Section 132 of Companies Act 2013: National Financial Reporting Authority (NFRA)
Section 132 of the Companies Act, 2013 provides the statutory framework for the National Financial Reporting Authority (NFRA), including its constitution, functions, investigation powers, disciplinary powers, penalties, debarment orders and appeals.
What is Section 132 of the Companies Act, 2013?
Section 132 authorises the Central Government to constitute NFRA for matters relating to accounting and auditing standards under the Companies Act, 2013. NFRA is an independent statutory authority with monitoring, enforcement, quality-review and disciplinary functions in the areas assigned to it by the Act and the rules.
Under sub-section (1A), NFRA performs its functions through prescribed divisions. Its composition includes a Chairperson with expertise in accountancy, auditing, finance or law and other prescribed full-time and part-time members, subject to the statutory ceiling.
Functions of NFRA under Section 132(2)
Section 132(2) gives NFRA functions relating to accounting and auditing policy and standards. These include recommending policies and standards to the Central Government, monitoring and enforcing compliance with accounting and auditing standards, overseeing the quality of relevant professional services, recommending quality improvements, and performing related prescribed functions.
Investigation powers under Section 132(4)
NFRA may investigate professional or other misconduct by a member or firm of chartered accountants for the prescribed classes of bodies corporate or persons, either on its own motion or on a reference from the Central Government. Once NFRA has initiated an investigation into such misconduct, the statutory proviso restricts another institute or body from initiating or continuing proceedings in the same matter.
For investigation purposes, NFRA has specified powers of a civil court under the Code of Civil Procedure, 1908, including discovery and production of documents, summoning and examining persons on oath, inspection of books and records, and issuing commissions for examination of witnesses or documents.
Penalty and debarment powers
Where professional or other misconduct is proved, Section 132(4)(c) empowers NFRA to impose a monetary penalty. For an individual, the penalty is not less than Rs. 1 lakh and may extend to five times the fees received. For a firm, it is not less than Rs. 5 lakh and may extend to ten times the fees received.
NFRA may also debar the member or firm for a period of at least six months and up to ten years from specified audit or internal audit appointments or work, and from performing valuation under Section 247, as provided by the Act.
Appeal against an NFRA order
Under Section 132(5), a person aggrieved by an NFRA order issued under Section 132(4)(c) may prefer an appeal before the Appellate Tribunal in the prescribed manner and on payment of the prescribed fee.
Who is governed by the NFRA Rules?
The National Financial Reporting Authority Rules, 2018 identify classes of companies and bodies corporate within NFRA's monitoring, enforcement, quality-review and investigation framework. Rule 3 includes listed companies and specified large unlisted public companies, certain regulated or statutory entities, public-interest references made by the Central Government, and specified foreign subsidiaries or associates meeting the prescribed threshold.
Section 132 - Constitution of National Financial Reporting Authority
(1) The Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards under this Act.
(1A) The National Financial Reporting Authority shall perform its functions through such divisions as may be prescribed.
(2) Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall:
(a) 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;
(b) monitor and enforce compliance with accounting standards and auditing standards in such manner as may be prescribed;
(c) 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
(d) perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.
(3) NFRA shall consist of a Chairperson, being a person of eminence with expertise in accountancy, auditing, finance or law, appointed by the Central Government, and such other members not exceeding fifteen, consisting of part-time and full-time members, as may be prescribed. The appointment, conflict-of-interest declarations and restrictions concerning association with audit firms are governed by the provisos to this sub-section.
(3A) Each division of NFRA shall be presided over by the Chairperson or a full-time Member authorised by the Chairperson.
(3B) An executive body consisting of the Chairperson and full-time Members is provided for efficient discharge of the functions specified in the provision.
(4) Notwithstanding anything contained in any other law for the time being in force, NFRA has statutory investigation and disciplinary powers.
(4)(a) NFRA may investigate, suo motu or on a reference by the Central Government, professional or other misconduct committed by a member or firm of chartered accountants for the prescribed classes of bodies corporate or persons. Where NFRA has initiated an investigation, no other institute or body shall initiate or continue proceedings in such matters of misconduct.
(4)(b) NFRA has the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in relation to discovery and production of books and documents, summoning and examining persons on oath, inspection of books and records, and issuing commissions for examination of witnesses or documents.
(4)(c) Where professional or other misconduct is proved, NFRA may impose the statutory monetary penalties and may debar the member or firm from the audit, internal audit and valuation activities specified in the provision for a minimum of six months and a maximum of ten years.
Explanation: For this sub-section, "professional or other misconduct" has the same meaning as assigned under Section 22 of the Chartered Accountants Act, 1949.
(5) A person aggrieved by an order of NFRA under Section 132(4)(c) may prefer an appeal before the Appellate Tribunal in the prescribed manner and on payment of the prescribed fee.
(6) to (9) Omitted with effect from 9 February 2018.
(10) NFRA shall meet at such times and places and observe such rules of procedure for transaction of business as may be prescribed.
(11) The Central Government may appoint a secretary and other employees necessary for efficient performance of NFRA's functions, on prescribed terms and conditions.
(12) The head office of NFRA shall be at New Delhi, and NFRA may meet at other places in India as it deems fit.
(13) NFRA shall maintain books of account and other books relating to its accounts in the prescribed form and manner, in consultation with the Comptroller and Auditor-General of India.
(14) NFRA's accounts shall be audited by the Comptroller and Auditor-General of India at intervals specified by him, and the certified accounts and audit report shall be forwarded annually to the Central Government.
(15) NFRA shall prepare an annual report giving a full account of its activities and forward it to the Central Government, which shall cause the annual report and the CAG audit report to be laid before each House of Parliament.
Amendment notes relevant to Section 132
Sub-section (1A), sub-sections (3A) and (3B), and the substituted debarment provision were introduced by the Companies (Amendment) Act, 2019 with effect from 15 August 2019. The minimum penalty for firms in Section 132(4)(c)(A)(II), the appellate arrangement in sub-section (5), and omission of sub-sections (6) to (9) reflect the Companies (Amendment) Act, 2017 changes brought into force on 9 February 2018.
Related Companies Act provisions
Section 132 should be read with the surrounding financial reporting and audit provisions, including Sections 130 and 131, Sections 133 and 134, and Sections 139 and 140.