RBI's PNB auditor action illegal: HC

New Delhi: The Delhi High Court has held as illegal the decision of RBI to discontinue the services of a Statutory Central Auditor (SCA) of Punjab National Bank (PNB) without fair and proper enquiry into the allegations against the firm.

"The Court holds that the impugned decision of the RBI, as communicated in its letter on June 24, 2009 to the PNB, to discontinue the Petitioner as an SCA, even for the limited extended period ending 30th June 2009, was violative of the principles of natural justice and was, therefore, illegal," Justice S Muralidhar said.

The observations came on the plea of accounting firm, Gupta and Gupta Chartered Accountants, alleging arbitrariness on the part of RBI in asking PNB to discontinue it (firm) as an SCA without fair and proper enquiry. RBI, in a letter written on June 24, 2009, permitted PNB to discontinue the firm as an SCA on the allegations of the bank that it was delaying the audit of accounts.

"RBI ought not to have unilaterally accepted the complaint by the PNB without seeking explanation from the Petitioner (Gupta & Gupta Chartered Accountants) on PNB's specific allegations," the court said. Allowing plea of the firm, the court said "there is merit in the contention of the Petitioner that the discontinuance of an SCA, selected through such a rigorous process, is likely to have adverse consequences for its reputation and goodwill if such discontinuance is as a result of a complaint about its competence or integrity," it said.

SCAs are appointed by RBI on the recommendations of statutory auditor CAG for a period of four years to audit the accounts of public sector banks. In 2005, five SCAs had been appointed to audit the accounts of PNB.

"The greater the power to appoint and remove an SCA, the higher the responsibility on the RBI as the holder of such power to exercise it in a fair and reasonable manner after following a just procedure which comports with the principles of natural justice," the court said. The firm had alleged that it was discontinued as an SCA by PNB apprehending that it can detect some irregularities by the bank in granting loan to some real estate companies. The firm also contended that it was singled out for being discontinued as SCA and that this amounted to blacklisting of the petitioner firm apart from being mala fide. It also submitted that it was even not served any show cause notice.

Source: Financial Express