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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 ‘thefirm’/’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, he9
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 is14
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 provisionsunderscores 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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