Supreme Court permits NFRA to investigate CAs; but Limits Final Orders

To enhance the governance of India’s audit and accounting system, the Supreme Court has allowed the National Financial Reporting Authority (NFRA) to continue proceedings against Chartered Accountants (CAs) and audit firms for disciplinary cases even in cases where no Audit Quality Review Reports (AQRRs) have been prepared and final orders have not yet been issued.

However, Sanjay Kumar and Sanjiv Khanna, the Chief Justices, have said that making the final decision would not be in the hands of the NFRA, and if the final order is already made by the NFRA in any case, it will not be implemented until further instructions are given by the Court.

Legal Battle Between NFRA and Delhi High Court

The Supreme Court’s decision came after NFRA appealed against a ruling of the Delhi High Court (HC) by Justices Yashwant Varma and Dharmesh Sharma, which pointed out that NFRA didn’t have separate divisions for checking audit quality and taking disciplinary actions against auditors. Due to this, the High Court asked for 11 cases to be reviewed again, questioning NFRA’s approach. However, in the Supreme Court, NFRA argued that the Delhi HC decisions were contradicting the judgements made earlier by the National Company Law Appellate Tribunal (NCLAT) and the SC.

NFRA highlights T.K. Harish’s DHF Audit Case

NFRA mentioned the Supreme Court’s judgement in the case of T.K. Harish, who was the branch auditor of Dewan Housing Finance Corporation Ltd. (DHFL). This case itself is a big financial scam, where authorities are investigating the misuse of Rs.31,000 crore of public funds, along with bank fraud of Rs.3,700 crore.

In its appeal in the case of auditor Snehal N. Muzoomdar, NFRA has insisted that the Delhi HC decisions had an anomalous situation, where the proceedings and order passed in the case of one branch auditor have been upheld by SC.

As the case continues, everyone will be waiting for the Supreme Court’s final decision, which could change the rules and powers of the NFRA and affect how chartered accountants and audit firms follow the law.