In a pivotal ruling, the Delhi High Court has upheld the power of the National Financial Reporting Authority (NFRA) to oversee and penalize misconduct among chartered accountants and audit firms. The decision comes after a bench comprising Justices Yashwant Varma and Dharmesh Sharma dismissed several petitions challenging the NFRA’s regulatory powers, filed by entities including Deloitte Haskins and Sells LLP and the Federation of Chartered Accountants Association.
The court found no merit in the arguments presented against Section 132 of the Companies Act and the associated NFRA Rules, which include concerns over vicarious liability, retroactive effects, and violations of Article 20(1) of the Constitution. The petitioners had argued that these provisions imposed unfair liabilities on audit firms and their partners and advocated for a summary procedure in trials that they claimed was arbitrary and deprived them of fair procedures.
While the court rejected the challenge to the NFRA’s overarching authority, it did quash the show-cause notices and final orders previously issued to the petitioners. The justices pointed out that the procedures followed in these instances lacked neutrality and failed to provide a dispassionate appraisal, highlighting procedural flaws that undermined the fairness of the proceedings.
