NFRA should be empowered to take action against CA for professional or other misconduct [Company Law Committee]

As per the Company Law Committee Report, one of the suggestions of the Company Law Committee is to suitably amend the Company Act 2013 (CA-13) to empower National Financial Reporting Authority (NFRA) to take appropriate action against Chartered Accountants in matters of ‘professional or other misconduct. There should also be specific provisions to enable NFRA to initiate appropriate penal action in case its orders are neither complied with nor any appeal against such an order has been filed in the NCLAT.

Section 132(4) of CA-13 provides that NFRA shall have the power to investigate matters of ‘professional or other misconduct’ committed by any member or firm of chartered accountants. When such misconduct is proved, it can impose a penalty or debar the member or the firm from being appointed as an auditor or internal auditor or valuer under CA-13 or from undertaking an audit, internal audit, and valuation under the Act. The amount of penalty and period of debarment (both in the case of individuals and firms) has been provided under such provisions.

Summary of Report of The Company Law Committee: Know the Important Changes in Brief

Professional or other misconduct has the same meaning assigned under Section 22 of the Chartered Accountants Act, 1949, which reads as under:

“For the purposes of this Act, the expression “professional or other misconduct” shall be deemed to include any act or omission provided in any of the Schedules, but nothing in this Section shall be construed to limit or abridge in any way the power conferred or duty cast on the Director (Discipline) under sub-section (1) of Section 21 to inquire into the conduct of any member of the Institute under any other circumstances.”

The First and Second Schedules under the Chartered Accountants Act, Act1949, contain matters that would be considered “professional misconduct” about chartered accountants in practice, chartered accountants in service, members of the Institute of Chartered Accountants of India (ICAI) generally, and other misconduct about members of the ICAI generally.

The Committee discussed that as of now NFRA does not have the powers to take actions against individuals and firms for non-compliance with CA-13 and requirements thereunder, which do not qualify as ‘professional or other misconduct. In particular, it was informed that as per data with the MCA, approximately 11,000 auditors had not filed NFRA 2 – an annual return to be filed by auditors under Rule 5 of the NFRA Rules, 2018.