| CITATION | 2024 INSC 94 |
| DATE OF JUDGMENT | February 08, 2024 |
| COURT | Supreme Court of India |
| APPELLANT | Naresh Chandra Agrawal |
| RESPONDENT | The Institute of Chartered Accountants of India & Others |
| BENCH | Hon’ble Justice Mr. Aravind kumar and Hon’ble Justice Mr. Pamidighantam Sri Narasimha |
INTRODUCTION
In this case, the Bank of Rajasthan Limited, in this case referred to as the “Complainant-bank” in the document, is the complainant. They lodged a complaint against M/s Ramesh C. Agrawal & Co., the audit company that the bank had hired to perform audit work at the Lucknow branch of Sahara India, Aliganj. Naresh Chandra Agrawal is the appellant in Civil Appeal No. 4672 of 2012, contesting the acts of The Institute of Chartered Accountants of India (ICAI) and others. The main point of contention in this case is how the Board of Discipline and the Director of Discipline should handle a complaint filed against an audit firm. Using the argument that it is ultra vires of section 21 A(4) of the Chartered Accountants’ (Amendment) Act, 2006, the appellant contests the referral of the case to the Disciplinary Committee under Rule 9(3)(b) of the Chartered Accountants’ (Procedure of investigation of Professional and Other Conduct of Cases) Rules, 2007.
FACTS OF THE CASE
- On December 21, 2009, the complainant filed a complaint against an audit firm.
- The Director of Discipline asked the audit company to identify the member or members in charge of the audit and report writing for the transaction in question.
- The audit company declared on February 15, 2010, that the appellant was in charge of examining the transactions in question.
- On February 4, 2010, the appellant filed a written statement, and on February 6, 2010, the complainant bank responded.
- The Director (Discipline) asked the complainant for more papers on December 10, 2010.
- The Disciplinary Committee was consulted in accordance with the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 since the Board of Discipline disapproved of the Director’s initial assessment.
- In W.P.(C) No.6488 of 2011, the Delhi High Court heard a challenge to the Board’s decision, arguing that Rule 9(3)(b) of the Rules, 2007 was unconstitutional since it beyond the bounds of section 21 A (4) of the Act. The Division Bench denied the challenge, which prompted the appellants to file an additional appeal.
ISSUES RAISED
- Did M/s Ramesh C. Agrawal & Co., the audit firm, carry out its professional duty to promptly identify anomalies and disclose suspicious transactions as stipulated in the agreement with the Bank of Rajasthan Limited?
- Does Rule 9(3)(b) of the Rules, 2007, which regulates audit practices, go beyond the Central Government’s authority to make rules and conflict with other Act provisions?
CONTENTIONS OF APPELLANT
- The Board may choose to close the case or direct the Director to conduct additional investigation if the Director (Discipline) establishes a prima facie view of the alleged misbehavior, as stated in Section 21A(4) of the Act.
- Because the contested Rule is delegated law, it is limited to the provisions of the parent Act. Therefore, Rule 9(3) should not permit acts that are not included in the Act.
- By permitting the Board to report the problem directly to the Disciplinary Committee or take action on its own, potentially going beyond its legislative authority, Rule 9(3) gives the Board jurisdiction beyond that specified in Section 21A(4).
CONTENTIONS OF RESPONDENT
- Maintaining the belief that the Board should have final say over all disciplinary matters is crucial in order to keep the Director (Discipline) from being given more authority than the Board itself.
- The legislative intent for the Board to be able to send the case to the Disciplinary Committee is shown by the fact that Section 21A(4) does not expressly forbid the Board from doing so.
- The purpose of Rule 9(3) is in line with the Act’s ‘Misconduct’ chapter, which aims to shield legitimate reports of professional misconduct from being rejected too soon. This falls under the broad authority granted by Section 29A(1).
JUDGEMENT
The ruling addresses the fundamentals of contesting subordinate laws, with a particular emphasis on whether the regulations go beyond the powers granted by the enabling Act. It states that the Act’s specific enumerations are meant to serve as examples only, not as a restriction on the overall authority granted. This principle is demonstrated by citing a number of prior cases, including Academy of Nutrition Improvement v. Union of India (2011) 8 SCC 274, PTC India Ltd. v. Central Electricity Regulatory Commission (2010) 4 SCC 603, and Afzal Ullah v. The State of Uttar Pradesh 1963 SCC Online SC 76. These judgments highlight the fact that the general authority granted is not limited by the particular powers listed, and that rules can be justified if they are developed in accordance with the Act’s overall objectives. The ruling thus emphasizes how crucial it is for efficient administration to strike a balance between specificity and generality in legal delegation. In the case of State of Jammu and Kashmir v. Lakhwinder Kumar and Ors. (2013) 6 SCC 333, the particular capacity to enact regulations supersedes the general power to do so. This principle permits the voice of a residuary provision.
ANALYSIS
The Chartered Accountants Act is thoroughly examined in this review, with particular attention paid to the disciplinary procedures in place for handling misconduct accusations. It covers the creation of the Disciplinary Directorate, the makeup of pertinent committees, and the power of the Central Government to create regulations. It examines Rule 9 of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 in particular to make sure it complies with the Act’s requirements and doesn’t go beyond its authority to make rules. The analysis underscores the significance of maintaining professional integrity, protecting public interests, and sustaining ethical standards, with a special focus on the Act’s objectives concerning misbehavior. It emphasizes how important it is to have an open and honest disciplinary procedure in order to guarantee responsibility and preserve the standing of the industry.
CONCLUSION
In conclusion, the ruling highlights the idea of ultra vires, which holds that subordinate law must function within the bounds of the parent Act’s power. It describes situations in which ultra vires may happen, like going beyond authority granted or acting inconsistently with the parent Act. Assessing the source of power, interpreting subordinate laws, and determining its compliance with the delegated authority are the tasks assigned to the court. In light of these guidelines, the court rejects the appeal and determines that there is no justification for expenses.
REFERENCES
https://indiankanoon.org/doc/26461401/
https://www.latestlaws.com/latest-caselaw/2024/february/2024-latest-caselaw-81-sc
This article is written by Ankita Maurya student of Graphic Era Hill University, Dehradun; Intern at Legal Vidhiya.
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