2023 (6) TMI 1375 - AT - Companies Law

Professional misconduct by CA - penalty order u/s 132 (4)(c) of the Companies Act, 2013 - submission is that after filing of the Appeal and deposit of 10% of penalty, further proceedings as contemplated in Rule 12 regarding the intimation cannot take place - HELD THAT - Rule 12, sub-rule (3), uses expression imposition of penalty or debars the Auditors from practices. Sub-rule (3) requires sending of the order to every company or body corporate in which the Auditor is functioning as Auditor. Sub-rule (3) of Rule 12 is, thus, independent provision. Thus, Rule 12, sub-rule (2) provides that action against Auditor in event the Appeal is filed under Rule 12, sub-rule (1), after depositing the 10% penalty amount, the consequences as contemplated under Rule 12, sub-rule (2) shall not take place. Thus, in case when an Appeal is filed with deposit of 10% of penalty, it is not obligatory to the company or body corporate to appoint a new Auditor as required by sub-section (2) of Rule 12. However, sub-rule (1) and (2) are only confine to cases where only monetary penalty has been imposed. These two sub-rules have no application with regard to cases where penalty of debarment has been imposed. Omission of debarment in sub-rules (1) and (2) are with the purpose and object. The learned Counsel for the Respondent has placed reliance on judgment of Hon ble Supreme Court in MD. ALAUDDIN KHAN VERSUS KARAM THAMARJIT SINGH 2010 (7) TMI 1006 - SUPREME COURT where Hon ble Supreme Court while considering the principle of statutory construction has noted the principle that express inclusion of one thing is the exclusion of all others. The consequence of subrule (4), Rule 12 is that when procedure under Rule 12, sub-rule (2) has been initiated, company or body corporate has to appoint a new Auditor, the clear intendment is that in case of a debarment, the Auditor is not entitled to continue to discharge his functions and a new Auditor as contemplated is to be appointed - Rule 11, sub-rules (6) and (7), which provides that the orders passed under sub-rules (6) and (7) shall not become effective until thirty days have elapsed from the date of issue of the order unless the Division states otherwise in the order along with the reason for the same. Present are cases where the orders were not to become effective until thirty days have elapsed. There is purpose and reason for providing the thirty days period. Thirty days period is provided for Auditors against whom orders have been passed to wound up their affairs in company or body corporate where they have been functioning. Filing of the Appeal by the Appellant(s) with deposit of 10% of the penalty shall have no effect on the order of debarment passed against the Appellant(s) under Section 132(4)(c) and under head (B). Order of debarment shall continue to operate unless an order is passed by the Appellate Tribunal - it is deemed fit and appropriate to give an opportunity to the Appellant(s) to make their submissions on the merit and this Tribunal after hearing the Appellant(s) as well as Respondents shall take appropriate decision on the application filed for the interim relief in each of the Appeal(s). All these Appeal(s) be listed for admission and consideration of application for interim relief on 3rd July, 2023.

Summary

Issues Involved:
1. Imposition of penalty under Section 132(4)(c) of the Companies Act, 2013.
2. Interpretation of Rule 12 of the National Financial Reporting Authority Rules, 2018.

Summary:

Issue 1: Imposition of Penalty under Section 132(4)(c) of the Companies Act, 2013

The Appeals were filed by several Chartered Accountants challenging the order passed by the National Financial Reporting Authority (NFRA) imposing penalties under Section 132(4)(c) of the Companies Act, 2013. The NFRA had imposed a monetary penalty of Rs.100,000 and debarred CA Harish Kumar T.K. for one year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

Issue 2: Interpretation of Rule 12 of the National Financial Reporting Authority Rules, 2018

The main contention was the interpretation of Rule 12 of the 2018 Rules, particularly whether filing an appeal and depositing 10% of the penalty amount prevents further actions under Rule 12, sub-rules (2), (3), and (4). The Appellant argued that no further action should be taken once an appeal is filed and 10% of the penalty is deposited. The Respondent countered that Rule 12, sub-rules (2), (3), and (4) are independent provisions and need to be complied with regardless of the appeal and deposit.

The Tribunal noted that Rule 12, sub-rule (1) applies only to monetary penalties and not to cases of debarment. Sub-rules (3) and (4) use the term "debars" and are independent provisions. Therefore, the filing of an appeal and deposit of 10% penalty amount does not prevent the implementation of sub-rules (3) and (4). The Tribunal emphasized that the statutory principle of expressio unius est exclusio alterius (the express inclusion of one thing excludes all others) applies here, indicating that Rule 12, sub-rules (1) and (2) are not applicable in cases of debarment.

The Tribunal concluded that the order of debarment continues to operate unless stayed by the Appellate Tribunal. The Tribunal also highlighted that the provisions of the statute and Rule 12 do not obligate the company or body corporate to appoint a new auditor in cases of monetary penalty only, allowing the auditor to continue discharging functions unless decided otherwise by the company or body corporate.

The Tribunal decided to give an opportunity to the Appellants to make submissions on the merits of the challenge to the impugned order and scheduled the appeals for further hearing on 3rd July 2023.