Cost audit quota restrictions struck down for want of statutory authority, violation of professional freedom, and arbitrariness.

An executive ceiling limiting cost audits to thirty per auditor, and counting audits by product and unit, was held unsupported by the Companies Act because the statute contained no express authority for such a quota and section 637A could not supply one beyond the parent provision. The restriction was therefore ultra vires and invalid. It also directly curtailed the professional work of cost auditors without a valid law or qualifying regulation, so it infringed Article 19(1)(g) and was not protected by Article 19(6). On the facts, the State's justification was unsupported by reliable material and the counting method lacked rational nexus, making the measure arbitrary under Article 14. The administrative restriction and consequential communications were struck down.

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Issues: (i) Whether the restriction limiting cost audits to thirty per auditor and the related method of reckoning audits by product and unit were within the powers conferred by the Companies Act, (ii) whether the restriction infringed the right to practise a profession under Article 19(1)(g), and (iii) whether the restriction was arbitrary and violative of Article 14.

Issue (i): Whether the restriction limiting cost audits to thirty per auditor and the related method of reckoning audits by product and unit were within the powers conferred by the Companies Act.

Analysis: The statutory scheme of sections 209(1)(d) and 233B showed that cost audit was intended to operate as part of company regulation, but the Act did not confer an express power to impose a ceiling on the number of cost audits comparable to the express limitation introduced for financial auditors under section 224. Section 637A could be invoked only where the Act itself authorised approval, sanction, consent, direction, or exemption in a manner consistent with the substantive provision. The proviso to section 233B, permitting chartered accountants to act where cost accountants were insufficient, indicated a legislative assumption of shortage rather than surplus in the profession and was inconsistent with an executive-imposed quota on work. Legislative sanction was therefore absent.

Conclusion: The restriction was ultra vires the Companies Act and invalid.

Issue (ii): Whether the restriction infringed the right to practise a profession under Article 19(1)(g).

Analysis: The impugned ceiling directly curtailed the existing professional activity of cost auditors, whose principal work was cost audit under section 233B. The restriction was not imposed by law in the form of a statutory provision or valid regulation and did not amount to a professional or technical qualification within Article 19(6). A mere executive order could not curtail the freedom to practise a profession where the effect on the profession was direct and substantial.

Conclusion: The restriction violated Article 19(1)(g) and was not saved by Article 19(6).

Issue (iii): Whether the restriction was arbitrary and violative of Article 14.

Analysis: The material placed before the Court showed no reliable factual basis for the assumption that large audit assignments caused delay or inefficiency. The stated object of dispersal of work and prevention of monopoly was unsupported by data and did not bear a rational relation to the actual state of the profession. The method of counting audits by product and by unit also lacked a rational nexus with the statutory scheme. The refusal to process the firm's reconstitution application for an extended period was likewise capricious. Since arbitrariness in State action offends equality, the impugned decision could not stand.

Conclusion: The restriction was arbitrary and violated Article 14.

Final Conclusion: The impugned administrative restriction on cost audits was struck down in its entirety, and the consequential communications based on that restriction were also invalidated.

Ratio Decidendi: An executive restriction curtailing the quantum of professional work is invalid unless supported by clear statutory authority, consistent with the parent scheme, and justified by a rational and non-arbitrary basis; absent such authority and justification, it infringes Articles 14 and 19(1)(g).

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