rediff.com

NFRA Has Retrospective Jurisdiction Over Auditors: NCLAT

Share on:

By Rediff Money Desk, NEWDELHI   Dec 03, 2023 15:59

NCLAT upholds penalty imposed by NFRA on DHFL auditors, ruling that it has retrospective jurisdiction over misconduct. The decision impacts auditors' responsibilities and investor confidence.
NFRA Has Retrospective Jurisdiction Over Auditors: NCLAT
Illustration: Uttam Ghosh/Rediff.com
New Delhi, Dec 3 (PTI) The National Company Law Appellate Tribunal (NCLAT) has upheld the penalty imposed by the National Financial Reporting Authority (NFRA) on auditors of Dewan Housing Finance Corporation Ltd (DHFL) observing that it has retrospective jurisdiction in the case of misconduct.

Dismissing a bunch of appeals by DHFL's auditors, NCLAT in its 156-page long order said NFRA has a "clear and required retrospective jurisdiction" over the alleged offences by delinquent Chartered Accountants for a period even prior to its formation.

Earlier in April 2023, NFRA had passed an order imposing a fine of Rs one lakh each on 18 DHFL auditors, barring 14, for six months to a year, citing misconduct in branch audits.

Four of them - Harish T K, Ayna Tamtam, M Baskaran and Sam Varghese - who were debarred for one year had challenged the order by filing an appeal before NCLAT.

The preliminary ground of the appellants was that NFRA does not have any retrospective jurisdiction since the watchdog was constituted on October 10, 2018. The NFRA Rules were notified on November 13, 2018, whereas the financial statements of DHFL in question pertain to FY 2017-18.

However, a two-member NCLAT bench rejected all the points raised by the auditors and said section 132 (4) of the Companies Act, 2013, under which the auditors were debarred, can be applied retrospectively.

"After taking into consideration the background for forming NFRA, the judgment of the Apex Court, proven scams, need to restore shaken confidence of public and investors at large and prevent any adverse impact on the Indian economy, 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," it said.

Following media reports of alleged siphoning of public money of around Rs 31,000 crore and the Enforcement Directorate's reported action in April 2020, on an alleged banking fraud of about Rs 3,700 crore by the promoter/ directors of DHFL, the regulator suo-motu initiated an Audit Quality Review (AQR), as per the orders.

The review was to probe into the role of the Statutory Auditors of DHFL for FY 2017-18, the year in which the alleged fraud was primarily stated to have occurred.

The NFRA's probe found that there were violations by these auditors in their roles as Engagement Partner (EP) in the audit of DHFL branches.

During the AQR, the watchdog also found that 33 EPs or branch auditors had signed the independent branch auditors report for nearly 250 branches of DHFL but none of the appointments of these EPs were approved at the company's annual general meeting.

NCLAT, while concluding its order said: "We feel that it is of utmost importance that Auditors realise their responsibilities which is necessary not only to the company but also to the public.

"In view thereof, giving effect to the Impugned Orders which highlights the professional misconduct and other misconduct on the part of the appellant vis-à-vis a public listed company become quintessential so as to make public aware and enable them to make informed and sound financial decisions and investments," said NCLAT bench comprising Members Justice Rakesh Kumar Jain and Naresh Salecha.

Any deviation from this will only result in a catastrophic effect on the economy of the nation and cause immense prejudice and harm to the public, shareholders and various stakeholders such as banks, lenders, and creditors.
DISCLAIMER - This article is from a syndicated feed. The original source is responsible for accuracy, views & content ownership. Views expressed may not reflect those of rediff.com India Limited.

TODAY'S MOST TRADED COMPANIES

  • Company Name
  • Price
  • Volume

More »

Moneywiz Live!