Supreme Court dismisses challenge to NCLAT ruling on retrospective powers of NFRA to probe audit misconduct

The Supreme Court recently dismissed an appeal challenging a National Company Law Appellate Tribunal (NCLAT) order, in which it had also held that the National Financial Reporting Authority (NFRA) has retrospective powers to investigate allegations of misconduct by financial auditors [Harish Kumar T.K. v. National Financial Reporting Authority]..A Bench of Justices Sanjiv Khanna and Dipankar Datta said that there was no grounds for the Court to interfere with the December 2023 NCLAT ruling "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," the May 17 Court order stated. .In the 2023 judgment, the NCLAT had dismissed a batch of appeals by four Chartered Accountants (CAs) who had challenged penalties imposed on them by the NFRA for lapses in conducting branch audits for Dewan Housing Finance Ltd (DHFL) at seventeen of the public company's branches.The NFRA had found that the four CAs had failed to adhere to various auditing standards and that they had accepted their engagement to conduct the branch audit without complying with legal requirements under the Companies Act, 2013.As penalty, the four branch auditors were asked to pay ₹1 lakh fine and debarred from performing audit functions for a year. The four orders passed by the NFRA against these auditors were then challenged by the affected CAs before the NCLAT. The accountants had argued that the NFRA lacked retrospective powers to investigate the matter, since the alleged misconduct occurred in 2017-18, which was before the NFRA’s constitution in October 2018..The NCLAT, dismissing these arguments and upheld the NFRA's decision. In the process, it also ruled that the NFRA holds superior authority over the Institute of Chartered Accountants of India (ICAI) in such matters.Notably, the NCLAT also held that the NFRA can investigate actions that took place before its formation in 2018. "We hold that NFRA has clear and required retrospective jurisdiction over the alleged offences by delinquent Chartered Accountants for period prior to formation of NFRA or prior to coming into effect relevant portion of Section 132 of Companies Act, 2013," the NCLAT said. .Aggrieved by this decision, on of the affected CAs (appellant) had approached the Supreme Court by filing an appeal. This appeal has been dismissed the Supreme Court by its May 17 order. .Senior Advocate PH Arvindh Pandian and advocate on record Goutham Shivshankar appeared for the appellant. Advocate Zoheb Hossain represented the NFRA..[Read Order]