TaxTMI 
TaxTMI 
2018 (2) TMI 1501
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....Court of Karnataka in Writ Petition No.17959 of 2012. The petition before the High Court sought direction for exercise of power under Section 21 of the Chartered Accountants Act, 1949 ('CA Act') to initiate investigation against Multi-National Accounting Firms (MAFs) and Indian Chartered Accountancy Firms (ICAFs) having arrangement with such MAFs for breach of Code of Professional Conduct under the CA Act and also to take penal action by way of cancellation of permission granted to them by the Institute of Chartered Accountants of India (ICAI). Since the issue raised in Writ Petition (Civil) No.991 of 2013 is identical, both the matters have been heard together. In the Writ Petition, some other connected issues have also been raised to which reference will be made in due course. The Issue 2. The issue raised in the appeal arising out of Karnataka High Court Judgment and the Writ Petition filed directly in this Court is: Whether the MAFs are operating in India in violation of law in force in a clandestine manner, and no effective steps are being taken to enforce the said law. If so, what orders are required to be passed to enforce the said law. The Pleadings 3. Briefly, the ave....
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....stitutions/Governmental agencies insisting appointment of select few firms as auditors/concurrent auditors/consultants for their borrowers." 5. The Study Group considered whether goal should be to focus on ethics or growth of the profession with Code of Ethics being guiding points and not barriers. Further issues were what should be the regulatory regime; whether networking could be allowed to benefit Indian CAs; whether MAFs may be required to furnish particulars about their ownership, persons responsible and other financial particulars. It was noted that the Code of Ethics under First Schedule to the CA Act prohibits sharing of fee with persons other than members of the ICAI. Only cost for obtaining assistance/advice to international affiliates could be given. Indian Firms with International Affiliates (IFIA) may be required to adhere to bench mark in regard to audit procedures, quality standards etc. Decision making and real control should be with Indian firms. Number of audits qua each partner should be fixed. Mentioning of affiliation with any person not member of ICAI may amount to advertising which was not permissible. It could be permitted if entities were registered wit....
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....nal services about matters of accounting procedure, presentation or certification of financial facts or data. The MAFs are corporates/juridical persons. They solicit professional work in international brand name. They have registered Indian CA firms with ICAI with the same brand names which are their integral part. There is no regulatory regime for their accountability. Thus, the principle of reciprocity under Section 29 of the CA Act, Section 25 prohibiting corporates from chartered accountancy practice and Code of Ethics prohibiting advertisement and fee sharing are flouted. The MAFs also violate FDI policy in the field of accounting, auditing, book keeping, taxation and legal services. Detailed reference to the said report will be made in the later part of the judgment. 7. The stand of the ICAI in the form of a status report filed before the High Court is that 161 out of 171 firms were examined by the High Powered Committee in pursuance of report of the Expert Group dated 29th July, 2011 with regard to alleged violations and some of the cases were referred to the Director (Discipline) for further action. Remaining 10 firms were in the process of being examined. Thus, the ICAI ....
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....ients include Government departments, Public Sector organizations, ministries for which huge payments are made to them. They are engaged in auditing/certifying statutory compliances. They have violated Foreign Direct Investment (FDI) Policy, RBI master circulars, FEMA Act and Rules. According to Notification dated May 3, 2000, under Section 47(2)(h) of FEMA Act, no person resident outside India can make investment by way of contribution to the capital of a firm or a proprietary concern or any association of persons in India without permission of the RBI. In violation of the said provision, PwC India entities received Rs. 240 crores in Financial Year 2010-2011. The Chairman of PwC India confirmed the receipt of funds from Global Network. Receipt of Rs. 22.90 crores in the Financial Year ended March, 2010 is reflected in the balance sheet and profit and loss account of the PwCPL. Receipt of Rs. 7.97 crores is reflected in the balance sheet and profit and loss account of Dalal & Shah, Mumbai. This apart, approximately Rs. 210 crores was received by PwCPL, Price Waterhouse (PW) and Lovelock and Lewes (LL). However, no action was taken for receipt of these sums in violation of law. A su....
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.... offence under the FEMA, the Chartered Accountants Act, and RBI Master Circulars. (iii) The PwC Services, BV Netherlands remitted Rs. 240 crores to various PwC entities in India for 'enhancement of skills'. Payment of Income Tax on the said amounts does not legalise the remittance. The remittance shows that the foreign company has control over Indian Firms and is thus indirectly running chartered accountancy business in India and also getting its return on the said amount. (iv) There is falsification of accounts with regard to insurance premium for a 280 crore policy by PwC firms in India in violation of Companies Act, 1956. (v) PwC is responsible for the violations by Satyam scam, failure of the Global Trust Bank (GTB) and UB Group (Kingfisher Airlines) for which action ought to be taken. (vi) SFIO and CBI have found PwC guilty. Still, the PwC firms have not been prosecuted and have been awarded Government contracts such as GST Suvidha Provider for GST Network, consultancy contract by the Kerala Government for preparing master plan to connect Kochi with industrial corridor of south India. 14. The prayers of the petitioners on above basis are: (a) ICAI must take immediat....
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....ants Act, 1949, Regulations framed, thereunder Code of Conduct and Ethics. (d) Nature of extra benefits accrued to the Indian CA firms having foreign affiliation. (e) How the MAFs placed their foot in India - Long back in a meeting with RBI it was informed that the MAFs entered in India to set up representative offices. No documents are available as regards the terms and conditions set out while granting them permission to operate in India. However, the RBI vide its letter No.Ref.DBS.ARS.No.744/08:91:008 (ICAI)/ 2003-2004 dated 23rd March, 2004 inter alia, mentioned that "RBI has not permitted any foreign audit firm to set up office or to carry out any activity in India under the current exchange control regulations." (f) Contravention of permission originally granted by Government - What was the original permission given for these firms to enter into India and subsequently whether they are adhering to the terms and conditions of that permission? If contravention was found to take up with Government/FIPB - for approaching Government or FIPB, ICAI must have information as to the nature of permission given. As already mentioned, no documents are available indicating the natur....
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....Government to such MAFs is dealt with effectively; (iv) to prohibit the MAFs/consultancy firms which have set up commercial presence either as a corporate entity or otherwise from defying the restrictions in terms of the Government policy both in letter & spirit; and (v) to ensure that the names of the companies which are same or similar to the names of MAFs should not be allowed to continue to operate in India." 17. The Institute called for information from the Indian CA firms perceived to be having international affiliations to examine whether they are functioning within the framework of CA profession. The exercise resulted in finding out 171 names of firms but the said firms were reluctant to submit copies of agreements with foreign entities and their tax returns. Certain CA firms submitted the documents by masking certain portions contained in their agreements, partnership deeds and assessment orders/income tax returns claiming confidentiality and commercially sensitive nature of the documents. Some of the firms did not give the details. 18. The group considered network groups as 'A' to 'D'. With regard to 'A', it was observed that the multinational entity had permitted t....
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..... They do not provide break-up which may show that the cost included marketing, publicity and advertising. 20. The firms in the Network 'C' are also using the MAF's name as part of domain name in their E-mail IDs, which is displayed in the visiting cards of the partners of the firms. 21. Similar was the position with regard to Network 'D'. The firms in Network 'D' also used the name of multinational entity as domain name. 22. The Council has prescribed maximum limit for statutory audit and tax audit which a member in practice can undertake in a year. But, by sub-contracting the work to other firms, the firms are undertaking more than the prescribed work leading to deterioration of quality of performance. 23. The member firms are required to refer the work among themselves. In respect of some firms, referral fee is payable and receivable. Agreements also provided for use of name and logo. Payment/receipt of referral fee is prohibited as per code of conduct applicable to CAs. 24. The group noted that firms have names identical to the names of MAFs operating in India but in absence of complete data, a conclusive finding could not be recorded as to violation of the CA Act with ....
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....h foreign entities. 4.4 It is important for the Government, regulators and the ICAI to ensure that such wrong impression is not permitted and all entities other than Chartered Accountants in practice and CA firms should be actually prohibited directly or indirectly from providing auditing and assurance services, as these are required to be regulated in the public interest. The very objective of having the profession relating to accountancy under specific Act of Parliament, incorporating therein a strict disciplinary and ethical code was to ensure that there is no dilution of the professional standards and services are provided in a regulated manner. 4.5 In certain cases, joint venture agreements, MOUs, foreign collaboration agreements, shareholders agreements, private equity participations and side letters are exchanged between parties mandating appointment auditors as prescribed by international parent. In certain cases public sector undertakings, Government departments/Central and State Governments advertise for various professional services wherein the basic eligibility requirement tends to favour Multinational Network Accounting firms or other corporate entities. It has a....
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....roup constituted by the Council in February, 2002 are placed at Annexure-III. Extracts taken from the website pages of some of the MAFs are given at Annexure-IV. 4.9 It is noted that as per the policy of the Government of India, Foreign Direct Investment (FDI) is not permitted in the field of accounting, auditing and book keeping services, taxation services and legal services and no commitment had been made by India for opening of such services under the WTO/GATS. However, some entities were not only providing services through their own establishment (signifying their commercial presence i.e., Mode-3) in India but also through service providers in India particularly for those services like auditing which cannot be rendered by them under the relevant laws of the country. xxx 4.16 The 171 firms from whom documents/details were called for by and large furnished the documents that were called for. However, certain CA firms have submitted the documents by masking certain portions contained in their agreements, partnership deeds and assessment orders/income tax returns claiming confidentiality and commercially sensitive nature of the documents. The financial details were asked wi....
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..... (v) The networking firms in Network 'A' have made remittances to the multinational entity, sharing their revenue with multinational entity, which they have claimed to be towards subscription fees, technology cost including cost of licenses - obtained for software, budgeted expenses, cost of administration etc. However, the firms have not provided break-up/computation and whether the cost includes cost towards marketing, publicity and advertising the products and services in India as well as abroad and any other cost which is not allowed as per the Chartered Accountants Act, 1949, Regulations framed thereunder and Code of Ethics. The firms in Network 'A' have also not furnished any data in support of their claim that the money remitted by them to the multinational entity is in respect of above matters only and that the same in no way relates to the volume of business generated through the efforts of the multinational entity and through use of brand name. A total and full disclosure in this regard has not been made in spite of repeated directions by the High Powered Committee/Group on the basis of directions of the Council. (vi) The Verein document lay an obligation on the memb....
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....cannot be allowed to be utilized by any other member. However, to address this issue, there exists a provision under Regulation 54 of the Chartered Accountants, Regulations, 1988 enabling secondment of articled assistances with a view to provide the articled assistants the opportunity of gaining practical experience in areas where the principal may not be in a position to provide the same. Such secondment is allowed under the Regulations with certain restrictions and conditionalities and the same is required to be sent to the Institute for records within thirty days from the date of commencement of training on secondment. xxxx 5B.7Observations : (i) The CA firms in Network B and all their personnel are using the domain name identical to the name of the multinational entity in their email IDs, and the same is displayed in the visiting cards. This clearly supports holding out by these firms in Network C that they are part of the international Network C of MAFs. Some of these firms operate from the same premises from where their international affiliate also operate. They share the same telephone and fax nos. thus establishing that they are one and the same. The Indian firms ....
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.... obligation is to train them. As such, the articled assistants cannot be allowed to be utilized by any other member. However, to address this issue, there exists a provision under Regulation, 1988 enabling secondment of articled assistants with a view to provide the articled assistants the opportunity of gaining practical experience in areas where the principal may not be in a position to provide the same. Such secondment is allowed under the Regulations with certain restrictions and conditionalities and the same is required to be sent to the Institute for records within thirty days from the date of commencement of training on secondment. (iv) The obligations set out in respect of the CA firms in Network B as per the sub-licensee agreement give a clear indication that the CA firms are under the management and supervision of a non-CA firm for matters such as admission of partners, merger, purchase of assets, etc. xxxx 5C.4 Observations : (i) The CA firms in Network C have amounts to the multinational entity, which they claim to be on account of actual and allocable cost for activities and services provided, however, the firms have not provided break up/computation and whethe....
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....ning on secondment. (v) The firms in the Network C and all its personnel are using the MAFs name as part of domain name in their email IDs, which is displayed in the visiting cards of the partners of these firms as well as the CA employees. This clearly supports holding out by these firms in Network C that they are part of the International Network C of MAFs. Some of these firms operate from the same premises from where their international affiliate also operates. They share the same telephone and fax nos. thus establishing that they are one and the same. The Indian firms and MAFs are de facto the same entities providing assurance/management and related services and as such their operations seem to circumvent the provisions of the Chartered Accountant Act, 1949 and Regulations framed thereunder. A member of the Institute is prohibited from disclosing his affiliation with any International entity. In this regard, the Council, at its 172nd meeting held in January, 1995, while agreeing with the recommendation of then Committee on Ethical Standards and Unjustified Removal of Auditors that the use of expression/words, "In Association with ........", "Associates of ............", Corre....
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....ttee on Ethical Standards and Unjustified Removal of Auditors that the use of expression/words, "In Association with ..........", "Associates of ............", Correspondents of ........." etc. on the stationery, letter-heads, visiting cards and professional documents of the firm of CAs, was not permissible in view of the provisions of Item (7) of Part I of the First Schedule to the Chartered Accountants Act, 1949, decided that it should not be permitted irrespective of whether the name sought to be used is the name of an Indian firm or a foreign firm. (iii) The firms in the Network D have signed an agreement for sharing of human resources; however, it has not been possible to ascertain whether the articled assistants are assigned to a member, whose obligation is to train them. As such, the articled assistants cannot be allowed to be utilized by any other member. However, to address this issue/there exists a provision under Regulation 54 of the Chartered Accountants Regulations, 1988 enabling secondment assistants with a view to provide the articled assistants the opportunity of gaining practical experience in areas where the principal may not be in a position to provide the same....
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....rnational affiliate etc. it was not possible to draw conclusive inference as to violation of the Chartered Accountants Act, 1949 with reference to sharing of fees or profits with non-members, sharing profits of non-members, securing business through means not open to Chartered Accountants, solicitation, direct or indirect publicity etc. This shall require proper examination under the relevant provisions of Sections 21, 22 and Schedules framed thereunder. 6.3 Most of these networks are created/established outside India and are functioning under different set of ethical and regulatory guidelines. The India CA firms having international affiliations are subject to regulatory jurisdiction of ICAI and are required to follow the Code of Ethics applicable to Chartered Accountants in India. However, due to the dichotomy of other entities operating in close association with the Indian CA firms, often permitting common brand name/using of logos, coupled with leveraging on international resources etc., is vitiating the level playing field with other Indian CA firms. 6.4 Most of these firms have a name license agreement to use International brand name. One of the terms of such agreement is....
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.... the partners of M/s XYZ, Patna and M/s XYZ & Co. Patna respectively to audit the accounts of clients have rendered the audited accounts invalid ab-initio. 6.7 It is noted that Item (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, which deals with professional misconduct in relation to Chartered Accountants in practice, mentions that a chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he discloses information acquired in the course of his professional engagement to any person other than his client so engaging him, without the consent of his client or otherwise than as required by any law for the time being in force. The auditors, by allowing the audit to be conducted by an unauthorized firm, without the consent of the client, which was not appointed as the statutory auditors, may have allowed all information relating to the audit being passed on to the said firm, thus breaching the aforesaid Item, for which both the firms which were appointed and the one which carried out the audit, may be in violation of the Code of Ethics. 6.8 In response to Institute's letter, some firms have furnished details/documents a....
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....rnationally known accounting firm's name. Since these entities employ Chartered Accountants as well as non-Chartered Accountants for discharging various responsibilities, a misleading Impression is created that the services rendered by the private limited companies are in fact rendered by a Multinational Accounting Firm. In fact, this is not so as the company rendering such services is neither registered with ICAI nor is governed by any ethical code or regulatory framework." 26. Accordingly, the recommendations were made to the effect that the Council should consider action against the firms which had not given the full information; consider action against the firms who are sharing revenue with multinational entity/consulting entity in India which may include cost of marketing, publicity and advertising as against the ethics of CAs; action should be considered against the firms who had received financial grant from the multinational entities in spite of prohibition against the CA firms. A member is not allowed to accept any share, commission or brokerage from a non-member unless such non-member is a member of a professional body with prescribed qualifications. Further recommendati....
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....ction of the institute was to regulate the profession of chartered accountancy and to take action against misconduct of its members under The Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. The accounting professionals had significant role in the economy of the country. The economy of India had witnessed two major securities scams in 1992 and 2001. The CA Act was amended on the recommendation of the Joint Parliamentary Committee which enquired into the stock market scams including the high level committee on the 'Corporate Audit and Governance' under the chairmanship of Shri Naresh Chandra which examined the Auditor-Company relationship and disciplinary mechanism for the Auditors. Amendment was proposed by the Council of the Institute to establish a Disciplinary Directorate headed by Director (Discipline). 28. In response to the grievance that no action was taken against PwCPL and their network audit firms in India, the ICAI submitted that its Disciplinary Directorate had already taken cognizance of the information in the Article dated 17th January, 2012 in the Times of India "Sundry Income cushions PwC Ind....
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....005 to 30.9.2008). Action was also taken against V. Srinivasu, the then CFO of the Satyam, V.S. Prabhakara Gupta, the then head of Internal Audit Cell of Satyam. The Joint Director, SFIO filed a complaint dated 3rd March, 2009 in respect of DSQ Softwares Limited against CA Naresh Kumar Tharad of M/s. N.K. Tharad & Co., Chartered Accountants, Kolkata. It was revealed that company had made preferential allotment of shares to various entities in a fraudulent manner. Stand of the Respondent-Firms 29. In its written submissions, Respondent No.5 M/s. Deloitte Haskins & Sells submitted that there is no allegation against it in the SLP. All the partners of Respondent No.5 were Indians and the firm was also registered with the ICAI. An expert group was constituted by the Ministry of Corporate Affairs which gave its report dated January 31, 2017 to the effect that Big six firms (MAFs) were not operating directly. Their network partners were rendering audit services. Indian network firms pay global network charges to their parent organization towards sharing common global costs of human resources and other infrastructure, technology cost. This is a standard practice across jurisdictions. I....
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....on amongst member firms. All the members (in 177 countries) have to pay a licence fees. PwC Services BV (Services BV) is incorporated in Netherlands to operationalize global standards of services. Services BV coordinates efforts of various firms across the globe to develop superior global common standard. Services BV does not do any client related work but develop standards. It pools money by charging the network entities a percentage of their revenue which is used to meet the expenses to develop standards. Firm Service Agreements are signed by network entities. Services BV works on no profit no loss basis. Network charges are paid by all member entities including the Indian member entities. The network felt the need of enhancing the standards and capacity of Indian network entities for which non refundable grants were provided. The grants are not in the nature of investment. These are current account transactions and not capital account transactions. For FY 2009-10, the grants were taxed but network charges paid to Services BV were disallowed as deduction. For FY 2010-11 assessment order has been passed on 29th September, 2016 against which appeal was pending. 32. The Enforcement....
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....firms have filed their declaration in accordance with the above guidelines and are registered in India as per Regulations of the ICAI. Merely because the PwC audit firms are part of global PwC Network does not by itself violate any applicable law. As regards the grants received in Financial Years 2008-09, 2009-10 and 2010-11, amounting to Rs. 142.9, tax has been paid as per assessment and proceedings are pending. The Network has furnished all the information to the ICAI. 39. Since all the partners are Indians and are registered with ICAI, they are personally accountable to the ICAI for any professional misconduct. Services BV does not have any stake in the partnership or profits of the firms. Thus, there is no violation of Section 25 of the CA Act. Stand of Central Board of Direct Taxes (CBDT)/ED 40. Stand taken by the CBDT is that on receipt of letter dated 1st July, 2013 from the Advocate for the petitioner, investigation was conducted by the Director General of Income Tax (Investigation) (DGIT) with regard to the income tax implications. It was found that 11 entities belonging to the PwC Group are operating in India. Four entities have received grants of Rs. 477.64 crores fr....
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....ssociate or a fellow of the Institute who is a salaried employee of a chartered accountant [in practice] or [a firm, of such chartered accountants] shall, notwithstanding such employment, be deemed to be in practice for the limited purpose of the [training of articled [assistants]]. 25. Companies not to engage in accountancy. (1) No company, whether incorporated in India or elsewhere, shall practise as chartered accountants. (2) If any company contravenes the provisions of sub-section (1), then, without prejudice to any other proceedings which may be taken against the company, every director, manager, secretary and any other officer thereof who is knowingly a party to such contravention shall be punishable with fine which may extend on first conviction to one thousand rupees, and on any subsequent conviction to five thousand rupees. 29. Reciprocity. (1) Where any country, specified by the Central Government in this behalf by notification in the official Gazette, prevents persons of Indian domicile from becoming members of any institution similar to the Institute of Chartered Accountants of India or from practising the profession of accountancy or subjects them to unfair discrim....
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....d partner, or a member of any other professional body or with such other persons having such qualifications as may be prescribed, for the purpose of rendering such professional services from time to time in or outside India. Explanation. - In this item, "partner" includes a person residing outside India with whom a chartered accountant in practice has entered into partnership which is not in contravention of item (4) of this Part; (3) accepts or agrees to accept any part of the profits of the professional work of a person who is not a member of the Institute: Provided that nothing herein contained shall be construed as prohibiting a member from entering into profit sharing or other similar arrangements, including receiving any share commission or brokerage in the fees, with a member of such professional body or other person having qualifications, as is referred to in item (2) of this Part; (4) enters into partnership, in or outside India, with any person other than a chartered accountant in practice or such other person who is a member of any other professional body having such qualifications as may be prescribed, including a resident who but for his residence abroad would ....
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.... accepts or offers to accept in respect of any professional employment, fees which are based on a percentage of profits or which are contingent upon the findings, or results of such employment, except as permitted under any regulation made under this Act; (11) engages in any business or occupation other than the profession of chartered accountant unless permitted by the Council so to engage: Provided that nothing contained herein shall disentitle a chartered accountant from being a director of a company (not being a managing director or a whole time director) unless he or any of his partners is interested in such company as an auditor; (12) allows a person not being a member of the Institute in practice, or a member not being his partner to sign on his behalf or on behalf of his firm, any balance-sheet, profit and loss account, report or financial statements. PART II Professional misconduct in relation to members of the Institute in service A member of the Institute (other than a member in practice) shall be deemed to be guilty of professional misconduct, if he being an employee of any company, firm or person - (1) pays or allows or agrees to pay directly or indirectly....
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.... by another chartered accountant in practice; (3) permits his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast; (4) expresses his opinion on financial statements of any business or enterprise in which he, his firm, or a partner in his firm has a substantial interest; (5) fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity; (6) fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity; (7) does not exercise due diligence, or is grossly negligent in the conduct of his professional duties; (8) fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion; (9) fails to invite attention to any material departure from the generally accep....
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....lar 2 of 2010 of the Consolidated FDI (CFDI) Policy : "3.3.2 FDI in Partnership Firm / Proprietary Concern: (iii)Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India. " Consideration of the Issue 44. The above resume of facts and pleadings shows the following: i) There is a bar under CA Act to practice as CAs for a company which includes a limited liability common partnership which has company as its partners. ii) Code of Conduct for the CAs prohibits fee sharing, advertisements but the MAFs by using international brands and mixing other services with the services to be provided as part of practice of chartered accountancy violate the said Code of Conduct for which there is no regulatory regime as the MAFs do not register themselves with ICAI. Indian firms using similar brand names are registered with the ICAI but the real entities being MAFs, ICAI is....
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....ppropriate action may have to be taken in pending proceedings or initiated at appropriate forum. 46. The investigation so far carried out cannot be held to be complete in all respects. The investigation by income tax authorities is only for assessment of income tax. Action by the ROC also does not cover the issue raised herein. The investigation by the ED is said to be still pending, though several persons are said to have been examined and documents collected, which are under scrutiny. The said investigation relates to FEMA violations. The ICAI has initiated action with regard to foreign remittances and is said to have written a letter dated 19th March, 2012 to the RBI to enquire whether investigation was conducted by the RBI. However, according to ICAI, its investigation can only be in respect of members, registered with it, for the misconduct conducted by them. The ICAI does not claim to have conducted complete investigation for want of complete information into the issue whether the chartered accountancy firms by receiving remittances from outside India or remitting licence fee/network charges outside India have allowed participation of a company or a foreign entity in the ac....
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....terest and rule of law which are part of fundamental rights under Articles 14 and 21. It appears necessary to realise that auditing business is required to be separated from the consultancy business to ensure independence of auditors. The accounting firms could not be left to self regulate themselves. 50. While we appreciate that it is for the policy makers to take a call on the issue of extent to which globalization could be allowed in a particular field and conditions subject to which the same can be allowed. Safeguards in the society and economy of the country in the process are of paramount importance. This Court may not involve itself with the policy making but the policy framework can certainly be looked at to find out whether safeguards for enforcement of fundamental rights have been duly maintained. In the present context, having regard to the statutory framework under the CA Act, current FDI Policy and the RBI Circulars, it may prima facie appear that there is violation of statutory provisions and policy framework effective enforcement of which has to be ensured. Statutory regulatory provisions intended to advance the object of law have to be enforced meaningfully. No ve....
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....s and taxed the same as such is not conclusive to hold that the receipt is not an investment which is impermissible. If investment is not permitted, the policy of law cannot be defeated by terming such investment as grant for quality control specially when the grant has been used to acquire a chartered accountancy firm. 52. Absence of revisiting and restructuring oversight mechanism as discussed above may have adverse effect on the existing chartered accountancy profession as a whole on the one hand and unchecked auditing bodies can adversely affect the economy of the country on the other. Moreover, companies doing chartered accountancy business will not have personal or individual accountability which is required. Persons who are the face may be insignificant and real owners or beneficiary of prohibited activity may go scot free. As already noted, the Reports of the Study Group and Expert Group show that enforcement mechanism is not adequate and effective. This aspect needs to be looked into by experts in the Government. It may consider whether on the pattern of the Sarbanse Oxley Act corporate leaders be required to personally certify the accuracy of the financial statements. Fu....