The Chartered Accountant

profit and loss account and the balance-sheet
complies with the Accounting Standards referred
to in section 211(3C). Before introduction
of sub-sections (3A), (3B) and (3C)
in section 211 (with effect from October 31,
1998), these Standards were not mandatory.
Therefore, the companies were then free to
prepare their annual financial statements, as
per the specific requirements of section 211
read with Schedule VI. However, with the
insertion of sub-sections (3A), (3B) and (3C)
in section 211 the profit and loss account
and the balance-sheet have to comply with
the Accounting Standards. For this purpose
the expression "Accounting Standards" shall
mean the standards of accounting recommended
by the Institute as may be prescribed
by the Central Government in consultation
with NAC on Accounting Standards. Thus,
the Accounting Standards are prescribed by
the Central Government. Thus, the Accounting
Standards prescribed by the
Central Government are now mandatory
qua the companies and non-compliance
with these Standards would lead to violation
of section 211 inasmuch as the annual
accounts may then not be regarded
as showing a "true and fair view". (Paras14
-17 on pages 219-222 of 297 ITR)
DECEMBER 2008 966 THE CHARTERED ACCOUNTANT
ACCOUNTING
The judgement of Honourable Supreme Court in case of J.K. Industries
(supra) is distinguishable since in that case Honourable Supreme Court was
concerned with the matter of application of “Recognition & Measurement
principles” provided by prescribed AS 22 and that they had held that the
“Disclosure Principles” of Schedule VI are subservient to the overriding
requirement of “True & Fair view”.
The Honourable Supreme Court went on to discuss on
the following question-
“Whether the Central Government, which is
the rulemaking authority, has overridden the
Companies Act, 1956, either by exceeding
its authority in adopting AS 22 or by making
provisions inconsistent with sections
209 and 211 read with Part I and Part II of
Schedule VI to the Companies Act as alleged
by the appellants.”
The Honourable Supreme Court held that the impugned
rule which adopts AS 22 neither suffers from
the vice of excessive delegation nor is the said rule
incongruous/inconsistent with the provisions of the
Companies Act, 1956 for the following reasons:
“In the present case, we are required to consider
the scope of section 642(1), which refers
to the power of the Central Government
(rulemaking authority) to make rules vis-a-vis
section 641, which states that subject to the
provision of the section, the Central Government
may, by notification in the Official
Gazette, alter any of the regulations, rules,
forms, tables and other provisions contained
in any of the Schedules to the Companies
Act (including Schedule VI). This aspect is
of some importance. Section 642 is in addition
to the powers conferred by section
641, therefore, the two sections form part
of the same scheme. However, the scope
of section 641 is different from the scope
of section 642. Power to alter any provision
of the Schedules and the power to carry out
gap filling exercise are both entrusted to the
Central Government. The expression "in addition"
to in section 642 indicates that both
the above sections constitute one scheme.
However, section 642 enables the Central
Government to provide details and, therefore,
under section 642 the rules contemplated
refers to gap filling exercise.” (Para71
on page 269 of 297 ITR)
“Therefore, power to make subordinate legislation
is derived from the enabling Act and
it is a fundamental principle of law which
is self evident that the delegate on whom
such power is conferred has to act within
the limitations of the authority conferred
by the Act. It is equally well settled
that rules made on matters permitted by the
Act in order to supplement the Act and not
to supplant the Act, cannot be held to be
in violation of the Act. A delegate cannot
override the Act either by exceeding the
authority or by making provisions inconsistent
with the Act. (See Britnell v. Secretary
of State for Social Security [1991] 2 All
ER 726 (HL) at 730).” (Para72 on page 270
of 297 ITR)