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Title: NARESH CHANDRA AGRAWAL VERSUS THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND OTHERS

CIVIL APPEAL No.4672 OF 2012

Date of Judgment: February 08, 2024

CORAM: Justice Pamidighantam Sri Narasimha, Justice Aravind Kumar

Facts of the Case:

The case began with the Bank of Rajasthan Limited engaging M/s Ramesh C. Agrawal & Co. for audit work at their Lucknow Branch. The firm was tasked with submitting monthly audit reports, including reporting any suspicious activities, to the bank’s CEO. However, on 27.09.2009, significant irregular transactions occurred at the branch, which were not flagged in the audit report submitted by the firm. Consequently, the bank alleged that the firm failed in its professional duty to detect irregularities.

After the bank’s attempts to seek explanations from the firm failed, it lodged a complaint against the audit firm with the Director (Discipline). The Director initially found no professional misconduct by the appellant, but this decision was overruled by the Board of Discipline, which referred the matter to the Disciplinary Committee for further action.

Aggrieved by this decision, the appellants challenged the action of the Board in the High Court of Delhi via a writ petition, seeking to declare Rule 9(3)(b) of the Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 invalid. They argued that this rule was ultra vires section 21 A (4) of the Act. However, the Division Bench of the High Court rejected this challenge.

Subsequently, the appellants appealed to the Supreme Court of India. Through this appeal, they contested the decision of the High Court and sought a reversal of the ruling that upheld the validity of Rule 9(3)(b) of the Rules, 2007. Thus, the case moved from the trial court to the High Court and eventually reached the Supreme Court.

Laws Involved:

• Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007
• Section 21 A (4) Chartered Accountants’ (Amendment) Act, 2006

Issue Raised by the Court:

Whether Rule 9(3)(b) of the Rules, 2007 is inconsistent with and beyond the rule-making power of the Central Government?

Courts Judgments and Analysis:

In the analysis provided by the court, several legal points were meticulously examined. Firstly, the court contrasted Section 21A(4) with Rule 9(3) to discern any potential conflict, particularly focusing on whether Rule 9(3) exceeded the authority granted by the parent Act. The court highlighted the presumption of constitutionality of subordinate legislation, emphasizing that any challenge must demonstrate that the rule exceeds the authority conferred by the enabling Act.

The court delved into the framework of the enabling Act, specifically Section 29A, which grants the power to make rules. It noted that while Section 29A (2) provides enumerated heads for rule-making, it is not exhaustive, and the general power under Section 29A(1) allows flexibility in rulemaking. This interpretation, known as the ‘generality versus enumeration’ principle, was discussed in detail, emphasizing that specific enumeration should not restrict the general power conferred by the Act.

Further, the court referred to various legal precedents to elucidate the application of this principle in different contexts. It underscored that the rule-making authority must function within the bounds of the parent Act and must not extend the scope or operation of the Act. Additionally, the court emphasized that the rule-making power, whether expressed in general terms or specifically enumerated, must be exercised in consonance with the objectives of the Act.

Applying these principles to the case at hand, the court scrutinized whether Rule 9(3)(b) of the Rules, 2007 exceeded the rule-making power conferred upon the Central Government. It acknowledged that Rule 9(3) provided additional options beyond those outlined in Section 21A(4). However, it concluded that the rule aligned with the overarching objective of the Act to maintain ethical standards within the chartered accountancy profession. Therefore, the court upheld the validity of Rule 9(3)(b) and dismissed the appeal.

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Written by- Aditi

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