9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (7) TMI 751 - HC - Indian LawsProfessional misconduct - Can the Institute of Chartered Accountants of India (ICAI) take action against Chartered Accountant firms for professional misconduct under the existing provisions of the Chartered Accountants Act, 1949 or is the ICAI empowered to only take action against one person, who is identified by the firm? - HELD THAT - In the present case, the firms themselves are registered with the ICAI as is clear from the submissions made in the writ petitions. Section 21A and Section 21B of the Act empowers the ICAI s Disciplinary Committee, if it is of the opinion that the member is guilty of professional or other misconduct, to reprimand a member, remove the name of the member, or even impose fine. In fact, Rule 8 of the 2007 Rules makes it clear that the notice of complaint can be given to the firm setting out the acts of omission and commission at the address of the firm. The firm has the option of sending a declaration as to the persons responsible/ member answerable for answering the complaint. The explanation makes it clear that the notice to the firm is the notice to all the members, who are the partners or employees of the firm on the date of registration of the complaint. The firm can disclose the name of a person who shall be responsible for answering the complaint provided such a member was associated with the firm either as a partner or employee at the time of the alleged misconduct. The proviso to Rule 8 (2) makes it clear that if no member owns responsibility in respect of the allegations, then the firm as a whole shall be responsible - Sections 21A and 21B of the Act read with Rule 8 of the Rules makes it clear that the ICAI is fully empowered to take action against a firm and issue notices even to a firm. Thus, in a case where there is any complaint or allegation in respect of a single incident or an act of a member, the firm can designate that particular person, who was associated with the said act, which is alleged to be misconduct. The position would however not be the same, say, in a case where the allegations are in respect of arrangements entered into by firms with other international counterparts, spanning over decades and multiple agreements. A single individual cannot be pinned down in such situations to be responsible for answering the complaint as member answerable . The firm as a whole has to be held responsible if found culpable, in such circumstances, failing which the Act would be rendered toothless. There is a recognized need for enhancing and strengthening the disciplinary mechanisms against firms and enhancing accountability and transparency by firms of CAs. Though the amendment Act of 2022 has not been notified yet, the current/extant Act and Rules cannot be read in a manner, which is contrary to the spirit of vested powers with the ICAI for taking action against firms or individuals, who are its members - The ICAI clearly did not proceed against the Petitioners due to the interim orders that were operating in these petitions. The final recommendations record categorically that the ICAI did not proceed against the Petitioners due to the said interim orders. CAs owe a responsibility not just to their clients but also to ensure, in the process of rendering their services, that there is compliance of law. The said profession also owes a duty to the country as also to the economy as a whole. Thus, regulation of the profession of CAs by establishment of the Regulatory body like the ICAI is an important feature of the said profession itself - Proper mechanism for the purpose of ensuring that there is no misconduct is essential to preserve the robustness and the integrity of the profession. If firms are permitted to only pin down one single individual in respect of alleged misconduct spanning over decades, the entire purpose of the Act and the Rules would be completely defeated. This Court is of the opinion that the writ petitions are themselves not tenable and hence the stay orders also do not deserve to be continued. The Petitioners would be liable to participate, if they so choose to do, give their reply on merits to the notice issued by the DC and insofar as the Petitioners or firms are concerned, the ICAI would be fully empowered to proceed in accordance with law. Writ petitions are dismissed with costs of Rs. 1 lakh each to be paid to Delhi High Court Bar Clerk Association.
Issues Involved:
1. Can the Institute of Chartered Accountants of India (ICAI) take action against Chartered Accountant firms for professional misconduct under the Chartered Accountants Act, 1949? 2. Are individual Chartered Accountants (CAs) or the firms as a whole responsible for professional misconduct? 3. Interpretation and application of Rule 8 of The Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. 4. The implications of the judgment in S. Sukumar v. The Secretary, Institute of Chartered Accounts of India & Ors. 5. The impact of the amendments proposed in the Chartered Accountants Act, 1949, and their notification status. Detailed Analysis: Background: The judgment addresses ten writ petitions filed by various Petitioners against ICAI concerning disciplinary proceedings. The primary issue revolves around professional misconduct and the responsibility of Chartered Accountants (CAs) and firms to maintain integrity. The ICAI regulates CAs, defining and addressing professional misconduct through its Code of Ethics and disciplinary mechanisms. Issue 1: Can ICAI Take Action Against Firms? The Court examined whether ICAI could take action against CA firms for professional misconduct under the Chartered Accountants Act, 1949. The judgment concluded that ICAI is empowered to take action against firms. Rule 8 of the Rules allows ICAI to issue notices to firms and hold them responsible if no individual member owns responsibility for the alleged misconduct. Issue 2: Responsibility for Misconduct The judgment clarified that both individual CAs and firms could be held responsible for professional misconduct. If the misconduct is individual-centric, the specific member should be held accountable. However, for firm-centric misconduct involving multiple agreements and spanning decades, the firm as a whole can be held responsible. Issue 3: Interpretation of Rule 8 The Court interpreted Rule 8, emphasizing that if no individual member owns responsibility, the firm as a whole can be held accountable. The proviso to Rule 8(2) ensures that the entire firm is responsible if no member is identified as answerable for the misconduct. This interpretation prevents firms from evading responsibility by nominating a single individual as a scapegoat. Issue 4: Implications of S. Sukumar Judgment The judgment in S. Sukumar v. The Secretary, Institute of Chartered Accounts of India & Ors. highlighted the need for ICAI to take action against multinational accounting firms (MAFs) violating ethical standards. The Supreme Court directed ICAI to examine related issues and take necessary steps. The present judgment aligns with the Supreme Court's directive, emphasizing ICAI's power to hold firms accountable for misconduct. Issue 5: Amendments to the Chartered Accountants Act, 1949 The judgment acknowledged the amendments proposed in the Chartered Accountants Act, 1949, aimed at strengthening the disciplinary mechanism and including firms under the purview of the Act. Although the amendments are yet to be notified, the judgment emphasized that the current Act and Rules empower ICAI to take action against firms. Findings: 1. ICAI is empowered to take action against CA firms for professional misconduct under the Chartered Accountants Act, 1949. 2. Both individual CAs and firms can be held responsible for professional misconduct, depending on the nature of the misconduct. 3. Rule 8 of the Rules allows ICAI to hold the firm accountable if no individual member owns responsibility for the alleged misconduct. 4. The judgment in S. Sukumar v. The Secretary, Institute of Chartered Accounts of India & Ors. supports ICAI's authority to take action against firms. 5. The proposed amendments to the Chartered Accountants Act, 1949, aim to strengthen the disciplinary mechanism and include firms under the Act's purview. Conclusion & Directions: - The writ petitions are dismissed, and the interim orders are vacated. - ICAI is directed to proceed with the disciplinary proceedings against the firms and the Petitioners. - Petitioners and their firms are given eight weeks to file their written statements before the Disciplinary Committee. - The judgment is to be sent to the Secretary, Ministry of Corporate Affairs, for appropriate action. - Costs of Rs. 1 lakh each are imposed on the Petitioners, payable to the Delhi High Court Bar Clerk Association.
|
