The Supreme Court, led by CJI DY Chandrachud and Justices J B Pardiwala and Manoj Misra, recently upheld the disciplinary actions taken by the National Financial Reporting Authority (NFRA) against auditors. Their decision, which affirms the order of the National Company Law Appellate Tribunal dated December 1, 2023
NEW DELHI: Recently, The Supreme Court upheld an order by the National Company Law Appellate Tribunal (NCLAT) regarding disciplinary action against auditors. National Financial Reporting Authority (NFRA), the regulatory body responsible for overseeing auditors and audit firms engaged with large and listed companies.
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The apex court’s decision, which dismissed an appeal filed by chartered accountant Sam Varghese, reinforces NFRA’s authority and paves the way for stronger action against errant auditors.
Background:
Sam Varghese, a partner at K Varghese & Co., was one of the four auditors against whom NFRA had taken action. In this particular case, NFRA imposed a penalty of Rs 1 lakh and barred Varghese from practicing for a year due to lapses identified in the branch audit of DHFL (Dewan Housing Finance Corporation Limited). Varghese challenged the disciplinary action by filing an appeal with the NCLAT, which subsequently dismissed the appeal. Varghese then pursued the matter in the Supreme Court.
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The Supreme Court bench, comprising Chief Justice DY Chandrachud and Justices J. B. Pardiwala and Manoj Misra, upheld the NCLAT’s order dated December 1, 2023.
The Bench Stated:
We see no grounds to set aside the National Company Law Appellate Tribunal’s order dated December 1, 2023. This decision holds significant importance as certain disciplinary measures taken by NFRA have been contested by other auditors in various high courts where these cases are being heard. With the backing of the Supreme Court’s ruling, NFRA is now poised to present a stronger argument in these legal proceedings.”
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In recent years, the NFRA has taken proactive steps to enhance disciplinary actions against auditors and audit firms, particularly in high-profile cases involving entities such as DHFL, IL&FS, and Cafe Coffee Day, where allegations of fraud have led to the collapse of these organizations.
The NCLAT, in its order, acknowledged that both the Institute of Chartered Accountants of India (ICAI) and NFRA possess concurrent jurisdiction over disciplinary matters concerning chartered accountants. However, the NCLAT emphasized that the NFRA enjoys “superior and overriding powers” in cases of professional misconduct.
