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

CA Tanvi audits Kaveri Leasing Ltd, an NBFC, and the RBI has issued directions to NBFC auditors on disclosure of liabilities in the books of account under its power in the RBI Act. Separately, the NBFC's promoter group includes Kaveri Brands Pvt Ltd, which shares the registered brand name used by the NBFC, and the NBFC holds 22% equity shares in Kaveri Realty Ltd. The RBI directs the NBFC to furnish statements on the affairs of these entities and also orders an audit of their books. Which conclusion is correct under the RBI Act, 1934?

Both entities can be group companies, one through common brand name use and the other through equity investment of twenty per cent or more. Under section 45NAA the RBI may call for statements about them and may cause inspection or audit of their books notwithstanding the Companies Act, 2013.

1. ABoth entities can be 'group companies' (common brand name; equity investment of 20% or more), so the RBI may seek statements and may cause inspection or audit of their books despite the Companies Act, 2013Correct
2. BOnly entities that are subsidiaries qualify as group companies, so the RBI has no power over these two
3. CThe RBI can obtain statements but can never cause audit of a group company's books
4. DEquity investment qualifies only above 50%, so Kaveri Realty is excluded, though the brand entity is covered