2023 (6) TMI 1375

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....Ravish Garach, Advocates, Mr. Ravi Prakash with Mr. Aman Rewaria, Advocates ORDER ASHOK BHUSHAN, J. These Appeal(s) have been filed by several Chartered Accountants, challenging the order passed by National Financial Reporting Authority (hereinafter referred to as the "NFRA") imposing penalty under Section 132(4)(c) of the Companies Act, 2013. 2. It shall be sufficient to notice the nature of impugned order dated 13.04.2023, which has been challenged by the Appellant in Company Appeal (AT) No.68 of 2023 for appreciating the submissions, which have been raised by learned Counsel for the parties with regard to interpretation of Rule12 of National Financial Reporting Authority Rules, 2018 ("2018 Rules") 3. The Appellant in Company Appeal (AT) No.68 of 2023 - Mr. Harish Kumar T.K., is a qualified Chartered Accountant. The Appellant's Firm was engaged for conducting of Branch Audit by two appointment letter dated 27.08.2014 for its Firm at Kannur, Kotayyam Thiruvananthapura, Thrissur, Calicut and Kochi Branches. The Appellant being Partner of the Firm was assigned with the Audit work by the Firm for the Branches of the Company at Thrissur Kotayyam and Coimbatore. In the s....

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....e Company Appeal (AT) No.68 of 2023 as well as other Appeal(s) were heard on 30th and 31st May, 2023 with regard to interpretation of Rule 12 of the 2018 Rules. 6. We have heard Shri PH Arvindh Pandian, learned Senior Counsel and other learned Counsel appearing for the Appellant including Chartered Accounts Shri CV Sajan and Shri Zoheb Hossain, learned Counsel for the Respondent. We have heard learned Counsel for the parties only on interpretation of Rule 12 of 2018 Rules. We indicated to the parties that we shall first determine the question of interpretation of Rule 12 and thereafter shall proceed to hear the Appeal(s) on merit of the case. 7. The learned Counsel for the Appellant relying on Rule 12 of the 2018 Rules, submits that when Appeal challenging the impugned penalty order has been filed within 30 days from the date of order, after depositing the 10% of the penalty amount as required by Rule 12, sub-rule (1), the consequence of said filing of the Appeal and deposit of 10% penalty amount is that no further action can be taken by the Authorities under Rule 12, sub-rule (2), (3) and (4). It is submitted that object of Rule 12, sub-rule (1) is to give protection to thos....

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....h company or body corporate shall appoint a new Auditor in accordance with the provisions of the Act. It is submitted that in case of debarment, requirement under Rule 12, sub-rule (4) has to take place despite filing of an Appeal as per Rule 12, sub-rule (1). The learned Counsel for the Respondent submits that the penalty as contemplated by Section 132, sub- section (4), (c) consist of penalties under two heads, i.e., head (A) and head (B). It is submitted that 2018 Rules has been framed to give effect to the provisions of Section 132(4) and Rules cannot envisage any kind of embargo on the provisions of Section 132(4) of only on filing of Appeal. Rules cannot stay any action contemplated under the statute when no such intention is decipherable from the Rules. 9. We have considered the submissions of learned Counsel for the parties and have perused the record. 10. Section 132 of the Companies Act, 2013 deals with 'Constitution of National Financial Reporting Authority'. Sub-rule (4), (c) provides: "132 (4) Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall- (c) where professional ....

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.... on the auditor or debars the auditor from practice, the order shall be sent to every company or body corporate in which the auditor is functioning as auditor. (4) Where the order passed under rule 11 debars the auditor from practice or the order under sub-rule (2) is passed, the order shall be sent to every company or body corporate (including those not covered by rule 3) in which the auditor is functioning as auditor and every such company or body corporate shall appoint a new auditor in accordance with the provisions of the Act." 13. Rule 12, sub-rule (1) confines to "order passed under Rule 11 relates to imposition of a monetary penalty on any auditor". Proviso of Rule 12, subrule (1) thus relates to only a case where imposition of monetary penalty has been imposed. Rule 12, sub-rule (1) can have no application in a case where penalty of debarment has been imposed. Expression 'debarment' has consciously been not included in Rule 12, sub-rule (1) whereas sub- rules (3) and (4) use expression 'debars'. Thus, rulemaking Authority was well aware that Rule 12 provides for both monetary penalty as well as debarment. 14. We may also refer to Rule 11, sub-rules (6) and 7....

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.... following has been held: "24. As the principle of statutory construction, expressio unius est exclusio alterius states, the express inclusion of one thing is the exclusion of all others. In this case, the specific inclusion Company Appeal (AT) Nos.68, 87 to 94 of 2023 14 of a condition for filing a recriminatory petition under Section 97 of the Act, namely, that a declaration that the election petitioner or any other candidate is the returned candidate should be filed, excludes its filing in all other cases. Simply put, Section 97 of the Act bars filing of a counterclaim by way of a recrimination petition when an election petition is filed without seeking for a declaration that the election petitioner or any other candidate is the returned candidate. In such a case, the application of Order 8 Rule 6-A would not be permissible, as permitting the same would amount to allowing indirectly, what is prohibited by law to be done directly. It is settled law that whatever is prohibited by law to be done directly cannot be allowed to be done indirectly. The decision of the Court in Jagir Singh v. Ranbir Singh [(1979) 1 SCC 560 : 1979 SCC (Cri) 348] may be referred to, wherein it wa....

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....y have been functioning. 20. However, we hasten to add that when order passed under Section 132(4)(c) is challenged by filing an Appeal, it is for the Appellate Court to consider as to whether the implementation of the order impugned is to be stayed or not. It is, thus, clear that unless any interim order is obtained in an Appeal, filed challenging the order passed under Section 132(4)(c), the Auditor against whom order of debarment has been passed, ceases to function after expiry of thirty days from the order, unless order indicate otherwise. As observed above, this consequence will not ensue where there is only order of monetary penalty and either monetary penalty has been deposited by the Auditor or Appeal has been filed with 10% deposit. In a case where punishment is only of monetary penalty, the information of said order has also to be sent to the company or body corporate where the Auditor is functioning as required by Rule 12, sub-rule (3) and it is for company or body corporate to chose its further action. The provisions of the statute read with Rule 12, do not indicate that in case of monetary penalty only, it is obligatory on the company or body corporate to appoint a ....