Citation: 2024 INSC 94
Date of Judgment: 08/02/2024
Case No: Civl Appeal No.4672 of 2012
Case Type: N/A
Appellant: Naresh Chandra Agrawal
Respondent: The Institute of Chartered Accountants of India and others
Bench:
- Hon’ble Justice P.S. Narasimha
- Hon’ble Justice Aravind Kumar
Court: Supreme Court of India
Statutes Referred:
- Chartered Accountants’ (Amendment) Act, 2006 – Sec 21A, Sec 29A
- Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 – Rule 9
Cases Referred:
- State of Tamil Nadu and Anr. V. P. Krishnamurthy and Ors. (2006) 4 SCC 517
- State of Jammu and Kashmir v Lakhwinder Kumar and Ors. (2013) 6 SCC 333
- Academy of Nutrition Improvement v Union of India (2011) 8 SCC 274
- State of Kerala v. Shri M. Appukutty (1963) 14 STC 242
- PTC India Ltd. V. Central Electricity Regulatory Commission (2010) 4 SCC 603
Facts:
- The Bank of Rajasthan Limited (Complainant Bank) hired the services of M/s Ramesh C. Agrawal & Co. (the firm) for conducting audit work in which they have to submit audit reports by the 7th of succeeding month regarding daily transactions of Sahara India, Aliganj, Lucknow Branch for a period of 3 year beginning on January 1, 2007.
- The Firm also have to take care of suspicious activity or foul play related to transactions and in case they found any, they have to report it to the Chief Executive Officer of the Complainant bank
- On September 27, 2009, a series of circuitous transactions involving huge amounts of money are reported to have occurred in particular accounts of the branch, which were not pointed out in the monthly audit report.
- The Complainant alleges that by failing to point out the suspicious transactions that occurred on September 27, 2009, the M/s Ramesh C. Agrawal & Co. failed to execute its professional duties under the terms agreed upon as the main purpose for hiring the services was timely detection of irregularities in transactions.
- The Complainant wrote letter to firm asking for explanation to which no satisfactory response was received. Another letter was issued to Firm by the Complainant, but still no reply was received.
- The Complainant registered the Complaint against Audit Firm to Director (Discipline), on which Director forwarded a copy of Complaint to Audit Firm and asked for the name of member responsible for conducting audit work and preparing report.
- The Audit Firm responded via letter to Director in which it was mentioned that Appellant (Naresh Chandra Agrawal) was responsible for audit work and preparing report.
- The Appellant filed his written statement in response to which Complainant submitted his rejoinder along with some documents.
- After considering the written statement, rejoinder and document the Director came to conclusion that Appellant is not guilty of Professional Misconduct within the meaning of clause (7), (8) and (9) of Part 1 of the Second Schedule of the Chartered Accountants’ (Amendment) Act, 2006.
- The Board of Discipline disagreed with the opinion of Director and decided to refer the matter to the Disciplinary Committee for further action under Chapter V of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.
- This action of Board of Discipline of rejecting the opinion of Director and referring the matter to Disciplinary Committee was challenged before the High Court of Delhi via Writ Petition and it was prayed to declare Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 as invalid on the ground that the said rule was ultra vires Section 21 A (4) of the The Chartered Accountants (Amendment) Act, 2006.
- The Learned Division Bench of High Court dismissed the challenge of Appellant. Thus Appellant approached the Supreme Court.
Issues Involved:
- Whether Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 is inconsistent with Section 21 A (4) of the The Chartered Accountants (Amendment) Act, 2006?
- Whether Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 is beyond the rule-making power of the Central Government?”
Contentions of Petitioner/Appellant:
The counsel for the Petitioner contended that:
- It is against the opinion of Director (Discipline), the Board of Discipline has two options according to Section 21A (4) of The Chartered Accountants (Amendment) Act, 2006:-
- It could either close the matter at very stage or
- Direct the Director (Discipline) to further investigate the matter.
- The Board should not have for granted the Director (Discipline) and Act as investigating agency by referring the matter to Disciplinary Committee.
- The action challenged in this appeal lacks a substantial foundation under the parent Act.
- Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 being a delegated legislation, cannot exceed its power as compare to Parent Act.
Contentions of the Respondent:
The counsel for the Respondent contended that:
- The Director (Discipline), who serves as the Board’s secretary, will have more authority than the Board itself if the Director’s view is accepted as final as the Board will bot be able to cancel the view taken by the Director (Discipline).
- If the Appellant argument is accepted, the Board authority will only get limited to instructing the Director (Discipline) to carry out additional investigation which will go against the very intention of legislation.
- There is nothing in the scheme of the Act that prevents the Board from referring the issue to the Disciplinary Committee for additional investigation.
Judgment:
The Appeal of the Appellant was dismissed and It was held that Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 is totally consistent with the intent and purpose of creating the Chapter on ‘Misconduct’ under The Chartered Accountants (Amendment) Act, 2006.
Ratio Decidendi:
The Court upheld the impugned rule’s validity, emphasizing the principle of ‘generality vs. enumeration.’ Rule 9(3) falls under the general delegation power of the Central Government and aligns with the Act’s purpose, consistent with Section 21 A (4) of The Chartered Accountants (Amendment) Act, 2006.
Obiter Dicta:
The Court provided legal principles for adjudicating subordinate legislation as ‘ultra vires’ the parent Act, emphasizing the need for adherence to the Act’s scope and purpose.
- The Subordinate Legislation must function within the purview of the Parent Act as it gets it power only from the statute.
- Ultra vires can arise in several ways like exceeding it’s power as compare to conferred by Parent Act, Non Compliance with procedure mentioned in Parent Act.
- If any rule is challenged as ultra vires then the court must first determine the source of power and then determine the meaning of the subordinate legislation and then finally determine whether the subordinate legislation is consistent with the power delegated.
- “Generality vs enumeration”, specified enumerated heads does not limit the general delegation power.
- The General Delegation Power granted by the Act must not be exceeded and must be used only for carrying out the purposes of the Act.
Conclusion
The ruling of Supreme Court in the matter establishes a standard for how complaints about misconduct in the chartered accountancy industry would be handled. The Supreme Court in the matter sets a precedent by setting the guidelines for adjudication of Subordinate Legislation as ‘Ultra – Vires’ the Parent Act. Further in this case it was concluded that it is very necessary for the Subordinate Legislation stay within its limits and not exceed its power beyond the powers of Parent Act.
Drafted By :- Sargam Bansal
Published on: February 13, 2024 at 16:44 IST