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* IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on: 22 July, 2024 Judgment pronounced on: 07 February, 2025 + W.P.(C) 1065/2021 & CM APPL. 9896/2021 (Direction)
DELOITTE HASKINS & SELLS LLP ..... Petitioner Through: Mr. Kapil Sibal, Sr. Adv. with Ms. Prachi Dhanani, Mr. Rohini Jaiswal, Mr. Pratham Vir Agarwal, Mr. Rahul Dwarkadas & Ms. Niyati Kohli, Advs.
versus UNION OF INDIA & ANR. ..... Respondents Through: Ms. Shiva Lakshmi, CGSC Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal, Mr. Pranjal Tripathi, Mr. Suradish Vats, Mr. Kunal Kochhar & Ms. Radhika Puri, Advs. for NFRA.
Mr. Kirtiman Singh, CGSC along with Mr. Waize Ali Noor, Mr. Varun Rajawat, Mr. Ranjeev Khatana and Mr. Varun P. Singh, Advs.
+ W.P.(C) 12096/2019 & CM APPL. 49556/2019 (Stay)
FEDERATION OF CHARTERED ACCOUNTANTS ASSOCIATION ..... Petitioner Through: Ms. Manasi Bhushan, Ms.
Sanjana Patel, Ms. Khyati Chhabra, Mr. Vikrant Sharma and Ms. Sakshi Sharma, Advs.
versus UNION OF INDIA AND ORS. ..... Respondents W.P.(C) 1065/2021 & other connected matters Page 1 of 476 Signature Not Veri fied Digitally Signed Through: Ms. Shiva Lakshmi, CGSC.
Mr. Kirtiman Singh, CGSC along with Mr. Waize Ali Noor, Mr. Varun Rajawat, Mr. Ranjeev Khatana and Mr. Varun P. Singh, Advs.
Ms. Pooja Mehra Saigal, Adv. for Mr. Jatin Dua and Mr. Kaveri Rawal, Advs. for R-3.
+ W.P.(C) 1522/2020 & CM APPL. Nos.17186/2020, 30096/2023 RUKSHAD DARUVALA ..... Petitioner Through: Mr. Arun Kathpalia, Sr. Adv.
with Ms. Aayushi S. Khazanchi, Mr. Aditya Dhupar, Ms. Bani Brar, Ms. Pooja Deepak and Mr.
Vinayak Chawla, Advs.
versus UNION OF INDIA & ANR. ..... Respondents Through: Ms. Shiva Lakshmi, CGSC.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
Mr. Kirtiman Singh, CGSC along with Mr. Waize Ali Noor, Mr. Varun Rajawat, Mr. Ranjeev Khatana and Mr. Varun P. Singh, Advs.
+ W.P.(C) 1524/2020 & CM APPL. Nos. 7533/2020, 10777/2020
17184/2020, 30095/2023 UDAYAN SEN ..... Petitioner W.P.(C) 1065/2021 & other connected matters Page 2 of 476 Signature Not Veri fied Digitally Signed Through: Mr. Arun Kathpalia, Sr. Adv.
with Ms. Aayushi S. Khazanchi, Mr. Aditya Dhupar, Ms. Bani Brar, Ms. Pooja Deepak and Mr.
Vinayak Chawla, Advs.
versus UNION OF INDIA & ANR ..... Respondents Through: Ms. Shiva Lakshmi, CGSC.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
Mr. Kirtiman Singh, CGSC along with Mr. Waize Ali Noor, Mr. Varun Rajawat, Mr. Ranjeev Khatana and Mr. Varun P. Singh, Advs.
+ W.P.(C) 11737/2021 S R B C AND CO LLP ..... Petitioner Through: Mr. Jayant K. Mehta, Sr. Adv.
with Ms. Nikita Sethi, Ms. Aayushi Kumar, Mr. Prateek Khanna, Mr. Ravneet Kaur Malik and Ms. Rumella Jain, Advs. versus UNION OF INDIA AND ANR ..... Respondents Through: Ms. Shiva Lakshmi, CGSC Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
Mr. Kirtiman Singh, CGSC along with Mr. Waize Ali Noor, Mr. Varun Rajawat, Mr. Ranjeev W.P.(C) 1065/2021 & other connected matters Page 3 of 476 Signature Not Veri fied Digitally Signed Khatana and Mr. Varun P. Singh, Advs.
+ W.P.(C) 11738/2021 VINAYAK PUJARE ..... Petitioner Through: Mr. Jayant K. Mehta, Sr. Adv.
with Ms. Nikita Sethi, Ms. Aayushi Kumar, Mr. Prateek Khanna, Mr. Ravneet Kaur Malik and Ms. Rumella Jain, Advs. versus UNION OF INDIA & ANR. ..... Respondents Through: Ms. Shiva Lakshmi, CGSC.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
Mr. Kirtiman Singh, CGSC along with Mr. Waize Ali Noor, Mr. Varun Rajawat, Mr. Ranjeev Khatana and Mr. Varun P. Singh, Advs.
+ W.P.(C) 11739/2021 RAVI BANSAL ..... Petitioner Through: Mr. Jayant K. Mehta, Sr. Adv.
with Ms. Nikita Sethi, Ms. Aayushi Kumar, Mr. Prateek Khanna, Mr. Ravneet Kaur Malik and Ms. Rumella Jain, Advs. versus UNION OF INDIA & ANR. ..... Respondents Through: Ms. Shiva Lakshmi, CGSC.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik W.P.(C) 1065/2021 & other connected matters Page 4 of 476 Signature Not Veri fied Digitally Signed Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
Mr. Kirtiman Singh, CGSC along with Mr. Waize Ali Noor, Mr. Varun Rajawat, Mr. Ranjeev Khatana and Mr. Varun P. Singh, Advs.
Mr. Vikram Jetly, CGSC along with Mr. Abhigyan Siddhant, GP.
+ W.P.(C) 11987/2022 & CM APPL. 35778/2022 (Interim Direction)
JAYESH GANDHI ..... Petitioner Through: Mr. Jayant K. Mehta, Sr. Adv.
with Ms. Nikita Sethi, Ms. Aayushi Kumar, Mr. Prateek Khanna, Mr. Ravneet Kaur Malik and Ms. Rumella Jain, Advs. versus UNION OF INDIA & ANR. ..... Respondents Through: Mr. Vikram Jetly, CGSC along with, Mr. Abhigyam Siddhant, GP & Mr. Shreya Jetly, Adv. for UOI.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
+ W.P.(C) 1525/2020 & CM APPL. Nos. 10765/2020, 17182/2020 & 30097/2023 SHRENIK BAID ..... Petitioner Through: Mr. Arun Kathpalia, Sr. Adv.
with Ms. Misha Rohatgi Mohta W.P.(C) 1065/2021 & other connected matters Page 5 of 476 Signature Not Veri fied Digitally Signed and Mr. Amulya Upadhyay, Advs. versus UNION OF INDIA AND ANR ..... Respondents Through: Ms. Shiva Lakshmi, CGSC.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
+ W.P.(C) 1650/2023 & CM APPL. 6296/2023 (Interim Direction)
NATRAJAN RAMKRISHNA ..... Petitioner Through: Mr. Jayant K. Mehta, Sr. Adv.
with Ms. Nikita Sethi, Ms. Aayushi Kumar, Mr. Prateek Khanna, Mr. Ravneet Kaur Malik and Ms. Rumella Jain, Advs. versus UNION OF INDIA & ANR. ..... Respondents Through: Mr. Ravi Prakash, CGSC along with Ms. Astu Khandelwal, Mr. Taha Yasin, Mr. Ali Khan, Mr. Yasharth Shukla, Mr. Tarveen Singh Nanda, GP & Mr.
Ayushman Kishore, Advs.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
+ W.P.(C) 2194/2023 & CM APPL. 8353/2023, 39638/2023 (Interim Direction)
ADARSH RANKA ..... Petitioner W.P.(C) 1065/2021 & other connected matters Page 6 of 476 Signature Not Veri fied Digitally Signed Through: Mr. Jayant K. Mehta, Sr. Adv.
with Ms. Nikita Sethi, Ms. Aayushi Kumar, Mr. Prateek Khanna, Mr. Ravneet Kaur Malik and Ms. Rumella Jain, Advs. versus UNION OF INDIA & ORS. ..... Respondents Through: Mr. Ravi Prakash, CGSC with Mr. Tarveen Singh Nanda, Adv.
for Resp./ UOI Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
+ W.P.(C) 5842/2023 & CM APPL. 22884/2023 (Stay), 40762/2023 (30 Days Delay in C.A.), CM No.63005/2023 SNEHAL N MUZOOMDAR ..... Petitioner Through: Mr. Shivam Shukla & Ms. Anjali Upadhyay, Advs.
versus UNION OF INDIA & ANR. ..... Respondents Through: Ms. Shiva Lakshmi, CGSC for R-
1.
Mr. Zoheb Hossain, Mr. Vivek Gurnani, Ms. Abhipriya Rai, Mr. Vivek Gaurav, Mr. Kartik Sabharwal & Ms. Radhika Puri, Advs. for NFRA.
Mr. Prashant Rawat, GP and Mr.
Kabir Singh, Adv.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE DHARMESH SHARMA W.P.(C) 1065/2021 & other connected matters Page 7 of 476 Signature Not Veri fied Digitally Signed
J U D G M E N T
YASHWANT VARMA, J.
TABLE OF CONTENTS Preface .................................................................................................... 8 Disciplinary Procedure as per the CA Act ....................................... 12 Section 132 : A Legislative History .................................................... 31 Broad Structure under the CA Act ................................................... 96 NFRA Rules ....................................................................................... 109 Additional Disclosures by NFRA ..................................................... 116 Auditing Industry : Executive Deliberations .................................. 150 The Vicarious Liability Argument .................................................. 171 Section 132 and its retroactive operation ........................................ 232 NFRA Rules : Lack of Procedural Safeguards .............................. 322 Divisions : Separation of Functions ................................................. 384 SCNs: The Scar of Pre-determination ............................................ 437 Peripheral Issues ............................................................................... 456 Statement of Conclusions ................................................................. 457 Disposition .......................................................................................... 474 PREFACE
TABLE OF CONTENTS Preface .................................................................................................... 8 Disciplinary Procedure as per the CA Act ....................................... 12 Section 132 : A Legislative History .................................................... 31 Broad Structure under the CA Act ................................................... 96 NFRA Rules ....................................................................................... 109 Additional Disclosures by NFRA ..................................................... 116 Auditing Industry : Executive Deliberations .................................. 150 The Vicarious Liability Argument .................................................. 171 Section 132 and its retroactive operation ........................................ 232 NFRA Rules : Lack of Procedural Safeguards .............................. 322 Divisions : Separation of Functions ................................................. 384 SCNs: The Scar of Pre-determination ............................................ 437 Peripheral Issues ............................................................................... 456 Statement of Conclusions ................................................................. 457 Disposition .......................................................................................... 474
JUDGMENT
YASHWANT VARMA, J.
PREFACE
1. This batch of writ petitions instituted by individual Chartered 8 Accountants, [CAs] as well as auditing firms assail the validity of Section 132(4) of the Companies Act, 2013, [Companies Act]. A challenge is additionally raised to Rules 3, 8, 10 and 11 of the National Financial Reporting Authority Rules, 2018, [NFRA Rules]
2. For the purposes of the challenge which stands raised to the statutory provisions aforenoted, the petitioners seek a declaration that those provisions be struck down as being unconstitutional on the ground of being arbitrary and ultra vires. In the alternative, the petitioners seek an appropriate declaration to the effect that Section 132(4) of the Companies Act as well as Rules 3, 8 10 and 11 of the NFRA Rules be held not to apply to any audit completed before 01 October 2018. The prayer in the alternative essentially calls upon the Court to read down those provisions as being inapplicable to audits that may have been completed prior to the introduction of Section 132 in the Companies Act and thus avoid a declaration of invalidity being rendered.
3. The petitioners in this batch have individually impugned the notices issued by the National Financial Regulatory Authority, [NFRA] in terms of which proceedings were sought to be initiated by the respondent for commencement of disciplinary action in respect of perceived acts of “professional or other misconduct” and for consequential imposition of penalties. In some of the writ petitions, final orders of punishment including that of debarment had also come to be passed and which too have been impugned in the instant writ petitions.
4. The challenge on the basis of constitutional invalidity is founded on a retroactive operation of Section 132 of the Companies Act and which is viewed as empowering the NFRA to initiate disciplinary proceedings not just against individual partners and CAs’ but also auditing firms in respect of any audit that may have been conducted including those commenced and concluded prior to the introduction of that provision in the Companies Act.
5. Section 132 came to be incorporated in the Companies Act by virtue of Act 18 of 2013 and came to be operationalized in terms of a notification issued on 01 October 2018. In terms of that notification, the Union Government designated the said date as the point of commencement as well as the date of constitution of the NFRA. It is in the aforesaid backdrop that the petitioners contend that Section 132 and its retrospective operation would be rendered unconstitutional and invalid since it contemplates the imposition of penalties as well as disciplinary action in terms which were not contemplated by the statute prior to 01 October 2018. The challenge to Section 132 also proceeds on the ground of an alleged lack of procedural due process as well as the deprivation of rights and safeguards which were conferred upon a CA or a firm while facing disciplinary action under the Chartered Accountants Act, 1949, [CA Act.] read along with the Chartered Accountants Regulations, 1988, [1988 Regulations] and the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, [Rules 2007.]
6. The action of the respondents which stands impugned in this batch is also based on the various provisions contained in Section 132 itself as well as the NFRA Rules. This facet of the challenge is based on the petitioners arguing that in terms of the statutory provisions aforenoted, the NFRA is envisaged to discharge its functions and duties through various independent and separate “divisions”. According to the writ petitioners, the statute itself envisages the functions of monitoring and enforcement of accounting standards, overseeing quality of service, suggesting measures, the power to investigate as well as to undertake disciplinary action is contemplated to be discharged by separate divisions of the NFRA. According to the writ petit
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