CHENNAI: The constitutional validity of the Centre ’s proposed National Financial Reporting Authority ( NFRA ) which will replace the Institute of Chartered Accountants in India (ICAI) and wield penal and civil power over the practising CAs has been challenged in Madras high court .

A division bench of Justice MM Sundresh and Justice N Anand Venkatesh, before which the PIL filed by chartered accountant V Venkatasivakumar on Friday, issued notices to the Centre and other statutory authorities.

In his petition, Venkatasivakumar, who argued the case on his own, submitted that the proposed ‘super-regulator’ would destabilise the ICAI from carrying out its core functions, and that it was to be run by a bureaucrat without any practical knowledge in ever-expanding and complicated business environment. He said the proposal would result in disaster and would frustrate the very objective behind creating the super-regulator.

The Centre has brought in NFRA by amending the Companies Act, for matters relating to accounting and auditing standards and to have disciplinary jurisdiction over CAs.

Assailing the Reserve Bank of India’s (RBI) administrative circular dated June 29 on the issue, Venkatasivakumar said the RBI sought to act as an all-in-one authority – complainant, investigator, adjudicating tribunal and awarder of punishment. The administrative circular is without any force of law or jurisdiction, and exposes chartered accountants to penal and civil consequences, he said.

Noting that ICAI is a pre-constitutional, self-regulating body which works under delegated legislation and a decision-making body comprising 32 elected representatives from five regions of the nation, the PIL said the CA community played a key role in assisting the GST Council in drafting the legislation and framing the operational structure. ICAI also trained its 2 lakh members in GST practices in a short span of 6 months, he said.

Blaming RBI, CBDT and union ministries of company affairs and finance for the failure of demonetisation, he said these regulators were now diverting the public anger and projecting CAs as scapegoats.

Section 132 of the Companies Act, 2013 constituting NFRA does not address the reasons for parallel and multiple regulators, he said, adding that as of now lapses found in the work of a statutory auditor could be reported to the ICAI for adjudication. But the impugned circular by the RBI would bring in its own in-house mechanism, wherein the complainant, investigator, adjudicator and punishment awarder would all be one and the same, he said.

The constitution of NFRA to completely takeover ICAI powers amounts to taking over all the powers of the other two state organs by the executive, he said and wanted the court to quash the circular as being unconstitutional.

