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2024 (7) TMI 751
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....un Gupta & Ms. Namrata, Advs. (M: 9810137113) JUDGMENT PRATHIBA M. SINGH, J. 1. This hearing has been held through hybrid mode. A. Background: 2. The present judgement deals with 10 writ petitions filed by various Petitioners against the Institute of Chartered Accountants of India (hereinafter 'ICAI') in furtherance to disciplinary proceedings conducted by ICAI. The 10 writ petitions are disposed of by a common judgement. The broad issue discussed in the present writ petitions are with regard to professional misconduct and code of ethics of Chartered Accountants (hereinafter 'CAs'), emphasizing on the responsibility of CAs as also the Chartered Accountancy firms (hereinafter 'firms') to maintain integrity. The profession of CAs plays a pivotal roles in financial reporting, auditing, and advisory services. Thus, any misconduct on their part/ the firm's part can lead to serious consequences, legal ramifications and losses to clients, apart from larger implications for society as a whole. The ICAI is the regulatory body governing CAs, which defines and addresses professional misconduct through its Code of Ethics and its disciplinary mechanisms. In this judgement, the powers and p....
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....ered Accountants (hereinafter, 'the CAs') who are Petitioners is accepted, the ICAI would in effect only have the power to take action against the persons identified as 'members answerable' by the firm itself, and not against the firm as a whole. 4. A total of 10 writ petitions were filed by the partners of the following firms: * M/s BSR and Associates LLP - Rakesh Dewan * M/s Price Waterhouse & Co. Chartered Accounts LLP- Harinderjit Singh and Abhishek Rara * M/s Dalal and Shah LLP - Usha Rajeev and Priyanshu Dineshkumar Gundana * M/s Price Waterhouse & Co. Chennai, LLP - Rahul Chattopadhyay * M/s Price Waterhouse & Co. LLP - Rajan Wadhawan * M/s Price Waterhouse & Co. Bangalore, LLP - Amitesh Dutta * M/s Price Waterhouse, Kolkata - Usha Rajeev * M/s Lovelock & Lewes, Kolkata - Anurag Khandelwal The facts of each of the total 10 writ petitions are summarised below. The case proceedings in the writ petitions are similar and the above-mentioned CAs (the Petitioners) have sought to be released from disciplinary proceedings being conducted by ICAI as they are not the nominated `members concerned' in the proceedings for misconduct as per Rule 8 of The Chartered Accoun....
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....ssued in continuation of written communication in 2016. The said communication relied upon the report of Operation of Multi-National Accounting Firms in India. According to the said notice, the Petitioner's firm which is part of a global network of connected entities was found to be using the same email address, domain name, logos, etc. as displayed on the visiting card. 7. According to the ICAI, disclosure of an affiliation with an international entity is contrary to its recommendations of January, 1995. Various documents of the firm were relied upon to allege that the members of the firm had access to common resources, methodology, knowledge and expertise. The stand of the ICAI in its communication was that the conduct of the firm was in violation of Items (2), (5) and (7) of Part I of the First Schedule to the Act and Item (1) of Part II of the Second Schedule to the Act. 8. In addition, in the said notice, the ICAI placed reliance on the orders passed by the Supreme Court in S. Sukumar v. The Secretary, Institute of Chartered Accounts of India & Ors. [(2018) 14 SCC 360] in Civil Appeal No. 2422 of 2018 dated 23rd February, 2018. In the said judgment, the Supreme Court had mad....
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....ght to supplement this response with additional facts and documents if and when the occasion arises." 11. A declaration, on 17th April, 2018 was also filed by the nominated member who was answerable to the said notice, i.e., CA- Mr. Neeraj Kumar Gupta, which reads as under: "Re: Your notice dated March 16, 2018 (Reference No. PPR/HPC/DD/14/INF/l018) Dear Sir, I, Neeraj Kumar Gupta, membership number 055158 hereby declare that: (i) M/s Price Waterhouse & Co Chartered Accountants LLP [FRN. No.304026E/E300009] has received your notice dated March 16, 2018 {Reference No. PPR/HPC/DD/14/INF/2018) ("Notice"), on March 19, 2018; and (ii) I agree for answering any queries and providing any clarification in relation to the matter underlying the Notice on behalf of M/s Price Waterhouse & Co Chartered Accountants LLP. This is without prejudice to the contentions already advanced by M/s Price Waterhouse & Co Chartered Accountants LLP, which I concur with, that there are no violations, as alleged in the Notice." 12. Thereafter, the letter dated 6th December, 2018 was issued by the ICAI wherein prima facie allegations were made against the Petitioner and a written statement was soug....
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....e connected matters. The hearing commenced on 5th April, 2023 in the main writ petition filed by Mr. Rakesh Dewan being W.P.(C) 6532/2022. 20. Status report was called from the ICAI on 4th October, 2023 as to the stage of the proceedings before the DC. On 13th November, 2023, the Court clarified that the proceedings ought to be continued before the DC and the final report must be placed before the Court. 21. Final report was then placed before the Court on 4th March, 2024. The Petitioner thereafter moved an application CM APPL.12020/2024 in January, 2024 seeking to withdraw the present writ petition. iii. W.P.(C) 13375/2021 titled Abhishek Rara v. Disciplinary Committee Bench-III, The Institute of Chartered Accountants of India & Anr. 22. The Petitioner in the present case is partner with M/s Price Waterhouse Chartered Accountants LLP (firm). The firm received a notice dated 16th March, 2018 similar to the one issued in W.P.(C) 11944/2021. Notice was issued to the firm in the Gurgaon address, in response to which the Petitioner replied on 6th April, 2018 and sought 30 days' time for submission of the response. Correspondence in this letter was signed by the Petitioner on behalf....
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....1. In this case also, CA -Mr. Neeraj Kumar Gupta was nominated by the firm, as the person who will answer and provide clarifications. Vide letter dated 21st May, 2018 said Mr. Gupta gave a declaration that he is agreeable for answering any questions and providing any clarifications. 28. Further in the letter issued by the Petitioner to ICAI, the language of this letter is almost identical to the letter in W.P.(C) 11944/2021. In the said letter it was stated that the continuation of the disciplinary proceeding is violative of law and procedures prescribed under the Act, as ICAI lacked authority/jurisdiction to proceed against her. In the said writ petition it is also contended that the only reason for including the Petitioner in the disciplinary proceeding is her signing letters on behalf of Dalal & Shah LLP, the firm and responding to requests made by disciplinary directorate of the DC. The ICAI, however, continued the proceedings against the Petitioner and finally vide letter dated 6th December, 2018 agreed with the opinion of the Director (Discipline) that the Petitioner is guilty of professional misconduct. Amidst the proceedings, the Petitioner also took premature retirement o....
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....h the Petitioner, sought a 30-day extension to respond, citing the complexity of the request. Subsequently, on 17th April, 2018 the firm responded with a detailed reply on the similar lines of reply in W.P.(C) 11944/2021 and the above writs, refuting the allegations and disclosing CA- Mr. Neeraj Kumar Gupta as the designated member to address the accusations. On 15th May, 2018, Mr. Gupta issued an affidavit along with written submissions presenting himself as the 'member answerable'. 33. Despite the absence of the Petitioner's name in the firm's disclosure and Petitioner's failure to furnish the requisite declaration, he was included in the disciplinary proceedings and DC proceedings were initiated against him on 6th December, 2018. The Petitioner in the present case also made repeated attempts to secure discharge from the proceedings, contesting their legitimacy and his involvement. The Petitioner filed letters on 24th December, 2018, 30th January, 2019, and 29th April, 2019, seeking discharge. Despite these efforts, the proceedings of the DC persisted and the notice was issued to the Petitioner. On 26th September, 2019 further notice was issued by ICAI to Mr. Neeraj Gupta as als....
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....edings against the Petitioner on 6th December, 2018 alongside Mr. Neeraj Kumar Gupta. The Petitioner repeatedly clarified his position and challenged the maintainability of the disciplinary proceeding through letters, emails, representations, and during hearings on various dates. The Petitioner repeatedly sent request for discharge on 24th December, 2018, 30th January, 2019, 29th April, 2019, 10th October, 2019, 15th November, 2019, 10th December, 2019 and 12th December, 2019. The Petitioner filed a discharge application before the DC, contesting the proceeding's legitimacy. However, Respondent No. 1 continued the disciplinary proceeding against the Petitioner, as evidenced by letters dated 3rd January, 2019, 10th May, 2019, 26th September, 2019, 29th November, 2019, 3rd January, 2020, 1st January, 2021, and 9th October, 2021 directing the Petitioner's participation in hearings and for submission of documents. Aggrieved by the said letters, the Petitioner has filed the present writ petition asserting that the DC of ICAI lacks jurisdiction to proceed against him, as he was neither disclosed as member answerable by the Firm nor satisfied the conditions under Rule 8 (1) (b) of the Rul....
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.... was also listed along with connected matters on 26th November, 2021 and the interim order of stay of the DC proceedings was also granted to the Petitioner. viii. W.P.(C) 13380/2021 titled Priyanshu Dineshkumar Sharma v. Disciplinary Committee Bench-III, The Institute of Chartered Accountants of India & Anr. 41. The Petitioner- Priyanshu Dinesh Kumar Sharma, a member of the ICAI institute and a Partner at Dalal & Shah (firm) has filed the present writ petition challenging the initiation of a disciplinary proceeding against the Petitioner by DC, alleging non-compliance with the provisions of Rules and the Act. 42. The Disciplinary Directorate of ICAI issued a notice on 5th April, 2018 and 19th April, 2018 to the Firm, seeking disclosure of a member answerable to the allegations. The Firm responded on 17th April, 2018, refuting the allegations, and disclosing a partner, CA Neeraj Kumar Gupta, as the 'member answerable', who will answer and provide clarifications. The language of the letter was identical to the letter in W.P.(C) 11944/2021. The Petitioner, signing on behalf of the Firm, did not file the required declaration under Rule 8 (1) (b) of the Rules. 43. Despite the Petiti....
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.... letter is identical to the letter in W.P.(C) 11944/2021. The Petitioner, signing on behalf of the Firm, did not file the required declaration under Rule 8 (1) (b) of the Rules. 46. Despite the Petitioner not being the disclosed member, DC of ICAI initiated a disciplinary proceeding against the Petitioner on 6th December, 2018 alongside Mr. Gupta. The Petitioner sought to clarify her position and challenged the maintainability of the disciplinary proceeding through letters, emails, representations, and during hearings on various dates including emails dated 24th December, 2018, 30th January, 2019, 29th April, 2019, 10th October, 2019, 18th November, 2019, 10th December, 2019 and 12th December, 2019. The Petitioner filed a discharge application before the DC, contesting the proceeding's legitimacy. However, Respondent No. 1 continued the disciplinary proceeding against the Petitioner, as evidenced by letters dated 3rd January, 2019, 10th May, 2019, 26th September, 2019, 29th November, 2019, 3rd January, 2020, and 1st January, 2021, directing the Petitioner's participation in hearings or submission of documents. Aggrieved by the said letters, the Petitioner has filed the present wri....
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....ioner has filed the present writ petition asserting that DC of ICAI lacks jurisdiction to proceed against him, as he was neither disclosed as member answerable by the Firm nor satisfied the conditions under Rule 8 (1) (b) of the Rules. This case was also listed along with connected matters on 26th November, 2021 and the interim order of stay of the DC proceedings was also granted to the Petitioner. B. Submissions 50. The hearing in the connected matters commenced on 21st March, 2023. Detailed arguments in the matter were presented on 5th April, 2023 by Mr. Sudhir Makkar, ld. Sr. Counsel appearing on behalf of the Petitioner, who submitted that as per Rule 8 (1)(b) and Rule (8)(2) of the Rules, once a member answerable has been nominated by the firm and that person has agreed and the person files a declaration to that effect then that person is answerable in respect of the allegations raised in the complaint. Ld. Sr Counsel asserted that the complaint ought to be proceeded only against the said person and not against any other person or firm. Ld. Sr. Counsel relied upon the documents filed in the respective writ petition to buttress the position that Mr. Kaushal Kishore ('member a....
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....ess the argument, that the Petitioners were not taking any advantage of the pendency of the writ petitions or the interim order, Mr. Makkar canvassed that the Bench of the DC itself was changed on two occasions. He stated that in July, 2023 a new Bench was constituted by the ICAI and it was not because of the interim order that there was delay in the proceedings of the DC. Moreover, in terms of the note of submissions, that was handed over in Court, he emphasized that the Act or the Rules do not permit attribution of liability to any member beyond the member answerable. Mr. Makkar highlighted that in the note submitted by the ICAI there was a deliberate omission of reference to the letter dated 17th December, 2019, submitted on behalf of all the Petitioners, which explicitly named the accountable member assuming full responsibility i.e., the member answerable. The letter dated 17th December, 2019 by way of illustration, signed and given by Mr. Neeraj Kumar Gupta, was placed before the Court to argue that this member had taken the full responsibility. It was further submitted that the allegation that some junior member was being affixed responsibility of the conduct of the firm was ....
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....d that no such disclosure was made in this case. She also relied upon the prima facie opinion in the case of Abhishek Rara dated 2nd July, 2018 in W.P.(C) 13375/2021 to highlight the manner in which the question as to whether who could become member answerable has been held to be subject matter of further investigation. It is further submitted that two years after the prima facie opinion was rendered, the writ petitions were filed and a stay was granted. She further stated that the final report dated 22nd January, 2024 submitted by the ICAI to the Court, took cognizance of the earlier stay order dated 26th November, 2021 and the order dated 30th September, 2023 by which the enquiries were directed to be completed and the report was to be filed. C. Summary of the Writ Petitions & Stand of the Petitioners 56. On the basis of the written pleadings, the written submissions and oral submission, the stand of the Petitioners is that they are individuals, who are partners in the firms. They are not members answerable as per Rule 8 of the Rules, who have been identified by the firm. As per the Petitioners, the proceedings under the Act and the Rules for misconduct can only be against the ....
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....nse Agreement dated 5th May, 2017 between Price Waterhouse Chartered Accountants LLP and PwC Business Trust 5th May, 2017 CA Charan Sevak Gupta 5. Firm Services Agreement dated 1st July, 1998 between Price Waterhouse Chartered Accountants LLP and PricewaterhouseCoopers Services BV 1st July 1998 CA R.N. Datta 6. Firm Services Agreement dated 1 July, 2009 between Price Waterhouse Chartered Accountants LLP and Price waterhouse Coopers Services BV 1st July 2009 CA Pradip LAw 7. Firm Services Agreement dated 1st July, 2011 between Price Waterhouse Chartered Accountants LLP and PricewaterhouseCoopers Services BV 1st July 2011 CA Prabal Sarkar 8. Grant Agreement dated 28th March, 2012 between Price Waterhouse Chartered Accountants LLP and Price waterhouse Coopers Services BV 28th March, 2012 CA Charan Sevak Gupta 9. Addendum dated 27th March, 2015 to Grant Agreement dated 28th March, 2012 27th March, 2015 CA Abhishek Rara 59. The above table refers to agreements entered into by Price Waterhouse Chartered Accountants LLP DC in W.P. (C) 13375/2021. Similar agreements were entered into by the various firms within different groups which are a part of the abovement....
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....network of audit firms, which shared technology, technical expertise, administrative and support services. * That articled assistants, who were trained by one member of the ICAI were being allowed to be shared amongst the Price Waterhouse network. This was in violation of Item 1 of Part II of the Second Schedule under the Act. * The Code of conduct does not allow partnership with an LLP or a company. The code of conduct also prohibits the fee sharing with MNAFs. * That if there is no reciprocity provided to CAs of Indian domicile in respect of similar professions of foreign country, such persons/ entities cannot practice in India by creating network. This is in violation of Section 29 of the Act. * That remittances are received from Price Waterhouse entities in India on the ground of investment. * That the Multi-National Accountancy Firm (MNAFs) like Price Waterhouse groups have got Indian partnership firms registered with Indian CAs but the real beneficiaries are foreign entities. * That the agreements signed between the entities clearly establish that there are clauses, which would show use of branding, sharing of revenues etc. * That revised guidelines on networks ....
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....etitions. Further stand of the ICAI as per the status report dated 29th November, 2021 was as under: S.No. Ref. No. Details of Respondent Firms Member Answerable (Respondent 1) Other Respondent/Petitioner (Respondent 2) Status of matter 1 [PPR/HP C/DD/11/ INF/18-DC/857/2 018] M/s Price Water House, Kolkata (FRN 301112E) in Re: CA. Neeraj Kumar Gupta (M. No. 055158) CA. Usha Rajeev (M. No. 087191) On account of Stay in Proceedings against Respondent 2, the matter has been proceeded against the Respondent No. 1. During this year the matter was heard on 26th July, 2023, 13th Sept., 2023, 16th Oct., 2023, 3rd Nov., 2023 as well as 20th Nov. , 2023. The matter is listed on 6th Dec, 2023 for hearing final submissions of the Respondent No. l in the matter. 2 [PPR/HPC/DD/12/ INF/18- DC/858/2 018] M/s Price Waterhouse Chartered Accountant s LLP (FRN 012754N/N 500016) formerly known as M/s. Price Waterhouse (FRN01275 4N) CA. Anupam Dhawan (M.No.0844 51) CA. Abhishek Rara (M.No.077779) On account of Stay in Proceedings against Respondent 2, the matter has been proceeded against the Respondent No. 1. During this year the matter was heard on 26th July, ....
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....pondent No. 1. During this year the matter was heard on 26th July, 2023, 13th Sept., 2023, 16th Oct., 2023, 3rd Nov., 2023 as well as 20th Nov. , 2023. The matter is listed on 6th Dec, 2023 for hearing final submissions of the Respondent No.1 in the matter. 7 [PPR/HPC/DD/18/ INF/18-DC7864/2018] M/s Lovelock & Lewes, Kolkata (FRN 301056E) in Re: CA. N K Varadarajan (M. No. 090196) CA. Anurag Khandelwal (M.No. 078571 On account of Stay in Proceedings against Respondent 2, the matter has been proceeded against the Respondent No. 1. During this year the matter was heard on 26th July, 2023, 13th Sept., 2023, 16th Oct., 2023, 3rd Nov., 2023 as well as 20th Nov. , 2023. The matter is listed on 6th Dec, 2023 for hearing final submissions of the Respondent No. 1 in the matter. 8 [PPR/HPC/DD/75/ INF/18- DC/865/2 018] M/s Dalal & Shah Chartered Accountant s LLP (FRN 102020W/ W100040) (Formerly known as M/s Dalal & Shah (FRN 102020W) in Re: CA. Neeraj Kumar Gupta (M. No. 055158) CA. Priyanshu Dineshkumar Gundana (M. No. 109553) On account of Stay in Proceedings against Respondent 2, the matter has been proceeded against the Respon....
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....firms) and their personnel were using the domain name in their email-ids identical to the name of the multinational entity, PwCIL and the same was also displayed in their visiting cards. It was stated by the firms that usage of such e- mail ids clearly supported their practice of holding out that they were part of the international network, PwCIL. However, ICAI stated that a member of the Institute was prohibited from disclosing his affiliation with any international entity. To support the same, the decision by the Council, at its 172nd meeting held in January, 1995 was considered, that while agreeing with the recommendation of the then Committee on Ethical Standards and Unjustified Removal of Auditors, 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 C.As., was not permissible in view of the provisions of Item 7 of Part I of the First Schedule to the Act, irrespective of whether the name sought to be used was the name of an Indian firm or a foreign firm. Thus, it has been alleged that the aforesaid act of the Respondent firm(s) was i....
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.... audited financial statement of the said Respondent firm (M/s Price Waterhouse Kolkata), for the year ended 31st March, 2009, the firm had remitted US$ 689,778. With respect to details of amounts being paid to Multinational entity, it was stated by the ICAI as under: * that the firm(s) had not provided break- up/computation and whether the cost includes cost towards marketing, publicity and advertising of the products and services in India as well as abroad and any other cost which was not allowed as per the Chartered Accountants Act, 1949, Regulations framed thereunder and Code of Ethics. * that no data was furnished by any of the firm(s) in support of their claim that the money being remitted by them to the multinational entity was in respect of above matters only and that the same in no way related to the volume of business generated through the efforts of the multinational entity and through use of brand name. In view of above, it had been alleged that the said act on the part of the Respondent firm (s) was in violation of Item 2 of Part I of the First Schedule to the Act. e. Fifth allegation: In view of the response from one of the Respondent firms i.e., (Price Water....
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....W.P (C) 13381/2021) and CA. Anurag Khandelwal (in W.P. (C) 13382/2021) filed Writ Petitions before Hon'ble Delhi High Court on 22nd November 2021 challenging the disciplinary proceedings initiated against them. The Hon'ble Court vide order dated 26th November 2021 observed as under:- "13...., there shall be a stay of disciplinary proceedings initiated against the petitioners. However, it is clarified that the respondents are free to take a decision on the discharge application filed on behalf of the petitioners. It is also clarified that there is no stay in so far as the disciplinary proceedings initiated against the Firm, Price Waterhouse, Chartered Accountants, LLP." Thereafter, the Hon'ble Court vide Order dated 30th November 2023 observed as under: "5. Accordingly, let the proceedings continue before the Respondent No. 1 and the final report be placed before this Court by the next date of hearing. It is made clear that the interim order granted in these petitions shall not come in the way of the preparation and submission of the final report to this Court. The said final report qua each of the firms shall be comprehensive and deal with all the issues raised qu....
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....under section 9];" 73. The Institute of Chartered Accountants of India is an Institute, which maintains the register of all Chartered Accountants. Only such persons, who are registered with the ICAI, can practice the profession of Chartered Accountancy. Under Sections 2(1) (ca), (eb), (ec), the Act covers and defines the terms 'firm', 'partner' and 'partnership'. Further, Section 2 (2) of the Act also stipulates as to when a Chartered Accountant is deemed to be in practice either individually or in partnership. As per Section 2 (2), the Chartered Accountant, who is a member of the institute, can be in practice either individually or in partnership with other Chartered Accountants or in partnership with other recognized professionals. Such a Chartered Accountant can offer various services as set out in Section 2(1) sub-clauses (i) to (iv). Explanation is also provided in Section 2 (2) to include an associate or fellow of the Institute, who is a salaried employee of another Chartered Accountant or a firm of Chartered Accountants or firm having Chartered Accountants and other professionals. Such persons are termed as articled assistants. 74. Thus, these provisions, which were added ....
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.... removing a member permanently or imposing a fine upto Rs. 5 lakhs. 77. Further, Section 22 of the Act makes it clear that the power of the Director (Discipline) under Section 21(1) to enquire into the conduct of the member of the Institute under any other circumstances would not be abridged by the entries in the two Schedules to the Act. Thus, an inquiry into the conduct of any member can be conducted by the Director (Discipline) beyond the specific entries in the two Schedules as well. 78. Under Section 25 of the Act, a company cannot engage in the profession of Chartered Accountancy, although, this read with Section 2(ca) makes it clear that Limited Liability Partnership ('LLP') firms and sole proprietary firms are permitted. However, a "company" in this case shall also include any limited liability partnership firm which has a company as its partner, for the purpose of this Section under the Act. Section 26 of the Act provides that on behalf of any Chartered Accountant in practice or the firm of Chartered Accountants only a member of the Institute can sign a document. Thus, any other correspondence signed for and on behalf of the LLP firm or the proprietorship or the partners....
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....r removal of the name of the CA for a period of three months. Section 21 (5) & (6) of the Act as was then existed are set out below: "(5) Where the misconduct in respect of which the Council has found any member of the Institute guilty is misconduct other than any such misconduct as is referred to in sub- section (4), it shall forward the case to the High Court with its recommendations thereon. (6) On receipt of any case under sub-section (4) or sub- section (5), the High Court shall fix a date for the hearing of the case and shall cause notice of the date so fixed to be given to the member of the Institute concerned, the Council and to the Central Government, and shall afford such member, the Council and the Central Government an opportunity of being heard, and may thereafter make any of the following orders, namely:- (a) direct that the proceedings be filed, or dismiss the complaint, as the case may be; (b) reprimand the member; (c) remove him from membership of the Institute either permanently or for such period as the High Court thinks fit; (d) refer the case to the Council for further inquiry and report." 83. In this context, the ld. Division Bench held the CA- Mr....
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....ntancy violate the said Code of Conduct for which there is no regulatory regime as MAFs do not register themselves with ICAI. Indian firms using similar brand names are registered with ICAI but the real entities being MAFs, ICAI is unable to take requisite action for violation of the Code of Ethics by MAFs. Thus, revisit of existing legal framework may become necessary so as to have an oversight mechanism to regulate MAFs on the touchstone of the Code of Ethics. 44.3. Need for amendment of law to separate regulatory regime for auditing services on the pattern of the Sarbanes-Oxley Act enacted in US making a foreign public accounting firm preparing audit reports to be accountable to the public company accounting. Similar oversight body may need to be considered in India. 44.4. Section 29 of the CA Act provides that if a specified country, prohibits persons of Indian domicile from becoming members of any institution similar to ICAI or practising the profession of accountancy or subjects them to unfair discrimination in that country, no subject of any such country shall be entitled to become a member of the Institute or practise the profession of accountancy in India. 44.5. FDI ....
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....opriate action. Though the Committee analysed available facts and found that MAFs were involved in violating ethics and law, it took hyper technical view that non availability of complete information and the groups as such were not amenable to its disciplinary jurisdiction in absence of registration. A premier professionals body cannot limit its oversight functions on technicalities and is expected to play proactive role for upholding ethics and values of the profession by going into all connected and incidental issues. 48. Thus, a case is made out for examination not only by ED and further examination by the ICAI but also by the Central Government having regard to the issues of violation of RBI/FDI policies and the CA Act by secret arrangements. 49. It can hardly be disputed that profession of auditing is of great importance for the economy. Financial statements audited by qualified auditors are acted upon and failures of the auditors have resulted into scandals in the past. The auditing profession requires proper oversight. Such oversight mechanism needs to be revisited from time to time. It has been pointed out that post Enron Anderson Scandal, in the year 2000, Sarbanse Oxl....
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.... Frank Wall Street Reform and Consumer Protection Act, 2010 in US or any other appropriate mechanism for oversight of profession of the auditors. Question whether on account of conflict of interest of auditors with consultants, the auditors' profession may need an exclusive oversight body may be examined. The Committee may examine the Study Group and the Expert Group Reports referred to above, apart from any other material. It may also consider steps for effective enforcement of the provisions of the FDI Policy and the FEMA Regulations referred to above. It may identify the remedial measures which may then be considered by appropriate authorities. The Committee may call for suggestions from all concerned. Such Committee may be constituted within two months. Report of the Committee may be submitted within three months thereafter. The UoI may take further action after due consideration of such report. 53.2. The ED may complete the pending investigation within three months; 53.3. ICAI may further examine all the related issues at appropriate level as far as possible within three months and take such further steps as may be considered necessary." 88. In terms of the decision i....
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....e Committee of Experts constituted in terms of the S. Sukumar (supra) judgement. The preface of the said report is set out below: "The Secretary Ministry of Corporate Affairs Government of India New Delhi 110001 Dear Sir, The Committee of Experts to look into the regulating audit firms and the networks presents its report to the government. The findings and recommendations aim to address the issues raised by the Hon'ble Supreme Court in its judgement in S. Sukumar versus The Secretary, Institute of Chartered Accountants of India (February 23, 2018) with a focus to strengthen the legal regime of auditors and promote development of the audit profession in the country" Thereafter, amendments were proposed but the said amendments are yet to be notified and have been remained on paper till date. 93. Argument of the Petitioners, thus, continues to be that under the Act as also the Rules, no action can be taken against a firm. Rule 8 of the Rules is relied upon by the Petitioners to argue that once a member answerable or responsible is notified then no action can be taken against the firm as a whole or any other member. 94. A perusal of Rule 8 in the context of the facts of these....
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....e alleged misconduct, shall be responsible for answering the allegation or allegations as contained in the complaint. (3) A member who has been informed of the complaint filed against him (hereinafter referred to as the respondent) shall, within 21 days of the service of a copy of the complaint, or within such additional time, not exceeding thirty days, as may be allowed by the Director, forward to the Director, a written statement in his defence. (4) On receipt of the written statement, if any, the Director may send a copy thereof to the complainant and the complainant shall, within 21 days of the service of a copy of the written statement, or within such additional time, not exceeding thirty days, as may be allowed by the Director, forward to the Director, his rejoinder on the written statement. (5) On perusal of the complaint, the respondent's written statement, if any, and rejoinder of the complainant, if any, the Director may call for such additional particulars or documents connected therewith either from the complainant or the respondent or any third party or parties, as he may consider appropriate: Provided that if no reply is sent by the respondent within the t....
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....Single Judge held as under. "11. A perusal of the above rules shows that that Rule 8 provides for the procedure to be followed by the Director on receiving a complaint. Under Rule 8 (1) (b) of the Rules, Director of the Institute has to send a copy of the complaint to the firm calling upon the firm to disclose the name or names of the member or members concerned. In terms of the said Rules, on receiving the complaint of the Petitioner the Respondent No. 1/ICAI vide letter dated 17.08.2020 called upon Respondent No. 2 firm to disclose the name of the member answerable to the complaint and Respondent No. 2 by its letter dated 27.08.2020 informed Respondent No. 1/ICAI that the Audit in question was carried by CA Vijay Kumar Lalla who passed away on 18.11.2017. In terms of Rule 8 (2) a member whose name is disclosed by the firm shall be responsible for answering the complaint. Name of CA Vijay Kumar Lalla was disclosed by the Respondent No. 2/Firm. CA Vijay Kumar Lalla was associated as a partner with the Respondent No. 2/Firm at the time of occurrence of the alleged misconduct. It is not the case of the Petitioner that no one has owned the responsibility for the allegations made aga....
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....nging. It includes issues relating to international agreements, brand licensing, revenue sharing etc. The prima facie opinion given by the Directorate (Discipline) would show that the agreements date back to 1998 until 2015 as set out in paragraph 58 above. In some of the agreements, the Petitioners herein are signatories and in some agreements, the signatories have been redacted by the firm. 101. Under Rule 8 (2) of the Rules the pre-condition for a member answerable, who can be held responsible, is that such a member has to be associated with the alleged misconduct. The letters repeatedly written by the firm as also the Petitioners and the identified persons, who have given declarations as members answerable clearly do not inspire confidence. This court is of the opinion that one individual can be made a scape goat for such wide-ranging allegations of misconduct against multiple groups/entities or firms forming a part of the PWC group, even if such an individual is willingly volunteering to absolve the firm and everyone else responsible. 102. The narrow interpretation being given by the Petitioners of Rule 8 (2) of the Rules goes against the spirit of the Act itself and the pow....
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....l of the cases by specifying the time limits for speedy disposal of the cases against members of the Institutes; (ii) address conflict of interest between the administrative and disciplinary arms of the Institute; (iii) provide for a separate chapter on registration of firms with the respective Institutes and include firms under the purview of the disciplinary mechanism; (iv) enhance accountability and transparency by providing for audit of accounts of the Institutes by a firm of chartered accountants to be appointed annually by the Council from the panel of auditors maintained by the Comptroller and Auditor-General of India; (v) provide for autonomy to the Council of the respective Institutes to fix various fees. 4. The Bill seeks to achieve the above objectives" 103. Thus, 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....
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....e individual in respect of alleged misconduct spanning over decades, the entire purpose of the Act and the Rules would be completely defeated. 109. There is an imminent need, therefore, for - (a) Strengthening the ICAI by expeditiously notifying the amendments passed by the Amendment Act of 2022. (b) Undertaking a consultation in order to clearly set out as the framework in which multinational accounting firms, whose presence is also necessary in India, can operate. Such firms also contribute in bringing global best practices to India with immense opportunities for youngsters. They also render services to Indian businesses even at a global scale. Thus, the provisions relating to licensing agreements, brand usage etc., also need to be looked into. 110. Insofar as the Petitioners are concerned, they had initially filed applications for withdrawal of the petitions. The Court had, on 21st March, 2024, given the Petitioners an option of withdrawing the petitions and appearing before the DC to proceed in accordance with law. However, the clear stand that the Petitioners took was that since final findings have been rendered, the Petitioners could no longer be held culpable in any ma....