Supreme Court upholds NCLAT order against errant auditors

NEW DELHI: In a boost to the National Financial Reporting Authority (

NFRA

), the regulator for auditors and audit firms dealing with large and listed companies, the

Supreme Court

has upheld an order by the National Company Law Appellate Tribunal (

NCLAT

) related to

disciplinary action

against errant auditors.
Last month, the apex court dismissed an appeal filed by

chartered accountant

Sam Varghese, partner at K Varghese & Co.

Varghese was one of the four auditors against whom NFRA had acted, and in this case imposed a penalty of Rs 1 lakh and barred the CA from practising for a year following lapses seen in the branch audit of DHFL. In what was perhaps the first set of cases involving auditors, NCLAT had dismissed the appeal, which was challenged by Varghese in SC.
"We find no reason to interfere with the order of the National Company Law Appellate Tribunal dated 1 Dec 2023," an SC bench of CJI D Y Chandrachud and justices J B Pardiwala and Manoj Misra ruled. The verdict is seen to be crucial as some of the disciplinary actions by NFRA have been challenged by the other auditors in High Courts, which are hearing the cases. Armed with the

SC order

, NFRA is going to make a more powerful argument now.
Over the last couple of years, NFRA has stepped up disciplinary action against auditors and firms, especially in pending cases such as DHFL, IL&FS and Cafe Coffee Day, where fraud is alleged, resulting in a collapse of these entities. In its order, NCLAT had noted that disciplinary jurisdiction over CAs remained with the Institute of Chartered Accountants of India & NFRA on concurrent basis, adding that the latter enjoyed "superior and overriding powers" on professional misconduct.