The Supreme Court summarized legal principles relevant in adjudicating cases where subordinate legislation are challenged on the ground of being ‘ultra vires’ the parent Act.

The Court discussed these principles while holding that Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 falls within the scope of the rule-making power of the Central Government under Section 29A(1) of the Chartered Accountants’ (Amendment) Act, 2006.

The two-Judge Bench comprising Justice P.S. Narasimha and Justice Aravind Kumar observed, “… 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).”

The Bench said that 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.

Advocate Anurag Kr. Agarwal represented the appellant while Advocate Nikunj Dayal represented the respondents.

In this case, there was a letter communication received by the Director (Discipline) from an audit firm, in which it was stated that the appellant person being a Chartered Accountant (CA) was given the responsibility for reviewing some transactions. He filed his written statement and the complainant bank submitted its rejoinder. Certain additional documents were sought by the director from the bank and on consideration of the complaint, the written statement and other matters on record, the director concluded that the CA was not guilty of any professional or other misconduct under 2006 Act.

On such opinion of the director being placed before the Board of Discipline, the ICAI informed CA that the said Board had disagreed with the director’s prima facie opinion and decided to refer the matter to the Disciplinary Committee for further action under Chapter V of 2007 Rules. The action of the Board in disagreeing with such an opinion of the director and referring the matter for further action was challenged before the Delhi High Court and the prayer in the writ petition was to declare Rule 9(3)(b) of Rules 2007 as invalid on the ground that the said rule was ultra vires Section 21 A (4) of the Act. The Division Bench having repelled the said challenge, the appellant CA approached the Apex Court.

The Supreme Court in view of the aforementioned facts noted, “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. … 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.”

The Court added that a delegated rule-making power in statutes generally follows a standardized pattern. It further noted that 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.

“… 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. … 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”, it said.

The Court also observed that 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) and other than the option of advising the director to further investigate, Rule 9(3) provides the additional option to the 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.

“… the scrutiny cannot stop at examining if the impugned rule is relatable to any specific enumerated head. … 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”, it said.

The Court held that 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.

“… 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 Section is silent as to what would happen in a situation where the Director (Discipline) on further investigation concludes in accordance with his preliminary assessment”, it concluded.

The following are the principles as summarized by the Court:

  • (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 noncompliance 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.
  • (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 24 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.
  • (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.

Accordingly, the Apex Court dismissed the appeal.

Cause Title- Naresh Chandra Agrawal v. The Institute of Chartered Accountants of India and Others (Neutral Citation: 2024 INSC 94)

Appearance:

Appellant: Advocate Umesh Mishra and AOR Sanjay Jain.

Respondents: AORs Pramod Dayal and Sushma Suri.

Click here to read/download the Judgment

Justice PS NarasimhaJustice Aravind KumarICAIChartered Accountants Act 1949

Swasti Chaturvedi