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CA Final · Advanced Auditing, Assurance and Professional Ethics · Special Features of Audit of Banks & Non-Banking Financial Companies

Arvind Housing Finance Ltd, an NBFC, is audited by CA Tanvi. The RBI directs the NBFC to furnish statements on its affairs of Arvind Brands Pvt Ltd, which has no shareholding relationship but uses the same registered brand name as the NBFC under licence, and the RBI also proposes an inspection of that entity's books. The entity's director objects that the Companies Act, 2013 restricts such access. Which conclusion is correct under the RBI Act, 1934?

The entity is a group company because common brand name is one of the listed relationships. The RBI may therefore direct the NBFC to furnish information about it and may cause an inspection or audit of its books, notwithstanding anything in the Companies Act, 2013. No shareholding link is needed.

  1. AThe RBI cannot act, since the entity is not a subsidiary, associate or joint venture
  2. BThe RBI can act only if the entity holds at least 51% equity in the NBFC
  3. CThe RBI can act only through the Registrar of Companies
  4. DThe entity is a group company, since common brand name is a listed relationship, so the RBI may direct the NBFC to furnish information about it and may inspect or audit its books, notwithstanding the Companies Act, 2013Correct

Explanation

Section 45NAA defines group company to include entities related through common brand name, meaning use of a registered brand name of one entity by another for business purposes. Subsection (1) lets the Bank direct the NBFC to annex or furnish information about a group company. Subsection (2) lets the Bank inspect or audit group company books notwithstanding the Companies Act, 2013. A shareholding link is therefore not required, and the objection fails.

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