Applicability of CARO 2003
Confusion exists amongst auditing fraternity as to applicability of CARO 2003 for audits for Financial Year 2014-15. The confusion arose because of notification of certain provisions of Companies Act 2013 effective 1st April 2014.
The confusion stems from the presumption that with Companies Act 2013 notified w.e.f 1.4.2014, the corresponding provisions of Companies Act 1956 and rules/orders made/issued thereunder stand repealed. Let us examine whether this premise is correct.
There is a specific section in Companies Act 2013 dealing with repeal of Companies Act 1956 – Section 465. The repeal section has not yet been notified by the Central Government. This means that the Companies Act 1956 and rules/orders made/issued under it continue to be valid. It is not correct to say that Companies Act 1956 is not effective from 1st April, 2014.
Legally, we would examine this in the light of ‘doctrine of implied repeal’. The doctrine of implied repeal suggests that with new enactment coming into effect on the same subject, the previous enactment stands repealed. The Courts are, however, slow in applying this doctrine. The first attempt of the courts is to apply both the provisions by applying the principles of harmonious construction unless the provisions are so repugnant to each other that both of them cannot be applied simultaneously. The repugnancy test assumes significance. We should also not lose sight of the fact that all the rulings in which doctrine of implied repeal was applied had a situation where there was no express provision of repeal in the new enactment/statute.
In the present case, the test of repugnancy fails, as the Central Government has not notified any Order similar to CARO 2003 under Companies Act 2013. There being no repugnancy, CARO 2003 continues to be applicable.
Even otherwise, there is express repeal provision in Companies Act 2013 and the same is yet to be notified. Under such circumstances, in my opinion, there is no question of considering or applying ‘Doctrine of Implied Repeal’.
It can thus be concluded that CARO 2003 continues to apply for audits for FY 2014-15 and beyond till such time the Central Government exercises its powers under Section 143(11) and issues any new Order.
The Central Government would do well to issue a clarificatory circular on these lines and not spend its precious time in issuing a hurried up Order at this stage. The new Companies Act contains various stringent provisions and unless they are taken into account carefully, any Order prepared or assimilated in a hurry will create more confusion.
Unless the Central Government notifies a new Order under section 143(11), CARO 2003 continues to apply for all audits conducted even under Companies Act, 2013.
Does this compounds the confusion already existing?
The last word is yet to be written on this.
Disclaimer: The views expressed here are views based on my personal interpretation and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.