The Supreme Court of India has agreed to consider a plea by the National Financial Reporting Authority (NFRA), reported news agency Press Trust of India.
The plea concerns its authority to issue show cause notices, investigate, and penalise misconduct among chartered accountants and accounting firms.
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This move comes after the NFRA challenged certain directions from the Delhi High Court’s judgement regarding the IL&FS audit case.
The High Court confirmed the NFRA’s power under Section 132(4) of the Companies Act, 2013, to initiate disciplinary proceedings.
However, it invalidated the show cause notices sent to several firms, including Deloitte Haskins and Sells and the Federation of Chartered Accountants Association.
The notices, issued over a three-year period to Deloitte Haskins & Sells and SRBC & Co, were part of NFRA’s probe into alleged professional misconduct during audits of IL&FS entities around six years ago.
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By GlobalDataThe High Court criticised the NFRA’s procedure for lacking neutrality and dispassionate appraisal, stating that the same officials who issued show cause notices should not adjudicate penalties after an investigation.
In response, the Supreme Court bench, led by chief justice Sanjiv Khanna and justice Sanjay Kumar, issued notices to the involved auditing firms upon NFRA’s appeal against the High Court judgement.
However, the Supreme Court did not concur with the argument that the three NFRA officials should continue with the probe adjudication process after issuing show cause notices.
The Court suggested that the NFRA could initiate new proceedings against the petitioners, with the decision on disciplinary action to be taken independently by NFRA members not involved in the audit review or the creation of “audit quality review reports”.
The High Court said: “We uphold the validity of section 132 (of the Companies Act) and the NFRA Rules. We find no merit in the challenge based on the arguments of vicarious liability, retroactive operation and a violation of Article 20(1) of the Constitution.
“We also find ourselves unable to sustain the challenge to those provisions which were asserted to suffer from the vice of manifest arbitrariness and deprivation of a fair procedure.”
