Himachal Pradesh High Court Upholds NABARD's Guidelines For Selection Of Auditors For Cooperative Banks

The Himachal Pradesh High Court has dismissed a writ petition challenging the guidelines issued by the National Bank for Agriculture and Rural Development (NABARD) regarding the appointment of statutory auditors for Cooperative Banks. “This Court has neither the expertise to decide whether the conditions mentioned in the guidelines issued by the NABARD are valid or not, nor does it have any ability to compare the nature or responsibility of statutory auditors, who do not have such qualifications, with those who possess the said qualifications. The conditions imposed appear to be reasonably relevant and have a rational nexus with the functions and duties attached to the post of auditors,” Chief Justice M.S. Ramachandra Rao and Justice Ajay Mohan Goel observed.The petition, filed by Chartered Accountants registered with the Institute of Chartered Accountants of India, challenged a letter issued by NABARD on January 16, 2015. The letter instructed the Registrar of Cooperative Societies of all states to provide a panel of Chartered Accountants for conducting statutory audits of State Cooperative Banks from the financial year 2013-2014 onwards. The guidelines enclosed with the letter specified various factors for the selection of auditors, including experience, qualifications, and the need for Information System Audit certification.The petitioners argued that certain conditions imposed by NABARD were unreasonable, discriminatory, and favoured larger firms while excluding sole proprietorships and smaller firms. They also contended that the requirement of Information System Audit certification was not applicable to the statutory branch audits of Cooperative Banks.Explaining that the guidelines were issued to ensure the prevention of frequent Cooperative Bank failures, the bench said:“Obviously, the purpose of issuing the said letter to the Registrars of Cooperative Societies of all the State Governments by NABARD is to ensure that frequent failure of Cooperative Banks do not happen and qualified auditors conduct the audit as per regulatory provisions to protect the interest of the depositors of such banks in view of several instances of State Cooperative Banks and District Central Cooperative Banks failing due to lack of checks on their operations”.While noting that the Constitution in terms of Article 243 ZM (1) empowers state legislatures to make provisions for the maintenance and auditing of Cooperative Societies' accounts, the court said that to assist the respective State Governments to choose the right persons to conduct statutory audits, the NABARD issued the guidelines.Addressing the petitioners' arguments regarding their exclusion from the panel, the court clarified that the guidelines did not lead to a total exclusion of firms falling in the relevant categories. The court also said that the categorization of Chartered Accountant firms into different categories was not arbitrary or discriminatory, as it was based on their qualifications and experience.Regarding the requirement of Information System Audit certification, the court found it reasonable, considering the increasing use of Information Systems in banking operations. “When data of most of the banks are now being stored in Information Systems, we fail to see why prescription of such a qualification of inclusion in the qualified list of Chartered Accountants holding such Diploma has to be faulted with,” the bench remarked.Case Title: Yogesh Verma and Others Vs State of Himachal Pradesh and OthersCitation: 2023 LiveLaw (HP) 44Click Here To Read/Download Judgment

Himachal Pradesh High Court Upholds NABARD's Guidelines For Selection Of Auditors For Cooperative Banks

Basit Amin Makhdoomi

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