NFRA Power Enhancements Under Companies Act Raise Concerns Among Auditors
India's Companies Act Amendment Proposal Sparks Concern Among Auditors
The Indian government's proposal to amend the Companies Act, enhancing the powers of the National Financial Reporting Authority (NFRA), has raised concerns among auditors. The amendment aims to prevent civil courts from entertaining or staying cases that fall under the purview of the NFRA.
Key Changes
The proposal includes several key changes, including the widening of the NFRA's jurisdiction to cover valuation services and valuers. Additionally, NFRA orders can only be challenged in courts if the principles of natural justice have been violated, which typically involves writ petitions.
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Impact on Auditors
Market participants believe that if the proposals are accepted, it could become more difficult for auditors facing NFRA proceedings to obtain stays from courts. This would also make it more challenging for auditors to receive immediate relief from courts after the commencement of an NFRA probe.
| Regulatory Body | Powers | Court Intervention |
|---|---|---|
| National Financial Reporting Authority (NFRA) | Enters into agreements with auditors, investigates, and imposes penalties | Courts can only challenge NFRA orders if principles of natural justice are violated |
| Securities and Exchange Board of India (SEBI) | Regulates securities and capital markets, investigates, and imposes penalties | Courts cannot stay an investigation, but can challenge SEBI orders through a writ petition |
| National Company Law Tribunal (NCLT) | Approves schemes of arrangement, investigates, and imposes penalties | Courts cannot stay the approval process, but can challenge NCLT orders through a writ petition |
Industry Response
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Industry experts, including Ranjeet Agarwal, former President of the Institute of Chartered Accountants of India (ICAI), have expressed concerns about the proposed changes. Agarwal noted that the new Section 132E in the Corporate Laws (Amendment) Bill, 2026, specifically bars civil courts from entertaining matters that fall within the jurisdiction of the NFRA.
Government's Rationale
The government has proposed these changes in response to increasing instances of stalling, where civil courts, including High Courts, have stayed NFRA investigations. This has hindered the regulator's ability to continue probes until court verdicts are rendered.
Potential Impact
Industry experts, such as CA Sanjivv Shiv Kapoor, managing partner of S P Kapoor & Company, believe that the proposed changes could lead to a greater emphasis on audit documentation, quality control, and risk evaluation by firms.
Investor Takeaway
The proposed amendment to the Companies Act may impact auditors' ability to seek relief from courts during NFRA proceedings.
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