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ICAI vs NFRA: Supreme Court's Stance
The Supreme Court of India has recently upheld the authority of the National Financial Reporting Authority (NFRA) over the Institute of Chartered Accountants of India (ICAI) in matters of professional misconduct by Chartered Accountants (CAs). Here are the key points from the sources provided:
1. Retrospective Jurisdiction of NFRA
Supreme Court Ruling: The Supreme Court dismissed an appeal challenging the National Company Law Appellate Tribunal (NCLAT) ruling that NFRA has retrospective jurisdiction. This means NFRA can investigate and take action on misconduct that occurred before its establishment in 2018.
NCLAT Judgment: The NCLAT had ruled that NFRA holds superior authority over ICAI in disciplinary matters and can investigate actions that took place before its formation. This decision was upheld by the Supreme Court, reinforcing NFRA's retrospective powers.
2. Concurrent Jurisdiction
Concurrent Powers: Both ICAI and NFRA have jurisdiction over CAs, but NFRA has been given "superior and overriding powers" in cases involving significant financial misconduct, especially those involving large and listed companies.
ICAI's Role: While ICAI continues to regulate the profession and handle disciplinary actions, NFRA can intervene in serious cases, effectively limiting ICAI's jurisdiction in such matters.
3. Legal and Procedural Concerns
Constitutionality and Legal Principles: There have been concerns about the constitutionality of NFRA's powers, particularly its ability to revoke licenses, which traditionally lies with ICAI. Critics argue that NFRA's retrospective jurisdiction conflicts with established legal principles.
Supreme Court's Position: Despite these concerns, the Supreme Court has upheld NFRA's authority, indicating that the legal framework supports NFRA's role in ensuring high standards in financial reporting and auditing.
4. Implications for Auditors
Increased Oversight: The Supreme Court's decision empowers NFRA to take stringent actions against auditors and audit firms, particularly in cases involving large-scale financial frauds. This includes penalties and debarment from practice.
High-Profile Cases: NFRA has already taken action in several high-profile cases, such as the audits of Dewan Housing Finance Ltd (DHFL), IL&FS, and Café Coffee Day, where significant financial irregularities were found.
Conclusion
The Supreme Court's rulings have solidified NFRA's authority over ICAI in matters of professional misconduct, including the power to act retrospectively. This decision underscores the importance of stringent oversight in the auditing profession, particularly for large and publicly traded companies, and aims to enhance the integrity and accountability of financial reporting in India.
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