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TMI BlogSC to examine NFRA's plea on powers to probe, penalise misconduct of CAs, accounting firmsX X X X Extracts X X X X X X X X Extracts X X X X ..... SC to examine NFRA's plea on powers to probe, penalise misconduct of CAs, accounting firms X X X X Extracts X X X X X X X X Extracts X X X X ..... NFRA approached the top court assailing certain directions of the Delhi High Court in a judgement delivered on February 7. The high court upheld the validity of Section 132(4) of the Companies Act, 2013 which empowers the NFRA to initiate disciplinary proceedings against individual partners and CAs but also auditing firms in respect of any audit. It, however, quashed the show-cause notices issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to several auditing firms, such as Deloitte Haskins and Sells LLP and Federation of Chartered Accountants Association, on the ground that the procedure adopted by the NFRA "clearly lacked attributes of neutrality and a dispassionate appraisal". The high court said that the same officials of NEFRA, who issue the show cause notices to the auditing firms and the CAs, cannot adjudicate on penalty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter probing the issues. The Supreme Court bench comprising Chief Justice Sanjiv Khanna and Justice Sanjay Kumar issued notices to the auditing firms and others on the plea of NFRA against the high court judgement after taking note of the submissions of Solicitor General Tushar Mehta, appearing for the NEFRA. The top court, however, prima facie did not agree with the submissions that the three o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficials of the NFRA be allowed to continue with the probe adjudication process following the issuance of the show cause notice to auditors and the high court verdict be stayed in the meanwhile. "This is a detailed judgment which we cannot stay like this," the CJI said, adding that under the customs and excise law, the officials, who issue show cause notice, do not assess the case later and it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be someone else. The bench highlighted the importance of having different investigating and the adjudicatory arms for ensuring fairness in the actions of NEFRA. "There are the only three members in NEFRA. They are the only members," the law officers said, adding that the functioning of the body will be affected due to the high court judgement. "Issue notice. Returnable on April 28. Reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be filed within three weeks and rejoinder thereafter," the bench said. The high court had rejected a challenge to the provisions on the power of the NFRA to investigate and penalise the misconduct of chartered accountants. It had dismissed petitions filed by individual chartered accountants and auditing firms, such as Deloitte Haskins and Sells LLP and Federation of Chartered Accountants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association, saying there was no merit in their challenge. "We uphold the validity of section 132 (of the Companies Act) and the NFRA Rules. We find no merit in the challenge based on the arguments of vicarious liability, retroactive operation and a violation of Article 20(1) of the Constitution. We also find ourselves unable to sustain the challenge to those provisions which were asserted to suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer from the vice of manifest arbitrariness and deprivation of a fair procedure," the high court said. "The prescription of a summary procedure for the trial of disciplinary matters neither obviates nor relieves the NFRA from adhering to a procedure which is in consonance with the principles of fairness and natural justice," the court had said. It left it open to the NFRA to draw fresh proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs against the petitioners and said the decision on whether disciplinary action is liable to be commenced shall be taken independently by the NFRA members, who were disconnected and disassociated from the process of audit review and the drawl of the "audit quality review reports". PTI SJK ZMN X X X X Extracts X X X X X X X X Extracts X X X X
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