“Rule 9(3)(b) of the Chartered Accountants’ Rules 2007 falls within the scope of the general delegation of power under Section 29A(1)”: SC

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While hearing the Naresh Chandra Agrawal vs. The Institute of Chartered Accountants of India case on February 08, 2024, the Supreme Court (SC) of India upheld the Chartered Accountants’ Rule allowing the Board to refer the matter to a disciplinary committee. It stated that “...we have not the slightest hesitation to conclude that the impugned rule is completely in sync with the object and purpose of framing the Chapter on ‘Misconduct’ under the Act.” In this case, the bench addressed a question “Whether Rule 9(3)(b) of the Rules, 2007 is inconsistent with and beyond the rule-making power of the Central Government?” The bench comprising Justice PS Narasimha and Justice Aravind Kumar held that the impugned rule falls within the scope of the general delegation of power under Section 29A(1). The top Court was hearing an appeal against the order of the Delhi High Court that dismissed the appellant’s challenge to Rule 9(3)(b) of the Rules, 2007 as ultra vires of Section 21A(4) of the Chartered Accountants’ (Amendment) Act, 2006. 

In this case, the appellant was a member of a firm (M/s Ramesh C. Agrawal & Co.), responsible for conducting audit work for the Complainant (Rajasthan Bank). A series of circuitous transactions involving large amounts of money was observed in certain accounts of the branch, which were neither regular nor normal. However, in the audit report submitted to the Complainant bank, these transactions were not flagged. According to the Complainant, the main purpose of engaging the firm for audit-related work was to assist it in the timely detection of irregularities/ lapses, besides observing as to whether the transactions were within the policy parameters as laid down by the Reserve Bank of India. In having failed to point out the suspicious transactions that took place, the Complainant alleged that the firm had utterly failed to discharge its professional obligation under the terms, as agreed. 

Further, Director (Discipline) arrived at a prima facie conclusion that the Appellant was not guilty of any professional or other misconduct within the meaning of clauses (7), (8), and (9) of Part 1 of the Second Schedule of the Chartered Accountants’ (Amendment) Act, 2006--Board had decided to refer the matter to the Disciplinary Committee for further action under Chapter V of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. The matter was mentioned before the Supreme Court bench. It opined that “the scope of the challenge raised in this petition is restricted to one ground in the instant case; that the Rule exceeds the limits of authority conferred by the enabling Act.” The SC also mentioned that “The ‘prima facie’ opinion of the Director will become nothing but a final opinion if the Board will have no option except to direct the Director (Discipline) to further investigate the matter. The Section is silent as to what would happen in a situation where the Director (Discipline) on further investigation concludes in accordance with his preliminary assessment.” The SC judgment reads, “...even if we accept, for the sake of argument, that Rule 9(3) cannot be saved under Section 29A(2)(c), as it directly relates to furthering the purposes of the Act in ensuring that a genuine complaint of professional misconduct against the member is not wrongly thrown out at the very threshold, it can be easily concluded that the impugned Rule falls within the scope of the general delegation of power under Section 29A(1).” The two-judge bench of the Supreme Court dismissed the appeal