Himachal Pradesh High Court: In a writ petition filed challenging the guidelines issued by National Bank for Agriculture and Rural development (‘NABARD’) for the selection of statutory auditors for cooperative banks, a division Bench of M.S. Ramachandra Rao CJ. and Ajay Mohan Goel J., dismissed the petition and upheld the guidelines issued by NABARD, as the conditions imposed were reasonably relevant and had rational nexus with the functions and duties attached to the post of auditors.
Background
The petitioners are the Chartered Accountants registered with the Institute of Chartered Accountants of India (‘ICAI’). A letter was issued by NABARD to the Registrar of Cooperative Societies of all the states to provide a panel of Chartered Accountants to the State Cooperative banks for conducting the statutory audit from the year 2013-2014 onwards. The said letter contains certain guidelines containing various factors for the selection of auditors, including experience in bank audit, qualifications and the need for Diploma in Information system audit.
The petitioners contended that because of the said conditions, 85% of Chartered Accountants Firms empanelled with the Cooperative banks have become ineligible for empanelment and failed to get any statutory bank branch audit for the financial year 2022-23. They further said that the conditions levied were unreasonable, arbitrary, had no nexus with the object sought and would favoured larger firms excluding sole proprietorships and smaller firms.
Decision
The Court said that the purpose of issuing the impugned letter to the Registrars of Cooperative Societies of all States was to ensure that the frequent failure of Cooperative banks do not happen and qualified auditors will conduct the audit as per regulatory provisions to protect the interest of the depositors of such banks, as there were several instances of State Cooperative Banks and District Central Cooperative Banks failing, due to lack of checks on their operations.
The Court took note of the Article 243-ZM of the Constitution of India and said that the qualifications required by an auditing agency to conduct statutory audit of the State Cooperative Bank is left to the State Government.
The Court said that the categorization of Chartered Accountants firms into such categories is not arbitrary and discriminatory as the ICAI has categorized the firms as category I, II, III, IV and the petitioner belongs to category III and IV. This list was sent to the Reserve Bank of India for preparing panels for public sector banks and undertakings. The Court further said that though the guidelines issued in the impugned order referred to choosing of Chartered Accountants firms falling in categories I and II, they provided that category III firms with good experience can also to be considered. Thus, there is no total exclusion of such category of firms The Court said that it failed to saw why prescription of qualification of inclusion in the qualified list of Chartered Accountants holding such Diploma has to be faulted with when data of most of banks are now stored in Information Systems.
The Court referred to the cases of Punjab National Bank v. Anit Kumar Das, (2021) 12 SCC 80, Chandigarh Admn. v. Usha Kheterpal Waie, (2011) 9 SCC 645 and said that it neither has any expertise to decide the conditions mentioned in guidelines issued by NABARD, nor it has any ability to compare the nature or responsibility of statutory auditors having no such qualifications with those who possess those qualifications.
The Court held that the impugned letter is in nature of advice to the Registrar of the Cooperative Societies of the State Governments to empanel Chartered Accountants for conducting statutory audit of State Cooperative Banks.. Having regard to requirement of protecting interest of depositors, certain criteria has been prescribed with certain qualifications, such as possession of Diploma in Information System Audit and certain number of years of experience in doing bank audits, which cannot be wholly irrelevant criteria. Therefore, the conditions imposed were reasonably relevant and have a rational nexus with the functions and duties attached to the post of auditors.
Thus, the Court dismissed the writ petition.
[Yogesh Verma v. State of Himachal Pradesh, 2023 SCC OnLine HP 726, Order dated 22-06-2023]
Advocates who appeared in this case :
For the Petitioner: Advocate Suneel Awasthi;
For the Respondents: Advocate General Anup Rattan, Advocate Rakesh Dhaulta, Advocate Navlesh Verma, Additional Advocate General Pranay Pratap Singh, Deputy Advocates General Gautam Sood and Arsh Rattan.
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