2024 (10) TMI 633 - AT - Companies Law

Professional misconduct - Non-compliance with applicable accounting standards - non-cooperation of Auditor - Appellant did not respond to the various letters and show cause notice issued by the NFRA - Section 132 (5) read with Section 410 of the Companies Act, 2013 - violation of principles of natural justice. Only plea of the Appellant in his defence is that he relocated himself in Nepal in 2021 and therefore he could not receive any letters and also since in Nepal his telephone was not working and his e-mail was also not accessible. HELD THAT - At one hand, the Appellant claims that from Nepal he replied to SEBI on E-mail but on the other hand he claims that he could not open his e-mail in Nepal and therefore could not reply to NFRA. This statement and the submission is just not acceptable. In the present era of technology and modern communications, where e-mails are accessible across the globe and on any instrument including mobile and laptops, it is extremely difficult for anyone to believe such submissions of the Appellant and therefore such submissions of the Appellant are rejected - Similarly, the grounds that his mobile was not accessible being in Nepal, is also not convincing. It is strange that during the entire process of the disciplinary proceedings initiated by NFRA through various modes of communications and for considerable period of time, the Appellant has claimed that he did not notice anything or anything was brought to his notice by anyone but immediately after the issue of the impugned order dated 5th January, 2024, someone informed him about the imposition of penalty by NFRA on him and he filed the present Appeal in February, 2024. Thus, such bogus claims of Appellant regarding non-accessibility and non-receipt of communications and therefore not replying to NFRA cannot be accepted. NFRA during pleading has confirmed that they have followed the due process of law and principles of natural justice and also examined all records and came to conclusion regarding establishing the various charges against the Appellant being professional misconduct in accordance with the law and thereafter passed the impugned order imposing the highest penalty since the Appellant refused to cooperate with NFRA and incidentally the Appellant also did not cooperate with SEBI which was communicated to NFRA - the submissions made by the NFRA agreed upon and there are no error in the impugned order. It is true that the principles of proportionality is relevant for any Authority like NFRA, in deciding quantum of punishment in the disciplinary proceeding. It is well settled principle of law that judicial review, generally speaking, is directed against the decision making process . In other words, the type and the quantum of penalty is by and large remains within the jurisdiction of the authority who has been vested with powers as in case of NFRA in terms of Companies Act, 2013. It is true that the punishment should be reasonable keeping in view the facts and circumstances of each case and the adverse impact in particular cases should not be vindictive or unduly hardship. The penalty imposed on the Appellant is the maximum penalty which NFRA was entitled to i.e. Rs.20 lakhs and 10 years debarment on the Appellant for conducting any audit work. However, it is also fact that the Appellant chose deliberately to avoid any submission of record and NFRA did not have any benefit of the defence of the Appellant by way of the records, if any, maintained by the Appellant to justify compliance of relevant standards like SA 230. The Appellant is eligible for relief and concessions based on principle of proportionality, in case he is able to satisfy the concerned authority like NFRA herein, about his due diligence and not otherwise and in absence of any submission or interaction with NFRA the Appellant is well aware of the consequences he has to face. The Appellant, being Chartered Accountant, is well qualified and understands the legal implications of his conduct. There are no illegality in the Impugned Order - appeal dismissed.

Summary

Issues Involved:

1. Non-compliance with accounting standards and professional misconduct by the Appellant.
2. Alleged non-cooperation with NFRA and SEBI.
3. Violation of principles of natural justice.
4. Quantum of penalty imposed by NFRA.

Issue-wise Detailed Analysis:

1. Non-compliance with Accounting Standards and Professional Misconduct:

The Appellant, a statutory auditor for SEYA Industries Ltd. for the financial years 2018-2019 and 2019-2020, was accused of professional misconduct due to non-compliance with applicable accounting standards. SEBI's investigation into SEYA Industries Ltd. highlighted the company's non-compliance with accounting standards and the Appellant's alleged non-cooperation. NFRA, acting on SEBI's referral, requested audit documentation from the Appellant, which was not provided. Consequently, NFRA issued a Show Cause Notice and, upon receiving no response, concluded that the Appellant failed to maintain audit files as required by SA 230, leading to a penalty and debarment.

2. Alleged Non-cooperation with NFRA and SEBI:

The Appellant did not respond to multiple communications from NFRA requesting audit files and information. Despite attempts through letters, emails, and phone calls, the Appellant remained unresponsive. The Appellant claimed relocation to Nepal as the reason for non-receipt of communications, stating that his phone was off and emails inaccessible. However, the Tribunal found this defense unconvincing, noting the Appellant's conflicting claim of having communicated with SEBI via email from Nepal.

3. Violation of Principles of Natural Justice:

The Appellant argued that NFRA violated the principles of natural justice by not hearing him before passing the impugned order. However, the Tribunal observed that NFRA had provided ample opportunities for the Appellant to respond and submit necessary documents, which he failed to do. The Tribunal concluded that NFRA followed due process and principles of natural justice, and the Appellant's claims of non-receipt of communications were not credible.

4. Quantum of Penalty Imposed by NFRA:

The Appellant contended that the penalty imposed was excessive and not proportionate to the alleged misconduct. Citing a previous Tribunal judgment, the Appellant argued that NFRA did not consider the principle of proportionality. The Tribunal acknowledged the relevance of proportionality but emphasized that the penalty decision lies within NFRA's jurisdiction. Given the Appellant's deliberate non-cooperation and failure to provide any defense or documentation, the Tribunal found no grounds to interfere with the penalty's quantum. The Tribunal reiterated the importance of auditors adhering to standards and the significant role of certified financial statements in stakeholder decisions.

In conclusion, the Tribunal upheld NFRA's order, finding no illegality or error in the proceedings. The appeal was dismissed as devoid of merit, with the Tribunal refraining from interfering with the penalty imposed due to the Appellant's non-compliance and unconvincing defenses.