2024 (3) TMI 1240 - AT - Companies Law

Professional mis-conduct by CA - SCN was not accompanied with documents relied upon against the Appellant and only a reference to the documents has been made in Annexure A appended with the show cause notice - non-compliance/violation of principle of natural justice by the NFRA - HELD THAT - The fact remains that the Appellant has relied upon the reply filed by the Firm to the SCN which is pari materia the same in which he was working as engagement partner and shall knock the bottom of his case as now he cannot be allowed to take a different stand. The Appellant was required to file the reply to the show cause notice dated 15.11.2022 within a period of 30 days up to 15.12.2022. No such reply was filed within this period rather the Appellant sought extension of time of 45 days to submit his response vide his letter dated 14.12.2022. The NFRA considered the request made by the Appellant and on 03.01.2023 the period was extended till 29.01.2023. The Appellant during this period did not ask for any documents from the Respondent and rather relied upon the reply filed by the Firm which is apparent from the letter dated 30.01.2023 in which the Appellant has categorically stated that the Auditor (firm) has submitted detailed reply dated 24.01.2023 to the SCN issued on the Firm. Since the Appellant himself has relied upon the reply filed by the Firm to whom all the documents had already been served and has made a statement that the reply filed by the Firm shall be considered as his reply to the show cause notice then the nothing remains in this case to raise hue and cry for the alleged violation of principle of natural justice especially when the Appellant also did not ask for a personal hearing as well. No other point has been argued. There are no merit in the submission made by the Appellant and hence the appeal fails and the same is hereby dismissed though without any order as to costs.

Summary

Issues involved:
The judgment involves a challenge against an order passed by the National Financial Reporting Authority (NFRA) under Section 132(4) of the Companies Act, 2013, regarding professional misconduct by a Chartered Accountant (CA) during the statutory audit of a company for the Financial Year 2018-19.

Details of the Judgment:

1. The NFRA found the Appellant guilty of professional misconduct under Section 132(4) of the Companies Act, 2013, and clauses of the Institute of Chartered Accountants of India Act. The Appellant was penalized with Rs. 5 Lac and debarred for five years from certain auditing roles.

2. NFRA initiated investigations into the statutory auditors' professional conduct after receiving a report from the Securities and Exchange Board of India regarding diversion of funds from subsidiary companies to an entity owned by the promoters.

3. Statutory auditors, including the Engagement Partners and Team, are bound by duties and responsibilities prescribed in the Act, Rules, and Standards on Auditing. Violation of these constitutes professional misconduct punishable under Section 132(4)(c) of the Act.

4. NFRA is a statutory authority established to monitor auditing and accounting standards compliance and ensure service quality.

5. NFRA's investigation revealed various failures by the Company Auditors during the audit, including lack of competence, conflict of interest, failure to exercise professional judgment, and failure to report misstatements, resulting in significant financial discrepancies.

6. The Appellant challenged the order based on non-compliance with the principle of natural justice, claiming the show cause notice lacked accompanying documents, which hindered his ability to respond adequately.

7. The Appellant argued a violation of natural justice due to the absence of relevant documents with the show cause notice, preventing him from preparing a proper response.

8. The Respondent contended that the Appellant, being an Engagement Partner, was aware of the proceedings and relied on the Firm's response to the show cause notice, thus negating the claim of a natural justice violation.

9. After hearing arguments from both sides, the Tribunal found no merit in the Appellant's claim of a natural justice violation, as he had relied on the Firm's response and did not request additional documents during the response period.

10. The Tribunal dismissed the appeal, citing the Appellant's reliance on the Firm's response as his own and the lack of merit in the natural justice claim. No costs were awarded in the judgment.