A Quiet Court Order Just Shook India’s Audit and NFRA Regime
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A low-profile Delhi High Court ruling forces NFRA to justify its powers over EQCRs, setting the stage for a regulatory clash that could reshape India’s audit oversight structure.
By P. SESH KUMAR
New Delhi, December 10, 2025 — The judgment of the Delhi High Court [W.P.(C) 18149/2025 (Order dated 2 December 2025)], though framed as a routine disposal of a writ petition, has significant consequences for the future of audit regulation in India. It concerns a challenge by an Engagement Quality Control Reviewer (EQCR) to the jurisdiction of the National Financial Reporting Authority (NFRA).
The Court refrains from deciding whether NFRA actually has the power to discipline EQCRs, but it firmly directs NFRA to first decide this question through a detailed, reasoned order before proceeding against the auditor. By doing so, the Court underscores a simple but powerful message: regulatory power must walk hand in hand with due process.
The judgment also aligns with earlier orders of the Supreme Court, creating a common procedural framework for all similar cases. In its understated tone lies a major reminder to NFRA, ICAI and the entire audit profession-clarity, consistency and procedural fairness are not optional accessories in a modern regulatory system. They are its very foundation.
The case begins with CA Sharad Vasant, an experienced professional who found himself facing a show-cause notice issued by NFRA in December 2024. The notice related to his role as Engagement Quality Control Reviewer (EQCR) in the controversial audit of Religare Finvest Limited for the year 2016–17.
Instead of responding on merits, he approached the Delhi High Court arguing that NFRA had no jurisdiction over EQCRs at all. According to him, only the signing partner and those who “conduct” the audit fall under NFRA’s disciplinary umbrella.
His challenge did not arise in isolation. Other EQCRs, notably Charmi M. Shah and Sunil Wahal, had already sought similar relief before the same Court earlier in the year. In those matters, interim orders had been passed restraining NFRA from taking coercive action until the question of jurisdiction was determined. The issue had even reached the Supreme Court, which, instead of endorsing the High Court’s interim stays, directed NFRA to decide the jurisdictional objection first and only then proceed further.
Against this backdrop, Sharad Vasant argued that his case should be treated in exactly the same way. He asserted that NFRA had moved ahead with proceedings without addressing the foundational question of whether an EQCR is even a person “associated with an audit” under the Companies Act in a manner that attracts NFRA’s disciplinary oversight. This was not merely a technicality; it went to the heart of the regulator’s power.
The Court carefully reviewed the earlier orders. Justice Prateek Jalan found that the Supreme Court had already created a clear procedure: auditors must file a reply raising all objections including jurisdiction; NFRA must decide that issue through a speaking order; no coercive steps can be taken in the meantime; and the auditor retains the right to challenge NFRA’s final order before the appropriate forum. Once this template was established, the High Court saw no reason to create a separate track for Sharad Vasant.
Importantly, the Court noted that the petitioner had not yet filed his reply to the show-cause notice on merits. Since the Supreme Court had emphasised the need for NFRA to consider all objections together, including jurisdiction, the Court directed Vasant to now file a comprehensive reply within six weeks. This reply may include every objection he wishes NFRA to examine.
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Once the reply is filed, NFRA must pass a speaking order. The Court stressed that the Supreme Court’s mandate is binding: the regulator must apply its mind openly and record clear reasoning on whether it has jurisdiction over EQCRs, and then address any other issues that arise. Until this is done, NFRA cannot initiate any coercive action against the petitioner.
What the Court did not do is as important as what it did. It refused to express any opinion on the merits of the dispute. It did not endorse the petitioner’s argument that NFRA lacks jurisdiction over EQCRs. Nor did it endorse NFRA’s assumption that it possesses such jurisdiction. It insisted that the forum competent to decide the matter at the first instance is NFRA itself. Only after NFRA passes its order can the Court judicially review the outcome.
This restrained but firm approach reveals a deeper judicial philosophy. The Court is signalling that a powerful regulator like NFRA must not operate in a grey zone, especially when expanding its disciplinary reach. Jurisdiction cannot be assumed; it must be justified. Reasoning cannot be implied; it must be recorded. And penalties cannot be imposed before foundational questions are resolved.
In the broader regulatory landscape, this judgment is part of a pattern. Over the last few years, India has attempted to align its audit oversight mechanisms with global regimes such as the PCAOB in the United States and the FRC in the United Kingdom. These regulators follow clear statutory mandates defining who falls within their jurisdiction-partners, EQCRs, firms, or others associated with audits. They also ensure transparent enforcement practices, with detailed orders explaining the basis for action. India’s regulatory infrastructure is comparatively young, and the Court’s insistence on procedural discipline nudges NFRA to grow into a mature, globally credible oversight authority.
The implications for ICAI are equally significant. As NFRA’s powers expand, ICAI can no longer remain silent or rely on ambiguity. If EQCRs are to be regulated by NFRA, ICAI must clarify how its own disciplinary framework interacts with NFRA’s, and whether its standards adequately define the responsibilities of EQCRs. The profession as a whole must adapt to a regulatory environment where documentation, independence and quality control are no longer internal concerns but matters of statutory scrutiny.
For auditors, the message is unmistakable. EQCR roles are no longer ceremonial review positions. They carry real responsibility and potential exposure. The lack of clarity around their liability does not protect them; instead, it exposes them to uncertainty. Until NFRA issues clearer guidelines or the Courts finally pronounce on jurisdiction, every EQCR must operate with heightened diligence.
For corporates, the judgment signals a maturing compliance ecosystem. Audit quality, independence and documentation will attract greater attention. The days when audit reviews were treated as a formality are over. A stronger regulatory climate will require more transparent audit committees, clearer communication with auditors and better internal controls.
Clear Imperative Guidelines Needed
India now needs a coordinated roadmap to prevent further regulatory confusion. The first and most urgent step is for NFRA to issue clear interpretive guidelines explaining who precisely falls within its disciplinary reach. This should include definitions of engagement partners, EQCRs, audit teams and others “associated with audits”. Without clarity, enforcement becomes inconsistent and unpredictable. It is a different matter that its clarification may itself be legally challenged.
Second, ICAI and NFRA must collaborate, not compete. A joint standards body could help harmonise expectations, eliminate ambiguity and present a unified regulatory face to the profession.
Is it a wishful thinking? If global regulators can maintain such cooperation while retaining independence, there is no reason India cannot do the same. India, however, could not achieve it in 9 years—there is a fundamental distrust between ICAI and NFRA—whatever their public posturing might be.
The Ministry of Corporate Affairs, instead of intervening formally through clear legal recourse or amendments to the now clearly established ‘ambiguous’ if not defective statute, prefers to leave it to the already overburdened Judiciary to sort out the mess which its legislation has created.
Third, NFRA should adopt a tiered responsibility model like the PCAOB and FRC, recognising that the degree of responsibility varies across audit roles. EQCRs do not perform audits; they provide independent oversight. Their liability must reflect this distinction.
Fourth, NFRA must commit to transparent, timeline-based disposal of show-cause proceedings. Delayed enforcement creates professional uncertainty and undermines confidence in the regulatory process. Speaking orders, issued promptly and with clear reasoning, will go a long way in establishing trust.
Finally, the audit profession must strengthen its internal controls, documentation standards and review mechanisms. If EQCRs become a regulated category, firms must train and equip them accordingly. The profession must move from reactive compliance to proactive quality assurance, recognising that the credibility of India’s financial reporting system depends on it. And the Ministry of Corporate Affairs cannot afford to prolong the agony further by continuing its silence and proactively intervene between NFRA and ICAI—it has its nominees in both the institutions.
(This is an opinion piece, and views expressed are those of the author only)
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