Important decision of NCLAT – NFRA Vs. ICAI on Disciplinary matters of Chartered Accountants –Chartered Accountants Act, 1949
Important decision of NCLAT – NFRA Vs. ICAI on Disciplinary matters of Chartered Accountants –Chartered Accountants Act, 1949
DHFL appointed the firm of K. Verghese Co on 27.8.2014 as Auditors to audit 17 branches of DHFL.
The appellants – four practising Chartered Accountants of K. Varghese & Co. were assigned the said audit work.
On 10.8.2022, the National Financial Reporting Authority called the firm for audit files of branch audits for 2017-2018 on suspected frauds of promoters & directors of DHFL, appointment of branch auditors without following procedures and charged for professional misconduct.
NFRA had given show cause notices to the appellants Auditors and after hearing, imposed penalty as also debarred the Auditors on the grounds mentioned in para 25 of the judgment.
Under the CAA 1949, the disciplinary committees were empowered to decide cases and impose penalty on auditor.
After the Satyam scandal case in 2009, the National Financial Report Authority was established in 2018 and necessary amendments were made in Section 132 of the Companies Act to create NFRA as an independent regulatory body for transparency, reliability of financial statements & information of companies after statutory Audit by the Chartered Accountants.
However, ICAI continues to be responsible and has authority for examination, registration of members, investigate conduct of its members – auditors of all private companies as also public companies not covered by section 132 of the Companies Act, 2013.
In the exhaustive judgment of 156 pages, HELD, NFRA is given superior authority over ICAI on oversight of auditors and in disciplinary matters stipulated in Section 132 of the Companies Act, 2013. Moreover, NFRA Rules have retrospective application.
Judgment dated 1.12.2023 in Company Appeal (AT) No.68 of 2023 in the case of Harish Kumar T.K. Vs. National Financial Reporting Authority with connected matters.
