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SC Upholds NFRA's Retrospective Powers
Context
The Supreme Court has dismissed appeals against a tribunal order, reinforcing the National Financial Reporting Authority's (NFRA) jurisdiction, even for audits predating its creation in 2018. This development has significant implications for the oversight of corporate and financial sectors in India.
What is the issue?
- The National Financial Reporting Authority (NFRA) was established on October 1, 2018, according to a Ministry of Corporate Affairs (MCA)
- The rules governing NFRA were notified on November 13, 2018. However, the audits (in question) examined by NFRA were conducted for the financial year 2017-18, and the audit reports were issued before NFRA's establishment.
- This led to the argument that NFRA lacked jurisdiction to retrospectively review these audits.
Key Points:
- Legal Doctrine: The "doctrine of merger" establishes that when a higher court issues a decision on a case, the lower court's ruling becomes absorbed into it. This principle maintains legal hierarchy and prevents conflicting judgments.
- NFRA's Jurisdiction: The NFRA's retrospective jurisdiction was affirmed by the National Company Law Appellate Tribunal (NCLAT) in December 2023. The tribunal upheld the NFRA's authority over alleged audit lapses, even for audits conducted before its establishment.
- The Supreme Court's refusal to intervene in the NCLAT's decision solidifies NFRA's authority, including its retrospective jurisdiction.
Implications:
- The clarity on NFRA's retrospective powers ensures continuity in oversight of statutory audits, avoiding regulatory gaps.
- The Supreme Court's endorsement of the NCLAT's decision establishes NFRA's authority in setting financial reporting standards and norms.
Fact Box:National Financial Reporting Authority (NFRA)
What is Retrospective Jurisdiction?
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