NCLT’s directions to NFRA for checking audit misconducts of pre-formation period
The National Company Law Appellate Tribunal (NCLAT) has upheld the authority of the National Financial Reporting Authority (NFRA) to retroactively oversee and take action against Chartered Accountants for misconduct predating its establishment in October 2018. This means that NFRA, the country’s sole independent audit regulator, can penalise auditors and audit firms for their misdeeds that occurred before October 2018.
After taking into consideration the background for forming NFRA, the judgement of the Apex court, proven scams, need to restore shaken confidence of public and investors at large and prevent any adverse impact on 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 of relevant portion of section 132 of Companies Act.
In the landmark ruling, NCLAT has held that NFRA has (as regards listed entities and certain other Companies) superior and overriding powers in matters relating to professional misconduct of the chartered accountants in terms of Section 132 of Companies Act 2013.
This is even as disciplinary jurisdiction over CAs remain with both Institute of Chartered Accountants of India (ICAI) and NFRA on concurrent basis.
NCLAT has held that the role of branch auditor, though limited primarily to the branch, is crucial for overall audit of the company and the auditors of the branch cannot absolve his responsibilities.
