A) ABSTRACT / HEADNOTE

The case revolved around the validity of Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, which was challenged for being ultra vires the enabling provisions of the Chartered Accountants Act, 1949. The appellant contended that the said rule exceeded the scope of the Central Government’s rule-making powers under Section 29A of the Act, particularly concerning investigations under Section 21A(4). However, the Supreme Court upheld the validity of Rule 9(3)(b), emphasizing the general delegation of rule-making power under Section 29A(1) to carry out the objectives of the Act.

Keywords

1. Ultra vires
2. Delegated legislation
3. Rule 9(3)(b)
4. Chartered Accountants Act, 1949
5. Misconduct investigation

B) CASE DETAILS

i) Judgment Cause Title
Naresh Chandra Agrawal v. The Institute of Chartered Accountants of India and Others

ii) Case Number
Civil Appeal No. 4672 of 2012

iii) Judgment Date
February 8, 2024

iv) Court
Supreme Court of India

v) Quorum
Hon’ble Justice Pamidighantam Sri Narasimha and Justice Aravind Kumar

vi) Author
Justice Aravind Kumar

vii) Citation
[2024] 2 S.C.R. 194

viii) Legal Provisions Involved

1. Chartered Accountants Act, 1949: Sections 21, 21A, 21B, 29A
2. Chartered Accountants’ Rules, 2007: Rule 9(3)(b)
3. Constitutional principles on ultra vires doctrine.

ix) Judgments Overruled by the Case (if any)
None.

x) Case is Related to Which Law Subjects
Administrative Law, Professional Conduct, Delegated Legislation.

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The dispute originated from a professional misconduct allegation involving a chartered accountant. The Director (Discipline) of the Institute of Chartered Accountants of India (ICAI) had found no prima facie misconduct. However, the Board of Discipline disagreed, invoking Rule 9(3)(b) to refer the case to the Disciplinary Committee. The appellant argued that such a referral was beyond the powers conferred by the parent Act. The matter escalated through judicial channels, culminating in the present appeal before the Supreme Court.

D) FACTS OF THE CASE

1. The complaint stemmed from alleged lapses by an audit firm appointed by a bank to detect irregularities in transactions. Suspicious transactions went unflagged in the firm’s report.
2. The bank lodged a misconduct complaint with ICAI, implicating the appellant as the responsible member.
3. The Director (Discipline) formed a prima facie opinion absolving the appellant of misconduct.
4. The Board of Discipline disagreed and referred the matter to the Disciplinary Committee under Rule 9(3)(b), prompting a legal challenge to the validity of the rule.
5. The Delhi High Court upheld the rule’s validity, leading to the present appeal before the Supreme Court.

E) LEGAL ISSUES RAISED

i) Whether Rule 9(3)(b) of the Chartered Accountants’ Rules, 2007, exceeds the rule-making power under Section 29A of the Chartered Accountants Act, 1949?

F) PETITIONER/APPELLANT’S ARGUMENTS

1. Ultra Vires Rule-Making Power: The appellant argued that Section 21A(4) of the Act limits the Board of Discipline’s options to either closing a case or directing further investigation by the Director (Discipline). Rule 9(3)(b) purportedly added unauthorized options, thus violating the parent Act.
2. Role of the Director (Discipline): The appellant claimed that the rule undermined the statutory framework, giving the Board powers exceeding those of the Director.
3. Principle of Delegated Legislation: The appellant asserted that the rule created substantive obligations and rights not contemplated by the Act, breaching established principles of delegated legislation.

G) RESPONDENT’S ARGUMENTS

1. Support for Rule 9(3)(b): The respondents contended that Rule 9(3)(b) supplements the provisions of the Act, aligning with its objectives.
2. Legislative Intent: They argued that restricting the Board’s role would render it subordinate to the Director, contrary to legislative intent.
3. Generality vs Enumeration: Referring to judicial precedents, they emphasized the illustrative nature of enumerated powers under Section 29A(2), which do not limit the general rule-making authority conferred by Section 29A(1).

H) JUDGMENT

a. Ratio Decidendi

1. The Supreme Court ruled that Rule 9(3)(b) is intra vires the parent Act, supported by the general delegation of rule-making power under Section 29A(1).
2. It held that restricting the Board to merely closing cases or seeking further investigation would create anomalies, diminishing its supervisory role over the Director.

b. Obiter Dicta

The judgment emphasized the importance of balancing specificity and generality in delegated legislation to ensure flexibility and adherence to legislative intent.

c. Guidelines

1. Rule-making bodies must operate within the limits of delegated powers, ensuring consistency with the parent statute.
2. Courts should adopt a harmonious interpretation of general and specific rule-making provisions, as seen in the “generality vs enumeration” principle.

I) CONCLUSION & COMMENTS

The Supreme Court reinforced the validity of Rule 9(3)(b), aligning it with the Act’s objectives of ensuring accountability in the chartered accountancy profession. By upholding the rule, the judgment clarified the scope of delegated legislation, particularly in professional disciplinary contexts. This ruling strengthens the regulatory framework governing chartered accountants, emphasizing ethical integrity.

J) REFERENCES

a. Important Cases Referred

1. State of Tamil Nadu v. P. Krishnamurthy (2006) 4 SCC 517
2. Academy of Nutrition Improvement v. Union of India (2011) 8 SCC 274
3. BSNL v. TRAI (2014) 3 SCC 222
4. Afzal Ullah v. State of U.P. AIR 1964 SC 264
5. King Emperor v. Sibnath Banerji AIR 1945 PC 156

b. Important Statutes Referred

1. Chartered Accountants Act, 1949: Sections 21, 21A, 29A
2. Chartered Accountants’ Rules, 2007: Rule 9(3)(b)