NFRA - Business Outrank

The Supreme Court of India made a ruling on Monday that stressed the necessity of keeping the investigative and adjudicatory roles of the National Financial Reporting Authority (NFRA) distinct for the purpose of unbiased regulatory actions. The court listened to NFRA's appeal of the Delhi High Court's February 7 ruling which quashed show cause notices issued to the auditing firms Deloitte Haskins & Sells LLP and SRBC & Co LLP regarding the IL&FS case. The bench headed by Chief Justice Sanjiv Khanna and Justice Sanjay Kumar ordered NFRA's appeal to be notified but decided not to place a stay on the High Court's ruling. The Court pointed out NFRA needs to create different departments for the purpose of investigating auditors and chartered accountants and another department for the purpose of imposing penalties under the Companies Act. The Delhi High Court's concerns about the failure to separate investigative and adjudicatory functions were reflected through this observation. NFRA Solicitor General Tushar Mehta supported the argument that separation was not feasible because the agency had limited resources but the bench responded that NFRA's own rules appeared to require such bifurcation. Senior counsel Kapil Sibal and CA Sundaram supported the bench’s position, arguing that NFRA must conform to its own rules. The Supreme Court made an interim ruling that allowed NFRA to conduct investigations in cases where no audit quality review had been prepared and which had been previously quashed. Nevertheless, the Court provided further guidance by stating that final orders passed in other cases could not be enforced. This case remains crucial for the audit regulatory system in India because it protects the natural justice right of an individual not to be judged by a person who also serves as an accuser.

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