Published on: December 06, 2023 at 12:50 IST
The National Company Law Appellate Tribunal (NCLAT) has upheld the penalties imposed by the National Financial Reporting Authority (NFRA) on auditors of Dewan Housing Finance Corporation Ltd (DHFL), asserting that NFRA possesses retrospective jurisdiction in cases of misconduct.
Dismissing appeals by DHFL’s auditors, NCLAT clarified in a 156-page order that NFRA’s jurisdiction applies retrospectively to alleged offenses by delinquent Chartered Accountants, even predating its establishment.
In April 2023, NFRA had fined 18 DHFL auditors, debarring 14 for six months to a year, citing misconduct in branch audits. Four auditors challenged the penalties, arguing that NFRA lacked retrospective jurisdiction since its formation on October 10, 2018, postdating the financial statements in question for FY 2017-18.
However, the NCLAT rejected these arguments, stating that section 132(4) of the Companies Act, 2013, under which auditors were debarked, can be applied retrospectively. The tribunal emphasized NFRA’s role in restoring public and investor confidence and preventing adverse impacts on the Indian economy.
The penalties arose from an Audit Quality Review initiated by NFRA in response to alleged financial irregularities and banking fraud at DHFL.
The review revealed violations by auditors in their roles as Engagement Partners in the audit of DHFL branches. The NFRA found that appointments of these Engagement Partners were not approved at the company’s annual general meeting.
NCLAT concluded that enforcing the penalties is essential to making the public aware and enabling informed financial decisions.