. Gareth establishes about the cover up in the appeal that leads to the immediate overturning of the conviction and release of the four. By that time though the Gerry Conlon has served 15 years in prison and his father Giuseppe Conlon has died in prison.

The movie is a poignant yet hard hitting adaptation of the biography - Proved Innocent: The Story of Gerry Conlon of the Guildford Four. It was nominated for a host of awards including the Academy Awards. Realistic performances by a stellar cast and the tragic and happy ending of the story makes the movie an absolute must watch.

(Book / Novel)

A legal thriller that inter twines two parallel stories interestingly. An industrial giant is charged with polluting the water with intoxicating substances that results in the death of young children in a small town in Tulsa, Oklahoma. Affected families seek justice through a class action law suit against the corporation. The job is entrusted to Ben Kincaid - an affable lawyer who though not exactly competent in class action cases takes up the case on behalf of the community. The corporation hires the largest and the most powerful law firm with cut throat lawyers representing the corporation. Added to the challenge is the notoriety of the Judge who is known to favour such law firm. As the community and lawyers prepare to commence the case, the town is besieged by a series of sadistic murders / killings. Slowly the lawyer uncovers a dramatic relationship between the case on hand and the gruesome murders. Read the 9th novel in a series of legal fiction by William Bernhardt to unravel the connection.

SHARK (2006-2008) (TV Series)

A hot shot lawyer in Los Angeles gives up his flourishing criminal defence career after his defence of a wife abuser results in the death of the wife. Disillusioned, he plans to quite practicing law when he is invited to become public prosecutor with the District Attorney. He forms his own private team and encourages them to keep pace with his speed and experience in solving crimes. I doing so he maintains the delicate balance between doing all it takes to get to the bottom of the case while staying within the ambit of law.

Law is social engineering

– Roscoe Pound

© Copyright 2019 - A K Mylsamy & Associates LLP


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