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2023 (12) TMI 319 - NATIONAL FINANCIAL REPORTING AUTHORITYProfessional Misconduct - Jurisdiction of NFRA - failure to exercise due diligence, and being grossly negligent in the conduct of professional duties - failure to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion - failure to invite attention to any material departure from the generally accepted procedures to audit applicable to the circumstances - sanctions and penalties. Jurisdiction of NFRA - HELD THAT:- From the specific wordings of Section 132 and Rule 10, it is clear that NFRA has the sole and exclusive jurisdiction to initiate proceedings in cases of professional misconduct committed in earlier years too or else it would lead to an anomalous situation of a regulatory gap where any misconduct committed before the formation of NFRA will go unpunished. The law enabling investigation into professional and other misconduct, being in existence in the period before 2018, cannot be said to be retrospective and NFRA jurisdiction is established for implementing the process of investigation into misconduct committed in the past as well. Thus, the challenge to the jurisdiction of NFRA with respect to misconduct committed before 2018 does not stand - NFRA has the requisite jurisdiction to monitor compliance with accounting standards, monitor and enforce compliance with the SAS and to investigate matters of professional misconduct of Chartered Accountants falling under the NFRA domain. Charges of Professional Misconduct - HELD THAT:- The EQCR Partner did not perform his duties as per the Standards and the Law in conducting the Engagement Quality Control Review of the statutory audit of DHFL FY 2017-18. Based on the discussion and analysis, we conclude that the EQCR Partner has committed Professional Misconduct as defined in the Act, as below: i. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 7 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties". This charge is proved, as the EQCR Partner failed to conduct the review in accordance with the SAS and applicable regulations. He failed to notice and document the serious omissions and commissions by the ET that led to the issue of a baseless audit report by the EP, as explained in paras 28 to 35 above. ii. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 8 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion" This charge is proved, as the EQCR Partner failed to conduct the review in accordance with the SAS and applicable regulations. He failed to notice and document the serious omissions and commissions by the ET that led to the issue of a baseless audit report by the EP, as explained in paras 28 to 35 above iii. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 9 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he “fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances”. This charge is proved since the EQCR Partner failed to conduct the review in accordance with the SA 220 and SQC-I as explained in Paras 28 to 35 above but falsely certified that he had performed the review as per SAS. Thus, it is concluded that the charges of professional misconduct in the SCN, as detailed above, stand proved based on the evidence in the Audit File, the audit reports on the standalone financial statements and consolidated financial statements for the FY 2017-18 and the submissions made by the EQCR Partner. Sanctions and penalties - HELD THAT:- Considering the nature and seriousness of violations and principles of proportionality, we, in the exercise of powers under Section 132 (4) (c) of the Companies Act, 2013, following is being imposed: (i) Imposition of a monetary penalty of Rupees Five Lakh upon CA Amit Vinay Chaturvedi, (ii) In addition, CA Amit Vinay Chaturvedi is debarred for Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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