Naresh Chandra Agrawal vs The Institute Of Chartered Accountants … on 8 February, 2024

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Supreme Court of India

Naresh Chandra Agrawal vs The Institute Of Chartered Accountants … on 8 February, 2024

Author: Aravind Kumar

Bench: Aravind Kumar, Pamidighantam Sri Narasimha

 2024 INSC 94
                                                                                    REPORTABLE



                                         IN THE SUPREME COURT OF INDIA


                                          CIVIL APPELLATE JURISDICTION


                                            CIVIL APPEAL No.4672 OF 2012




                         NARESH CHANDRA AGRAWAL                                …APPELLANT(S)

                                                          VERSUS


                         THE INSTITUTE OF CHARTERED
                         ACCOUNTANTS OF INDIA AND OTHERS                       …RESPONDENT(S)




                                                    JUDGEMENT

Aravind Kumar, J.

1. The facts in brief are set out herein below:

Signature Not Verified

Digitally signed by
Indu Marwah
Date: 2024.02.08
16:22:13 IST

Reason: The Bank of Rajasthan Limited, (hereinafter referred to as

‘Complainant-bank’) had engaged the services of M/s Ramesh C.

1
Agrawal & Co. (hereinafter referred to interchangeably as ‘the

firm’/’service provider’) for the purpose of conducting audit work.

The audit work was to be carried out in respect of Sahara India, Aliganj,

Lucknow Branch for a period of 3 years commencing from 01.01.2007.

According to this arrangement, the service provider was required to

submit monthly audit reports in respect of daily transactions/banking

affairs of the concerned branch. This report had to be submitted within

a particular time frame, i.e., by the 7th of the succeeding month. The

service provider was also required to report any suspicious activity or

foul play pertaining to the transactions under review, to the Chief

Executive Officer of the Complainant bank.

On 27.09.2009, a series of circuitous transactions (hereinafter referred

to as ‘subject transaction’) involving large sums of money are said to

have taken place in certain accounts of the branch, which were neither

regular nor normal in nature. However, in the audit report submitted to

the Complainant bank, these transactions were not flagged.

2. According to the Complainant, the main purpose of engaging the

firm for audit related work was to assist it in timely detection of irregularities/

lapses, besides observing as to whether the transactions were within the

2
policy parameters as laid down by the Reserve Bank of India. In having

failed to point out the suspicious transactions that took place on 27.09.2009,

the Complainant alleges that the firm had utterly failed to discharge its

professional obligation under the terms, as agreed.

3. It is in this background that the Complainant wrote to the firm, vide

letter dated 05.03.2009 and called for its explanation. No satisfactory

response was received. On 05.09.2009, yet another letter was issued to the

firm, but no reply was received in that regard.

4. Accordingly, the Complainant proceeded to register its complaint

against the audit firm before the Director (Discipline) on 21.12.2009. The

Director (Discipline) forwarded a copy of the complaint to the firm and

called upon it to disclose the name(s) of the member/person(s) who was/were

responsible for conducting the audit and preparing the report pertaining to

the subject transaction.

5. On 15.02.2010, there was a letter communication received by the

Director (Discipline) from the audit firm, in which it was stated that the

Appellant was given the responsibility for reviewing the subject transactions.

The Appellant filed his written statement on 02.04.2010. The Complainant

bank submitted its rejoinder on 02.06.2010. Certain additional documents

3
were sought by the Director (Discipline) from the Complainant on

10.12.2010.

6. On consideration of the complaint, the written statement and the

other matters on record, the Director (Discipline) arrived at a prima facie

conclusion that the Appellant was not guilty of any professional or other

misconduct within the meaning of clause (7), (8) and (9) of Part 1 of the

Second Schedule of the Chartered Accountants’ (Amendment) Act, 2006.

7. On such opinion of the Director being placed before the Board of

Discipline, Respondent No.1 informed the Appellant that the Board of

Discipline had disagreed with the prima facie opinion of the Director

(Discipline) and the Board had decided to refer the matter to the Disciplinary

Committee for further action under Chapter V of the Chartered Accountants’

(Procedure of Investigation of Professional and Other Misconduct and

Conduct of Cases) Rules, 2007 (for short ‘Rules, 2007’).

8. The action of the Board in disagreeing with the prima facie opinion

of the Director (Discipline) and referring the matter for further action before

the Disciplinary Committee was impugned before the High Court of Delhi

in W.P.(C) No.6488 of 2011. The prayer in the said writ petition was to

declare Rule 9(3)(b) of the Rules, 2007 as invalid on the ground that the said

4
rule was ultra vires section 21 A (4) of the Act. The Ld. Division Bench

having repelled the said challenge, the Appellants are now before us.

9. According to the Ld. Counsel for the Appellant, when the Director

(Discipline) was of the prima facie opinion that the Appellant was not guilty

of the alleged misconduct, the Board had two options available to it

according to Section 21 A (4) of the Act. It could either close the matter at

that very stage or direct the Director (Discipline) to further investigate and it

could not have assumed the role of the Director and acted as the investigating

agency by referring the matter to the Disciplinary Committee. It is submitted

that there is no substantive basis in the parent Act for the action impugned in

this appeal. The Ld. Counsel argued that the impugned Rule, being a

delegated legislation, cannot provide for any action which is not

contemplated under the parent Act.

10. Per contra, Ld. Counsel for the Respondent has sought to justify the

correctness of the view taken in the impugned order. According to him, if the

argument of the Appellant is accepted, the result would be that the Director

(Discipline), who is merely a Secretary to the Board of Discipline, would

have greater powers than the Board itself. This is because the Board would

not be able to overrule the prima facie view taken by the Director

5
(Discipline). The Board could, at best, direct the Director (Discipline) to

conduct further investigation and nothing more. It is submitted that the

legislature would not have intended such a consequence. There is nothing in

the scheme of the Act to suggest that the Board cannot refer the matter to the

Disciplinary Committee for further action.

11. Therefore, considering the arguments canvassed on behalf of both

sides, the following question falls for our consideration:

“Whether Rule 9(3)(b) of the Rules, 2007 is inconsistent with
and beyond the rule-making power of the Central
Government?”

Relevant provisions in the Act and Rules:

12. It may be necessary to refer to certain provisions of the Act in order

to better understand the scheme of the applicable law pertaining to

investigation of complaints alleging misconduct. The relevant provisions are

extracted hereinbelow:

“21. Disciplinary Directorate. –

(1) The Council shall, by notification, establish a
Disciplinary Directorate headed by an officer of the Institute
designated as Director (Discipline) and such other
employees for making investigations in respect of any
information or complaint received by it.

(2) On receipt of any information or complaint along with
the prescribed fee, the Director (Discipline) shall arrive at a
prima facie opinion on the occurrence of the alleged
misconduct.

6

(3) Where the Director (Discipline) is of the opinion that a
member is guilty of any professional or other misconduct
mentioned in the First Schedule, he shall place the matter
before the Board of Discipline and where the Director
(Discipline) is of the opinion that a member is guilty of any
professional or other misconduct mentioned in the Second
Schedule or in both the Schedules, he shall place the matter
before the Disciplinary Committee.

(4) In order to make investigations under the provisions of
this Act, the Disciplinary Directorate shall follow such
procedure as may be specified.

(5) Where a complainant withdraws the complaint, the
Director (Discipline) shall place such withdrawal before the
Board of Discipline or, as the case may be, the Disciplinary
Committee, and the said Board or Committee may, if it is of
the view that the circumstances so warrant, permit the
withdrawal at any stage.

21A. Board of Discipline. —
(1) The Council shall constitute a Board of Discipline
consisting of–

(a) a person with experience in law and having knowledge
of disciplinary matters and the profession, to be its presiding
officer.

(b) two members one of whom shall be a member of the
Council elected by the Council and the other member shall
be nominated by the Central Government from amongst the
persons of eminence having experience in the field of law,
economics, business, finance or accountancy.

(c) the Director (Discipline) shall function as the Secretary
of the Board.

(2) The Board of Discipline shall follow summary disposal
procedure in dealing with all cases before it.
(3) Where the Board of Discipline is of the opinion that a
member is guilty of a professional or other misconduct
mentioned in the First Schedule, it shall afford to the member
a pportunity of being heard before making any order against
him and may thereafter take any one or more of the following
actions, namely: —

(a) reprimand the member.

(b) remove the name of the member from the Register up to
a period of three months.

7

(c) impose such fine as it may think fit, which may extend to
rupees one lakh.

(4) The Director (Discipline) shall submit before the Board
of Discipline all information and complaints where he is of
the opinion that there is no prima facie case and the Board
of Discipline may, if it agrees with the opinion of the
Director (Discipline), close the matter or in case of
disagreement, may advise the Director (Discipline) to
further investigate the matter.]

21B. Disciplinary Committee. —
(1) The Council shall constitute a Disciplinary Committee
consisting of the President or the Vice-President of the
Council as the Presiding Officer and two members to be
elected from amongst the members of the Council and two
members to be nominated by the Central Government from
amongst the persons of eminence having experience in the
field of law, economics, business, finance or accountancy:

Provided that the Council may constitute more Disciplinary
Committees as and when it considers necessary.
(2) The Disciplinary Committee, while considering the cases
placed before it shall follow such procedure as may be
specified.

(3) Where the Disciplinary Committee is of the opinion that
a member is guilty of a professional or other misconduct
mentioned in the Second Schedule or both the First Schedule
and the Second Schedule, it shall afford to the member an
opportunity of being heard before making any order against
him and may thereafter take any one or more of the following
actions, namely: —

(a) reprimand the member.

(b) remove the name of the member from the Register
permanently or for such period, as it thinks fit.

(c) impose such fine as it may think fit, which may extend to
rupees five lakhs.

(4) The allowances payable to the members nominated by
the Central Government shall be such as may be specified.]

“29A. Power of Central Government to make rules:

(1) The Central Government may, by notification, make
rules to carry out the provisions of this Act.

8

(2) In particular, and without prejudice to the generality of
the foregoing powers, such rules may provide for all or
any of the following matters, namely :−

(a) the manner of election and nomination in respect of
members to the Council under sub-section (2) of Section 9;

(b) the terms and conditions of service of the Presiding
Officer and Members of the Tribunal, place of meetings and
allowances to be paid to them under sub-section (3) of
Section 10B4;

(c) the procedure of investigation under sub-section (4) of
Section 21 ;

(d) the procedure while considering the cases by the
Disciplinary Committee under sub-section (2), and the
fixation of allowances of the nominated members under sub-
section (4) of Section 21B;

(e) the allowances and terms and conditions of service of the
Chairperson and members of the Authority and the manner
of meeting expenditure by the Council under Section 22C;

(f) the procedure to be followed by the Board in its meetings
under Section 28C ; and

(g) the terms and conditions of service of the Chairperson
and members of the Board under sub-section (1) of Section
28D.] (emphasis supplied)

Rule 9 of the Rules, 2007 is extracted hereinbelow:

Rule 9. Examination of the Complaint
(1) The Director shall examine the complaint, written
statement, if any, rejoinder, if any, and other additional
particulars or documents, if any, and form his prima facie
opinion as to whether the member or the firm is guilty or not
of any professional or other 10 misconduct or both under the
First Schedule or the Second Schedule or both.
(2) (a) Where the Director is of the prima facie opinion that,

(i) the member or the firm is guilty of any misconduct under
the First Schedule, he shall place his opinion along with the
complaint and all other relevant papers before the Board of
Discipline.

(ii) the member or the firm is guilty of misconduct under the
Second Schedule or both the First and Second Schedules, he

9
shall place his opinion along with the complaint and all
other relevant papers before the Committee.

(b) If the Board of Discipline or the Committee, as the case
may be, agrees with the prima facie opinion of the Director
under clause (a) above, then the Board of Discipline or the
Committee may proceed further under Chapter IV or V
respectively.

(c) If the Board of Discipline or the Committee, as the case
may be, disagrees with the prima facie opinion of the
Director under clause (a) above, it shall either close the
matter or advise the Director to further investigate the
matter
(3) Where the Director is of the prima facie opinion that the
member or the firm is not guilty of any misconduct either
under the First Schedule or the Second Schedule, he shall
place the matter before the Board of Discipline, and the
Board of Discipline, −

(a) if it agrees with such opinion of the Director, shall pass
order, for closure.

(b) if it disagrees with such opinion of the Director, then it
may either proceed under chapter IV of these rules, if the
matter pertains to the First Schedule, or refer the matter to
the Committee to proceed under Chapter V of these rules,
if the matter pertains to the Second Schedule or both the
Schedules and may advise the Director to further
investigate the matter.

(4) The Director shall, after making further investigation as
advised by the Board of Discipline under sub-rule (2) or (3)
of this rule or by the Committee under sub-rule (2), shall
further proceed under this rule.”
(emphasis supplied)

13. Section 21(1) empowers the Council to establish a Disciplinary

Directorate for making investigations into the complaints received by it. The

head of this authority is designated as Director (Discipline). Section 21(2)

provides that the Director (Discipline), on receipt of any information or

complaint, shall arrive at a prima facie opinion on the occurrence of the

10
alleged misconduct. Section 21(3) states that should the Director (Discipline)

arrive at a prima facie opinion that the member is guilty of professional

misconduct, he shall refer the matter to the Board of Discipline or the

Disciplinary Committee, depending on whether the alleged misconduct falls

within the First Schedule or the Second Schedule or both. If the alleged

misconduct falls within the First Schedule, the matter is placed before the

Board of Discipline and if it falls within the Second Schedule or in both the

Schedules, the matter is placed before the Disciplinary Committee. Section

21(4) provides that the procedure for investigation would be as prescribed

under the relevant rules.1 In the event where the Complainant wishes to

withdraw his/her complaint, Section 21(5) provides that the Director

(Discipline) shall place the request for withdrawal before the Board of

Discipline or the Disciplinary Committee, as the case may be, and the Board

or Committee would take a final call in this regard.

14. The Board of Discipline is constituted under Section 21A of the Act.

The Director (Discipline) is to function as the Secretary of the Board, as per

Section 21A(1)(c) of the Act. Section 21A (2) provides that the Board shall

follow a summary procedure in dealing with cases referred to it. Where the

1
Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and
Conduct of Cases) Rules, 2007

11
Board finds that a member is guilty of professional or other misconduct

mentioned in First Schedule, it may resort to imposing any of the three

punishments enumerated in Section 21A (3).

15. Section 21A (4) requires the Director (Discipline) to submit all

information and complaints to the Board, where he is of the opinion that there

is no prima facie case in the complaint. It further provides that if the Board

agrees with the opinion of the Director (Discipline), it may close the matter

and if it disagrees with the opinion, it may advise the Director (Discipline)

to further investigate into the complaint.

16. Similar scheme to deal with complaints relating to misconduct as

prescribed in the Second Schedule is found in Section 21B (1) to (4).

17. Section 29A is titled ‘Power of Central Government to make rules’.

Section 29A (1) enables the Central Government ‘to make rules to carry out

the provisions of this Act’. Section 29A (2) sets out enumerated heads under

which rules may be made. Rule 9(3), which is part of Rules, 2007 appears to

have been made under Section 29A(2)(c). It is relevant to note that the power

to make rules under sub-section (2) of Section 29A is ‘without prejudice to

the generality of the foregoing power’ provided for in Section 29A(1).

12

18. Having discussed the scheme of relevant provisions in the parent Act,

we may now peruse the contents of Rule 9.

19. Rule 9 is titled ‘Examination of Complaint’. Sub-clause (1) provides

for the procedure to be followed on receipt of complaint. The Director

(Discipline) is required to form his prima facie opinion as to whether the

member is guilty or not of the alleged misconduct. Sub-clause (2) sets out

the procedure to be followed in the event where the Director (Discipline)

reaches a prima facie opinion that the member is guilty of professional

misconduct. What is of utmost significance for us is to see the procedure to

be followed when the Director (Discipline) comes to a prima facie opinion

that the member is not guilty of alleged misconduct, as has been examined

in the instant case. This can be found in sub-clause (3) of Rule 9. It provides

that the Board can accept the opinion of the Director (Discipline) and pass

an order for closure (Rule 9(3)(a)). Where the Board disagrees with the

opinion of the Director (Discipline), it may proceed under Chapter IV of the

Rules, 2007 if the matter pertains to the First Schedule or it may advise the

Director to further investigate the matter. Similarly, the Board could refer the

matter to the Disciplinary Committee for action under Chapter V if the matter

13
pertains to the Second Schedule or it could advise the Director (Discipline)

to conduct further investigation.

Analysis and Findings:

20. Now, let us contrast Section 21A (4) with Rule 9(3) to examine if

there is any substance in the argument that Rule 9(3) is ultra vires Section

21A (4). In the event the Board disagrees with the opinion of the Director

(Discipline), Section 21A(4) provides that the Board may advise the Director

to further investigate the matter. However, Rule 9(3) does not limit itself to

just this option. It also enables the Board to straightaway proceed to act by

itself or refer the matter to the Disciplinary Committee, depending on

whether the alleged misconduct relates to the First Schedule or Second

Schedule. It is in this background that the learned counsel for the Appellant

has strenuously submitted that the Rule goes beyond the enabling power set

out in the parent Act.

21. In State of Tamil Nadu and Anr. v. P. Krishnamurthy and Ors. (2006)

4 SCC 517, this Court recollected the following principles while adjudging

the validity of subordinate legislation, including regulations:

15. There is a presumption in favour of constitutionality
or validity of a subordinate legislation and the burden is

14
upon him who attacks it to show that it is invalid. It is also
well recognized that a subordinate legislation can be
challenged under any of the following grounds:

(a) Lack of legislative competence to make the
subordinate legislation.

(b) Violation of fundamental rights guaranteed under the
Constitution of India.

(c) Violation of any provision of the Constitution of India.

(d) Failure to conform to the statute under which it is
made or exceeding the limits of authority conferred by the
enabling Act.

(e) Repugnancy to the laws of the land, that is, any
enactment.

(f) Manifest arbitrariness/unreasonableness (to an extent
where the court might well say that the legislature never
intended to give authority to make such rules)
(emphasis supplied)

22. Of the six available grounds for challenging subordinate legislation,

it is quite clear that the scope of the challenge raised in this petition is

restricted to one ground in the instant case; that the Rule exceeds the limits

of authority conferred by the enabling Act. Therefore, it becomes important

to examine the scope of power available under the Act before we can adjudge

whether the Rules exceed the limits of authority conferred by the enabling

Act.

15

23. As we have noted earlier, the Rules, 2007, have been framed

purportedly in exercise of the power conferred under Section 29A(2)(c) of

the Act, which enables the Central Government to make rules regarding ‘the

procedure of investigation under sub-section (4) of Section 21’. However,

the enumerated heads set out in Section 29A(2) cannot be read as exhaustive

since the legislature has deployed the expression ‘without prejudice to the

generality of the foregoing provisions’ before enumerating the specific heads

for exercising the rule-making power. In that sense, the power to make rules

generally for carrying out the provisions of the Act is found in Section

29A(1). Section 29A (2) is only an illustrative list of subjects with respect to

which the Central Government may make rules. The illustrative list of

subjects cannot limit the scope of general power available under the wider

rule-making power found in Section 29A(1).

24. Experience of legislative drafting in India has shown that, generally,

the delegation of power to formulate rules follows a standardized pattern

within statutes. Typically, a section of the statute grants this authority in

broad terms, using phrases like ‘to carry out the provisions of this Act’ or ‘to

carry out the purposes of this Act.’ Subsequently, another sub-section details

specific matters or areas for which the delegated power can be exercised,

often employing language such as ‘in particular and without prejudice to the

16
generality of the foregoing power.’ Judicial interpretation of such provisions

underscores that the specific enumeration is illustrative and should not be

construed as limiting the scope of the general power. This approach allows

for flexibility in rulemaking, enabling the authorities to address unforeseen

circumstances. A key principle emerges from this interpretation: even if

specific topics are not explicitly listed in the statute, the formulation of rules

can be justified if it falls within the general power conferred, provided it stays

within the overall scope of the Act. This mode of interpretation has been

categorised as the ‘generality versus enumeration’ principle in some

precedents of this Court2. This delicate balance between specificity and

generality in legal delegation is crucial for effective governance and

adaptability to evolving legal landscapes.

25. For the sake of completeness, we may refer to some leading

precedents of this Court which have discussed the ‘generality versus

enumeration’ principle.

2

See, BSNL v. TRAI, (2014) 3 SCC 222; King Emperor v. Sibnath Banerji: AIR 1945 PC 156; Afzal Ullah
v. State of U.P, AIR 1964 SC 264; Rohtak and Hissar Districts Electric Supply Co. Ltd. v. State of U.P.,AIR
1966 SC 1471; K. Ramanathan v. State of T.N. (1985) 2 SCC 116; D.K. Trivedi and Sons v. State of
Gujarat, 1986 Supp SCC 20

17

26. In State of Jammu and Kashmir v Lakhwinder Kumar and Ors.,

(2013) 6 SCC 333, this Court held that when a general power to make

regulations is followed by a specific power to make regulations, the latter

does not limit the former. This is the principle of ‘generality vs enumeration’:

a residuary provision can always be given voice.

27. In Academy of Nutrition Improvement v. Union of India (2011) 8

SCC 274, this Court had interpreted a pari materia expression “in particular

and without the generality of the foregoing power, such Rules may provide

for all or any of the following matters”. This Court held as follows :

“………where power is conferred to make subordinate
legislation in general terms, the subsequent particularisation
of the matters/topics has to be construed as merely illustrative
and not limiting the scope of the general power.
Consequently, even if the specific enumerated topics in
section 23(1A) may not empower the Central Government to
make the impugned rule (Rule 44-I), making of the Rule can
be justified with reference to the general power conferred on
the central government under section 23(1), provided the rule
does not travel beyond the scope of the Act”

28. In the case of State of Kerala v. Shri M. Appukutty (1963) 14 STC

242, the provisions of Section 19 (1) and (2) (f) of the Madras General Sales

Tax Act of 1939 came up for consideration of this Court. It was

18
unsuccessfully argued therein that Rule 17(1) was ultra vires the rule making

power specifically enumerated in Section 19(2)(f).

29. The relevant provisions involved there were similar in form to the

applicable provisions in the instant case.

Section 19 (1),(2),2(f) read as follows:

(1) The State Government may make rules to carry out the
purposes of this Act.

(2) In particular and without prejudice to the generality of
foregoing power such rules may provide for– *****

(f) the assessment to tax under this Act of any turnover which
has escaped assessment and the period within which such
assessment may be made, not exceeding three years;

Dealing with the objection raised, this Court observed:–

“….. Rule 17 (1) and (3A) ex facie properly fall under Section
19(2)(f). In any event as was said by the Privy Council in King
Emperor v. Sibnath Banerji MANU/PR/0024/1945, the rule-
making power is conferred by Sub-section (1) of that section
and the function of Sub-section (2) is merely illustrative and
the rules which are referred to in Sub-section (2) are
authorised by and made under Sub-section (1). The pro-
visions of Sub-section (2) are not restrictive of Sub-section
(1) as expressly stated in the words ‘without prejudice to the
generality of the foregoing power’ with which Sub-section
(2) begins and which words are similar to the words of Sub-

section (2) of Section 2 of the Defence of India Act which
the Privy Council was considering…..”
(emphasis supplied)

30. While examining the “generality versus enumeration” principle, this

Court, in PTC India Ltd. v. Central Electricity Regulatory Commission,

19
(2010) 4 SCC 603, referred with approval to its earlier Judgement in

Hindustan Zinc Ltd. vs Andhra Pradesh State Electricity Board (1991) 3

SCC 299, wherein the scope of Sections 49(1) & (2) of the Electricity Supply

Act, 1948 fell for consideration. Under Section 49(1), a general power was

given to the Board to supply electricity to any person not being a licensee,

upon such terms and conditions as the Board thinks fit and the Board may,

for the purposes of such supply, frame uniform tariff under Section 49(2).

The Board was required to fix uniform tariff after taking into account certain

enumerated factors. In this context, this Court, in Hindustan Zinc Ltd., held

that the power of fixation of tariff in the Board ordinarily had to be done in

the light of specified factors; however, such enumerated factors in Section

49(2) did not prevent the Board from fixing uniform tariff on factors other

than those enumerated in Section 49(2), as long as they were relevant and in

consonance with the Act. This Court then referred, with approval, to its

judgment in Shri Sitaram Sugar Co. Ltd. vs Union of India (1990) 3 SCC

223, wherein it was held that the enumerated factors/topics in a provision did

not mean that the authority cannot take any other matter into consideration

which may be relevant; and the words in the enumerated provision are not a

fetter; they are not words of limitation, but are words for general guidance.

20

31. In Afzal Ullah vs. The State of Uttar Pradesh reported in 1963 SCC

Online SC 76, it was argued that the impugned bye-laws were invalid,

because they were outside the authority conferred on the delegate to make

bye-laws by Section 298(2) of the Act, and it was also contended that the

bye-laws were invalid for the additional reason that they were inconsistent

with Section 241 of the Act. Rejecting the said contentions, this Court

observed as follows:

“Even if the said clauses did not justify the impugned bye-
law, there can be little doubt that the said bye-laws would be
justified by the general power conferred on the Boards by s.
298(1). It is well-settled that the specific provisions such as
are contained in the several clauses of s. 298(2) are merely
illustrative and they cannot be read as restrictive of the
generality of powers prescribed by s. 298(1) vide Emperor v.
Sibnath Banerji & Ors MANU/PR/0024/1945. If the powers
specified by s. 298(1) are very wide and they take in within
their scope bye-laws like the ones with which we are
concerned in the present appeal, it cannot be said that the
powers enumerated under s. 298(2) control the general
words used by s. 298(1). These latter clauses merely
illustrate and do not exhaust all the powers conferred on
the Board, so that any cases not falling within the powers
specified by section 298(2) may well be protected by s.
298(1), provided, of course, the impugned bye-laws can be
justified by reference to the requirements of s. 298(1).
There can be no doubt that the impugned bye-laws in regard
to the markets framed by respondent No. 2 are for the
furtherance of municipal administration under the Act, and
so, would attract the provisions of s. 298(1). Therefore we
are satisfied that the High Court was right in coming to the
conclusion that the impugned bye-laws are valid.”
(emphasis supplied)

21

32. From reference to the precedents discussed above and taking an

overall view of the instant matter, we proceed to distil and summarise the

following legal principles that may be relevant in adjudicating cases where

subordinate legislation are challenged on the ground of being ‘ultra vires’ the

parent Act:

(a) The doctrine of ultra vires envisages that a Rule making body must

function within the purview of the Rule making authority, conferred on it by

the parent Act. As the body making Rules or Regulations has no inherent

power of its own to make rules, but derives such power only from the statute,

it must necessarily function within the purview of the statute. Delegated

legislation should not travel beyond the purview of the parent Act.

(b) Ultra vires may arise in several ways; there may be simple excess of

power over what is conferred by the parent Act; delegated legislation may be

inconsistent with the provisions of the parent Act; there may be non-

compliance with the procedural requirement as laid down in the parent Act.

It is the function of the courts to keep all authorities within the confines of

the law by supplying the doctrine of ultra vires.

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(c) If a rule is challenged as being ultra vires, on the ground that it

exceeds the power conferred by the parent Act, the Court must, firstly,

determine and consider the source of power which is relatable to the rule.

Secondly, it must determine the meaning of the subordinate legislation itself

and finally, it must decide whether the subordinate legislation is consistent

with and within the scope of the power delegated.

(d) Delegated rule-making power in statutes generally follows a

standardized pattern. A broad section grants authority with phrases like ‘to

carry out the provisions’ or ‘to carry out the purposes.’ Another sub-section

specifies areas for delegation, often using language like ‘without prejudice

to the generality of the foregoing power.’ In determining if the impugned rule

is intra vires/ultra vires the scope of delegated power, Courts have applied

the ‘generality vs enumeration’ principle.

(e) The “generality vs enumeration” principle lays down that, where a

statute confers particular powers without prejudice to the generality of a

general power already conferred, the particular powers are only illustrative

of the general power, and do not in any way restrict the general power. In

that sense, even if the impugned rule does not fall within the enumerated

heads, that by itself will not determine if the rule is ultra vires/intra vires. It
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must be further examined if the impugned rule can be upheld by reference to

the scope of the general power.

(f) The delegated power to legislate by making rules ‘for carrying out

the purposes of the Act’ is a general delegation, without laying down any

guidelines as such. When such a power is given, it may be permissible to

find out the object of the enactment and then see if the rules framed satisfy

the Act of having been so framed as to fall within the scope of such general

power confirmed.

(g) However, it must be remembered that such power delegated by an

enactment does not enable the authority, by rules/regulations, to extend the

scope or general operation of the enactment but is strictly ancillary. It will

authorize the provision of subsidiary means of carrying into effect what is

enacted in the statute itself and will cover what is incidental to the execution

of its specific provision. In that sense, the general power cannot be so

exercised as to bring into existence substantive rights or obligations or

disabilities not contemplated by the provisions of the Act itself.

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(h) If the rule making power is not expressed in such a usual general

form but are specifically enumerated, then it shall have to be seen if the rules

made are protected by the limits prescribed by the parent Act.

33. With this background in view, we may now apply the principles to

the factual context obtained in the instant case.

34. In the instant case, the ultra vires challenge has been mounted on the

ground that the impugned Rule exceeds the power conferred by the parent

Act. If we look at the parent Act, the rule-making power has been conferred

under Section 29A, which is titled as ‘Power of the Central Government to

make Rules’. While sub-clause (1) of Section 29A sets out the general power

of delegation, sub-clause (2) provides for enumerated heads. As noted earlier,

the power to make rules under the latter clause is without prejudice to the

general power under the former clause. In exercise of the enabling power

(Section 29A(2)(c)) to make rules relating to procedure of investigation

under Section 21(4), the Rules 2007 have been made. Admittedly, Rule 9(3)

goes beyond what is provided for under Section 21A(4) in terms of the

options available to the Board of Discipline in case it disagrees with the

opinion of the Director (Discipline). Other than the option of advising the

director to further investigate, Rule 9(3) provides the additional option to the

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Board for proceeding to deal with the complaint by itself or referring it to the

Disciplinary Committee, depending on whether the alleged misconduct falls

under the First Schedule or the Second Schedule. But as we have seen from

principles discussed above, the scrutiny cannot stop at examining if the

impugned rule is relatable to any specific enumerated head. We must go

further and examine if it can be related to the general delegation of power

under Section 29A(1), which authorises the Central Government to make

rules for carrying out the purposes of the Act.

35. Since the general delegation of power is without any specific

guideline, it may be necessary to understand the object of the Act vis-à-vis

the chapter on Misconduct. It is only then can we examine whether the

impugned rule falls within the scope of such general power conferred.

Object of the CA Act vis a vis Chapter on Misconduct:

36. The Chartered Accountants Act, 1949, is a legislation that governs

the regulation of the chartered accountancy profession in India. The chapter

on “Misconduct” in the Chartered Accountants Act, 1949, plays a crucial role

in maintaining the ethical standards of the profession in India. Its main

objectives are to set ethical guidelines, prevent actions that may compromise

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public interests, ensure accountability among chartered accountants, and

preserve the profession’s reputation. This Chapter defines and prohibits

professional misconduct, while aiming to uphold honesty, integrity, and

professionalism in the practice of chartered accountancy. By addressing

instances of misconduct, it establishes a framework for accountability,

reinforcing the credibility of individual professionals and the reputation of

the entire profession. To achieve these goals, the Act includes a disciplinary

mechanism, ensuring a fair and transparent process for investigating and

adjudicating alleged cases of misconduct.

37. Seen in this background, we have not the slightest hesitation to

conclude that the impugned rule is completely in sync with the object and

purpose of framing the Chapter on ‘Misconduct’ under the Act. As has been

rightly argued by the learned counsel for the Respondent, accepting the

contention of the Appellant will create an anomalous situation. The Director

(Discipline) who functions as a secretary to the Board of Discipline as per

Section 21A (2) will be having greater powers than the Board itself. The

‘prima facie’ opinion of the Director will become nothing but a final opinion

if the Board will have no option except to direct the Director (Discipline) to

further investigate the matter. The Section is silent as to what would happen

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in a situation where the Director (Discipline) on further investigation

concludes in accordance with his preliminary assessment. Therefore, even if

we accept, for the sake of argument, that Rule 9(3) cannot be saved under

Section 29A(2)(c), as it directly relates to furthering the purposes of the Act

in ensuring that a genuine complaint of professional misconduct against the

member is not wrongly thrown out at the very threshold, it can be easily

concluded that the impugned Rule falls within the scope of the general

delegation of power under Section 29A(1).

38. Accordingly, we dismiss this appeal. No costs.

…………….………………….J.
(Pamidighantam Sri Narasimha)

…………….………………….J.
(Aravind Kumar)
New Delhi,
February 08, 2024

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