Key Highlights:
Background and Legal Context
The National Financial Reporting Authority (NFRA) was established in October 2018 to oversee the auditing profession and ensure the integrity of financial reporting. Questions arose regarding its jurisdiction over audits conducted before its creation.
Supreme Court Ruling
In March and May 2024, the Supreme Court dismissed appeals challenging NFRA’s retrospective powers. The apex court’s decision endorsed the NCLAT’s December 2023 order, affirming NFRA’s jurisdiction over audits predating its establishment. This ruling solidifies NFRA’s authority and ensures there is no regulatory gap in auditing oversight.
Significance of the Doctrine of Merger
The doctrine of merger was pivotal in the Supreme Court’s reasoning. This legal principle posits that when a higher court reviews a case and issues a decision, the lower court’s decision merges into the higher court’s judgment. Consequently, the higher court’s ruling becomes the definitive and enforceable judgment.
Implications for NFRA and Regulatory Oversight
Expert Opinions
Legal experts underscore the significance of the Supreme Court’s decision. According to Sonam Chandwani, managing partner at KS Legal & Associates, the doctrine of merger ensures that the final decision from a higher court prevails, thereby affirming the Supreme Court’s endorsement of NFRA’s retrospective jurisdiction.
Conclusion
The Supreme Court’s rulings in March and May 2024 affirm NFRA’s investigative powers over statutory audits conducted before its creation, reinforcing the regulator’s authority and ensuring continuous oversight of financial reporting standards. While this provides clarity and bolsters NFRA’s role, further legal scrutiny in High Courts may continue to shape the regulatory landscape.
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