ROC Compliance for Non- Banking Financial Company (NBFC)

What is an NBFC?

A Non-Banking Financial Company (NBFC) is a financial institution mostly engaged in lending credit to businesses, asset financing, wealth management, infrastructure financing and many more. These institutions provide a diverse array of financial and banking services to those consumers who do not have easy access to other conventional banks. An NBFC does not possess a banking license and hence cannot accept demand deposits from the public at large.

In India, NBFC is a company incorporated under the Companies Act 1956/ 2013 and regulated by the Reserve Bank of India (RBI). There are various compliances that an NBFC has to comply with for proper management of the company.

Exemptions under Companies Act, 2013

1. Chapter 5- Acceptance of Deposits by Companies

Section 73 to 78

Since the RBI directions and guidelines issue stringent norms for an NBFC that is registered with them for deposit taking from public at large, the chapter V and the sections that are covered under this chapter are not applicable to a deposit taking NBFC. 

The main motto of providing this exemption to an NBFC is primarily to prevent dishonest companies from operating as a deposit taking financial company and defrauding the public. 

2. Chapter 7- Management and Administration

Section 117 read with section 179

Certain resolutions and agreements have to be mandatorily filed with the Registrar of Companies for either approval or intimation. These are enumerated in sections 117, 179 and Rule 8 of the Meetings of Board and its Powers Rules, 2014.

Thus the resolution that is adopted for the purpose of granting loans, or giving guarantee or providing security in respect of loans u/s 179(3)(f) of the Companies Act, 2013 in the ordinary course of its business by any NBFC registered with RBI, is exempted from filing the resolution in the eform MGT-14 with Registrar of Companies.

3. Chapter 12- Meetings of Board and board’s powers

Section 185 

Loan to Directors, etc.: 

This section shall not apply to a company whose object of business is to provide loans, give guarantees / securities for the repayment of any loan. Such a Company should also be charging interest and the rate of interest should not be less than than the rate of prevalent yield of 1 (one) year, 3 (three) years, 5 (five) years or 10 (ten) years Government security closest to the type  of the loan given.

4. Chapter 12- Meetings of Board and board’s powers

Section 186 

Loan and Investment made by Company: 

If any loan is given, or any guarantee is given or any security is provided or any investment is made by a banking company, an insurance company, a housing finance company in the ordinary course of its business, it is not required to comply with the provisions of section 186 of the Companies Act, 2013.

5. Chapter X- Accounts of Companies

Section 137- Copy of financial statement to be filed with Registrar.

read with Rule 12 of Accounts of Companies Rules, 2014 and

Read with Rule 3 of Filing of Documents and Forms in XBRL Rules, 2015: 

This Rule 3 exempts NBFCs from filing its financial statements in XBRL format.

Minimum Required ROC Compliance

Let us discuss minimum ROC compliances that a company, which is also incorporated as an NBFC, has to comply with:

** Indian Accounting Standards (IND AS) is applicable to all NBFC whose net worth is equal to or more than Rs. 250 Crores.

FAQs

What exactly does NBFC mean?

As the name suggests it is a non banking financial company i.e acts as financial institution of lending and borrowing of funds does not carry out similar services as to a traditional banks. As per the definition given by the Reserve Bank of India Act, 1934 a Non banking Financial Company means a financial institution which is incorporated as a company but does not perform the core banking services such as scheduled bank as recognised by the Reserve Bank of India.

What is the annual compliance calendar of an NBFC in brief?

The most important compliance of an NBFC are as follows:

AOC 4 - NBFC - Filing of Financial Statement with the ROC - within 30 days from the conclusion of Annual General Meeting (AGM)

AOC 4 - NBFC (IND AS) - All Non-Banking Financial Company (NBFC) that is required to comply with Indian Accounting Standards (IND AS) - within 30 days from the conclusion of Annual General Meeting (AGM)

MGT-7 - Annual Return of the company - within 60 days from the conclusion of Annual General Meeting (AGM)

Are there any consequences of non-compliance with ROC filing requirements?

Any company whether listed, private or NBFCs etc. that fails to comply with the ROC filing requirements as provided in the Companies Act, 2013 can result in levy of penalties, legal action against the company and because of such penalties or legal action against the company it paints a negative image of the company in the minds of prospective investors and other stakeholders. Thus non compliance with ROC filing requirements can result in unwanted penalties, legal litigation and damage to the reputation of the company.

Are there specific documents required for ROC compliance by NBFCs?

Yes, NBFCs need to file documents such as financial statements (Balance Sheet and Profit & Loss Account), annual returns, board resolutions, and other documents as required by the Companies Act and NBFC regulations.