In a decisive move, the Supreme Court has dismissed an appeal challenging the National Company Law Appellate Tribunal’s (NCLAT) decision, which affirmed the National Financial Reporting Authority’s (NFRA) authority to investigate audit misconduct retroactively.
A bench comprising Justices Sanjiv Khanna and Dipankar Datta upheld the NCLAT’s December 2023 ruling, finding no valid grounds to overturn it. “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,” stated the Court’s order dated May 17.
The controversy stemmed from penalties imposed by the NFRA on four Chartered Accountants for failing to meet auditing standards during branch audits of Dewan Housing Finance Ltd (DHFL) across seventeen branches. The misconduct, dating back to 2017-18, was scrutinized despite occurring before the NFRA’s establishment in October 2018.
The accused auditors were fined ₹1 lakh each and barred from audit activities for a year. Their appeal to the NCLAT, which argued the NFRA lacked authority over actions predating its formation, was dismissed. The NCLAT not only supported the penalties but also asserted the NFRA’s superior jurisdiction over the Institute of Chartered Accountants of India (ICAI) in these matters.
The NCLAT clarified, “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.”
Discontented with this outcome, one of the implicated auditors took the matter to the Supreme Court, which has now closed the chapter with its recent order. Representing the appellant was Senior Advocate PH Arvindh Pandian, with Goutham Shivshankar as the advocate on record. NFRA’s defense was led by Advocate Zoheb Hossain.
