CA debarment order remains effective during appeal despite 10% penalty deposit under Section 132(4)(c)

The NCLAT held that when a CA files an appeal against a penalty order under Section 132(4)(c) of the Companies Act, 2013 with 10% penalty deposit, the debarment order continues to operate despite the appeal. The Tribunal distinguished between monetary penalties (where consequences are stayed upon appeal filing) and debarment penalties, ruling that Rule 12's stay provisions apply only to monetary penalties. The express inclusion principle was applied - since debarment is omitted from sub-rules (1) and (2), it remains effective during appeal proceedings. The Tribunal scheduled hearings for interim relief applications.

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Issues Involved:
1. Imposition of penalty under Section 132(4)(c) of the Companies Act, 2013.
2. Interpretation of Rule 12 of the National Financial Reporting Authority Rules, 2018.

Summary:

Issue 1: Imposition of Penalty under Section 132(4)(c) of the Companies Act, 2013

The Appeals were filed by several Chartered Accountants challenging the order passed by the National Financial Reporting Authority (NFRA) imposing penalties under Section 132(4)(c) of the Companies Act, 2013. The NFRA had imposed a monetary penalty of Rs.100,000 and debarred CA Harish Kumar T.K. for one year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

Issue 2: Interpretation of Rule 12 of the National Financial Reporting Authority Rules, 2018

The main contention was the interpretation of Rule 12 of the 2018 Rules, particularly whether filing an appeal and depositing 10% of the penalty amount prevents further actions under Rule 12, sub-rules (2), (3), and (4). The Appellant argued that no further action should be taken once an appeal is filed and 10% of the penalty is deposited. The Respondent countered that Rule 12, sub-rules (2), (3), and (4) are independent provisions and need to be complied with regardless of the appeal and deposit.

The Tribunal noted that Rule 12, sub-rule (1) applies only to monetary penalties and not to cases of debarment. Sub-rules (3) and (4) use the term "debars" and are independent provisions. Therefore, the filing of an appeal and deposit of 10% penalty amount does not prevent the implementation of sub-rules (3) and (4). The Tribunal emphasized that the statutory principle of expressio unius est exclusio alterius (the express inclusion of one thing excludes all others) applies here, indicating that Rule 12, sub-rules (1) and (2) are not applicable in cases of debarment.

The Tribunal concluded that the order of debarment continues to operate unless stayed by the Appellate Tribunal. The Tribunal also highlighted that the provisions of the statute and Rule 12 do not obligate the company or body corporate to appoint a new auditor in cases of monetary penalty only, allowing the auditor to continue discharging functions unless decided otherwise by the company or body corporate.

The Tribunal decided to give an opportunity to the Appellants to make submissions on the merits of the challenge to the impugned order and scheduled the appeals for further hearing on 3rd July 2023.

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