The Supreme Court recently dismissed an appeal challenging a National Company Law Appellate Tribunal (NCLAT) order, which affirmed that the National Financial Reporting Authority (NFRA) has retrospective powers to investigate allegations of misconduct by financial auditors [Harish Kumar T.K. v. National Financial Reporting Authority].
A Bench of Justices Sanjiv Khanna and Dipankar Datta found no grounds to interfere with the December 2023 NCLAT ruling.
“We do not find any good ground and reason to interfere with the order of the National Company Law Appellate Tribunal dated 01.12.2023 in Company Appeal (AT) No. 68 of 2023 and hence, the present appeal is dismissed,” the Court order stated on May 17.
In the 2023 judgment, the NCLAT dismissed a batch of appeals by four Chartered Accountants (CAs) who had challenged penalties imposed by the NFRA for lapses in conducting branch audits for Dewan Housing Finance Ltd (DHFL) at seventeen branches of the public company.
The NFRA found that the four CAs failed to adhere to various auditing standards and accepted their engagement to conduct the branch audit without complying with legal requirements under the Companies Act, 2013.
As a penalty, the four branch auditors were fined ₹1 lakh each and debarred from performing audit functions for a year. These orders were then challenged by the affected CAs before the NCLAT.
The accountants argued that the NFRA lacked retrospective powers to investigate the matter, as the alleged misconduct occurred in 2017-18, before the NFRA’s establishment in October 2018.
The NCLAT dismissed these arguments and upheld the NFRA’s decision, ruling that the NFRA holds superior authority over the Institute of Chartered Accountants of India (ICAI) in such matters.
Notably, the NCLAT also held that the NFRA can investigate actions that took place before its formation in 2018.
“We hold that NFRA has clear and required retrospective jurisdiction over the alleged offences by delinquent Chartered Accountants for the period prior to the formation of NFRA or prior to the coming into effect of the relevant portion of Section 132 of the Companies Act, 2013,” the NCLAT stated.
Aggrieved by this decision, one of the affected CAs (the appellant) approached the Supreme Court by filing an appeal, which the Supreme Court dismissed on May 17.
Senior Advocate PH Arvindh Pandian and advocate on record Goutham Shivshankar represented the appellant.
Advocate Zoheb Hossain represented the NFRA.
