NEW DLEHI: In a boost to the National Financial Reporting Authoritythe National Company Law Appellate Tribunal (NCLAT) has held that the agency set up to keep an oversight over auditors of listed and large companies has “superior authority” over the Institute of Chartered Accountants of India (ICAI) on disciplinary matters.
While rejecting an appeal by the auditors of scam-tainted DHFL, NCLAT also held that NFRA has “retrospective jurisdiction” in initiating proceedings against errant chartered accountants for a period prior to its formation.In October 2018, the agency was set up after a series of scandals due to accounting and audit lapses.
NFRA had held four chartered accountants – Harish T K, Ayna Tamtam, M Baskaran and Sam Varghese – who were working with K Varghese & Co, guilty of multiple violations. The firm had been assigned to conduct audit of 17 branches of DHFL. The four had been barred from practice for a year and slapped with Rs 1 lakh penalty by NFRA. The order was challenged by them.
In its order, NCLAT has held that the disciplinary jurisdiction over the professionals was with ICAI and but in “important and serious matters especially involving large alleged accounting or financial frauds, or matters of public interest, etc, NFRA suo moto can initiate investigation or take for investigating and ICAI will cease to exercise such disciplinary jurisdiction”.
Addressing 10 issues raised by the CAs, NCLAT members Justice Rakesh Kumar Jain and Naresh Salecha also ruled that while the role of a branch auditor was limited to a branch, it was critical for overall audit of the company, and they cannot be absolved of their responsibilities. “We cannot overlook the fact that the allegations of fraud involving Rs 31,000 crores by DHFL, including banking fraud of about Rs 3,700 crores by the directors of DHFL, happened and the auditors clearly failed in their duties,” the bench said in its 155-page order.
It further said that the role of ICAI and NFRA are not restricted to probing professional discipline. “The powers are far more and wider and any conduct which makes auditor of unbecoming of such profession will make him liable for suitable investigation and if found guilty may face punishment as per law,” it said.
It also said that NFRA has more powers and the authority for professional misconduct of ICAI members in comparison to powers and authority of the Institute which is the agency for conducting exams, registration and also regulate professionals.
Dismissing the arguments put forward by the four auditors, NCLAT also said that NFRA had applied the principle of proportionality and imposed lower than the permissible penalty.
While rejecting an appeal by the auditors of scam-tainted DHFL, NCLAT also held that NFRA has “retrospective jurisdiction” in initiating proceedings against errant chartered accountants for a period prior to its formation.In October 2018, the agency was set up after a series of scandals due to accounting and audit lapses.
NFRA had held four chartered accountants – Harish T K, Ayna Tamtam, M Baskaran and Sam Varghese – who were working with K Varghese & Co, guilty of multiple violations. The firm had been assigned to conduct audit of 17 branches of DHFL. The four had been barred from practice for a year and slapped with Rs 1 lakh penalty by NFRA. The order was challenged by them.
In its order, NCLAT has held that the disciplinary jurisdiction over the professionals was with ICAI and but in “important and serious matters especially involving large alleged accounting or financial frauds, or matters of public interest, etc, NFRA suo moto can initiate investigation or take for investigating and ICAI will cease to exercise such disciplinary jurisdiction”.
Addressing 10 issues raised by the CAs, NCLAT members Justice Rakesh Kumar Jain and Naresh Salecha also ruled that while the role of a branch auditor was limited to a branch, it was critical for overall audit of the company, and they cannot be absolved of their responsibilities. “We cannot overlook the fact that the allegations of fraud involving Rs 31,000 crores by DHFL, including banking fraud of about Rs 3,700 crores by the directors of DHFL, happened and the auditors clearly failed in their duties,” the bench said in its 155-page order.
It further said that the role of ICAI and NFRA are not restricted to probing professional discipline. “The powers are far more and wider and any conduct which makes auditor of unbecoming of such profession will make him liable for suitable investigation and if found guilty may face punishment as per law,” it said.
It also said that NFRA has more powers and the authority for professional misconduct of ICAI members in comparison to powers and authority of the Institute which is the agency for conducting exams, registration and also regulate professionals.
Dismissing the arguments put forward by the four auditors, NCLAT also said that NFRA had applied the principle of proportionality and imposed lower than the permissible penalty.
