Audit watchdog gets SC nod to tighten grip on chartered accountants and companies

The Supreme Court has permitted the National Financial Reporting Authority (NFRA) to proceed with its disciplinary actions against chartered accountants and audit firms in cases where audit quality review reports have not yet been prepared and final orders are pending. However, the court has directed NFRA not to issue final orders in these cases, while also ruling that any final orders already passed will not be enforced for now.

The order came during a hearing on NFRA’s challenge to a ruling by the Delhi High Court. A bench of Chief Justice Sanjiv Khanna and Justice Sanjay Kumar reviewed the matter after the regulator appealed against the high court’s concerns over the structure of NFRA’s functioning. The Delhi HC, in an earlier order by Justices Yashwant Varma and Dharmesh Sharma, had questioned NFRA’s lack of separate divisions to handle audit quality reviews and disciplinary actions independently. The court had asked for a fresh evaluation in 11 cases.

Before the Supreme Court, NFRA argued that the Delhi HC’s ruling contradicts past judgments by the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court itself. The regulator cited the Supreme Court’s decision in the case of T K Harish, a branch auditor of Dewan Housing Finance Corporation Ltd (DHFL), where serious financial irregularities were uncovered. Authorities have been investigating allegations of siphoning off Rs 31,000 crore of public money and a bank fraud of Rs 3,700 crore linked to DHFL.


NFRA further pointed out inconsistencies arising from the Delhi HC’s decision. It highlighted the case of Snehal N Muzoomdar, an engagement partner of a branch auditor of DHFL. NFRA argued that while the Supreme Court had upheld proceedings against one branch auditor, the Delhi HC had quashed the case against an engagement partner of another branch auditor of the same company, creating a legal anomaly.

With the Supreme Court’s latest ruling, NFRA retains the authority to pursue cases against auditors, leaving many in the profession facing uncertainty over pending investigations.

(With ToI inputs)