TaxTMI 
TaxTMI 
2024 (7) TMI 751
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.... M. Saigal, Mr. Nikhil Sabri, Mr. Nipun 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 ....
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....- This question arises in these petitions. The question has wider implications and ramifications as, if the submission of the individual Chartered 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) ....
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....hen the writ petition was filed in 2021. He is a senior partner in PWC CA LLP. The Petitioner's case is that his firm is also a member of the ICAI since 1998. The firm received a notice at its Kolkata office on 16th March, 2018, which was issued 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 th....
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....stance of this response and take it on your records. We remain committed to cooperate with you at all stages and should you deem fit, we would like to explain our position further in person at a date and time chosen by your good offices. We reserve our right 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 P....
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....on 25th October, 2021. The disciplinary proceedings against the Petitioner were stayed vide order dated 26th October, 2021. 19. The matter was taken up along with other writ petitions filed by similarly placed partners of the Price Waterhouse group. Submissions were heard from time to time in this matter and the 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 ....
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....o the firm at their Mumbai address, in response to which the Petitioner replied on 26th April, 2018 and sought 30 days' time for submission of the response. Correspondence in this letter was signed by the Petitioner on behalf of the firm. Thereafter, a detailed response was issued on 27th April, 2018 on similar lines as in W.P.(C) 11944/2021. 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....
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....t case the Petitioner- Mr. Rahul Chattopadhyay is also a CA and a partner of Price Waterhouse & Co. (firm) and has contested the disciplinary proceedings against him. On 23rd March, 2018, a notice was issued to the Firm by the DC of ICAI, initiating proceedings and requesting disclosure of the member answerable. Initially, on 11th April, 2018 the firm, through 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 p....
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....half of the Firm, did not file the required declaration under Rule 8 (1) (b) of the Investigation Rules. The facts of the present case are similar to all the above petitions. On 15th May, 2018, Mr. Neeraj Kumar Gupta issued written submissions on behalf of the firm. 37. Despite the Petitioner not being the member answerable, the DC of ICAI initiated disciplinary proceedings 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 Oct....
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....ry, 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 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. 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....
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....he above mentioned writ petitions. 45. The Disciplinary Directorate of ICAI issued a notice on 16th March, 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 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 legit....
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....e 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 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....
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....hat under Section 21 of the Act, the allegations may be made even against a firm, however, disciplinary proceedings could only be instituted against a member whose name appears in the rolls of the ICAI. 53. The arguments further continued on 22nd March, 2024. Mr. Makkar, ld. Sr. Counsel submitted that DC can only proceed against the member answerable and not against any other person or firm. In order to buttress 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....
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....nd of the firm initially was that no member was answerable, but it was only for administrative convenience that the person was being nominated for providing clarifications. As per Rule 8 (2) of the Rules, it was submitted by Ms. Sehgal, that the member answerable also has to be a person to whom the transaction is also related and the relationship of such person with the transaction has to be disclosed. She emphasized 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 ....
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....rice Waterhouse Chartered Accountants LLP and PricewaterhouseCoopers International Ltd 1^st Oct 1998 CA R.N. Datta 2. Name License Agreement dated 1st July, 1998 between Price Waterhouse Chartered Accountants LLP and PwC Business Trust 1^st July, 1998 CA R.N. Datta 3. Name License Agreement dated 1st July, 2011 between Price Waterhouse Chartered Accountants LLP and PwC Business Trust 1^st July, 2011 CA Prabal Sarkar 4. Name License Agreement dated 5th May, 2017 between Price Waterhouse Chartered Accountants LLP and PwC Business Trust 5^th May, 2017 CA Charan Sevak Gupta 5. Firm Services Agreement dated 1st July, 1998 between Price Waterhouse Chartered Accountants LLP and PricewaterhouseCoopers Services BV 1^st 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 1^st July 2009 CA Pradip LAw 7. Firm Services Agreement dated 1st July, 2011 between Price Waterhouse Chartered Accountants LLP and PricewaterhouseCoopers Services BV 1^st July 2011 CA Prabal Sarkar 8. Grant Agreement dated 28th March....
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....Act. * The domain name used was identical amongst the firms. The same were displayed on the visiting cards of all the partners and other partners. * That any member of the ICAI is prohibited from declaring of being in affiliation with any international entity. * The firms were in violation of Items 2, 5, and 7 of Part I of the First Schedule under the Act. * That members of one firm could be seconded on other members on short and long terms basis and the terms and conditions were fixed based on negotiations. * That Price Waterhouse group of firms had a 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....
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....ifications and answering any questions. Thereafter, another declaration was received on 21st May, 2018 by the ICAI wherein again it was stated that the certain individual member is identified for providing clarifications and responses and the said member has adopted the written statement filed by the firm. 65. According to the ICAI, it exercised powers under the proviso to Rule 8 (2) of the Rules and regarded various Petitioners as 'members answerable'. However, an interim order dated 26th November, 2021 was passed by this Court directing stay of the disciplinary proceedings. Subsequently, ICAI filed a status report dated 29th November, 2021 regarding the status of proceedings in each of the writ petitions. 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....
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....n Wadhawan (M.No.90172), Gurgaon 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. 6 [PPR/HP C/DD/16/ INF/18-DC/862/2 018] M/s Price Water House, Bangalore LLP (FRN 007567S/S 200012) (formerly known as M/s Price Water House, Bangalore (FRN 007567S) CA. Neeraj Kumar Gupta (M. No. 055158) CA. Amitesh Dutta (M. No. 058507 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. 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....
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....ote the PwC brand; and develop and work for the consistent application of common risk and quality standards by member firms, including compliance with independence processes" and "as a member firm of PwCIL, has access to the common resources, methodologies, knowledge and expertise of PwCIL, and other member firms. Such common resources and methodologies may include, for example, audit methodology, software and guidance, IT platforms and systems, branding, and marketing materials...", it has been alleged that the Respondent firm(s) were involved in securing professional business by means which were not open to a member of the Institute/Firm. Such an act on the part of Respondent firm(s) was alleged to be in violation of Item (5) of Part I of the First Schedule to the Act. b. Second allegation: It has been alleged that the Respondent 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, PwCI....
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....their respective letter(s) had confirmed that the member firms of PwCIL had access to the common resources, methodologies, knowledge and expertise of PwCIL and other member firms. Such common resources and methodologies may include, for example, audit methodology, software and guidance, IT platforms and systems, branding and marketing materials and industry-specific knowledge and expertise, all of which help the firm in adopting international audit practices and methodologies to serve their domestic and multinational clients. For the services so rendered a payment is made by the member firm based on the actual and allowable cost not exceeding 2.5% of the firm's revenue. It was further stated that in general, as part of agreed cost arrangements, member firms of PwCIL bear the costs of the activities as mentioned above. Under such arrangements, based on the 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/c....
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.... Respondent firm(s). As there is no provision under CA Rules, 2007 of issuing any interim order but to only issue Findings Report under Rule 18(17) of CA Rules, 2007, CA. Harinderjit Singh, the 2nd Respondent of R4 (in W.P. (C) 11944/2021) filed Writ Petition before Hon'ble Delhi High Court on 22nd October 2021 challenging the extant disciplinary proceedings initiated against him. The Hon'ble Court vide order dated 26th October 2021 granted stay in the extant disciplinary proceedings qua the petitioner. Thereafter, the 2nd Respondent in matters against remaining Respondent firm(s) [R1 to R10 except R4] -CA. Abhishek Rara (in W.P.(C) 13375/2021), CA. Usha Rajeev (in W.P (C) 13376/2021), CA. Rahul Chattopadhyay (in W.P.(C) 13377/2021), CA. Amitesh Dutta (in W.P.(C) 13378/2021), CA. Rajan Wadhawan (in W.P. (C) 13379/2021), CA. Priyanshu Dineshkumar Gundana (in W.P.(C) 13380/2021), CA Usha Rajeev (in 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 ....
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....he 1 2*. Subs. By Act, 15 of 1959, sec.2 for "profession of accountant"(w.e.f. 1-7-1959)" regulation of the [profession of chartered accountants] and for that purpose to establish an Institute of Chartered Accountants;. 71. As can be seen from the above Preamble, the Act of 1949 was for the regulation of the profession of Accountants. However, it was amended to the Chartered Accountants in 1959. The ICAI was also then established. Under the Act, Section 2(1)(b) defines 'Chartered Accountant' as under: "2. Interpretation.-(1) In this Act, unless there is anything repugnant in the subject or context,- xxx (b) "chartered accountant" means a person who is a member of the Institute" 72. The ICAI of India has been defined under the Act in Section 2(1)(c), which reads as under: "2. Interpretation.-(1) In this Act, unless there is anything repugnant in the subject or context,- xxx (c) "Council" means the Council of the Institute [constituted 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 a....
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.... procedure to be followed in the cases of misconduct has also been specified in Section 21 of the Act. There are two types of misconducts under the Act. One is 'professional misconduct' under the First Schedule or 'other misconduct' under the Second Schedule. A perusal of the various entries relating to misconduct would show that it regulates Chartered Accountants and the manner in which they conduct themselves either individually or as partners of members of firm. Part II of the First Schedule specifically relates to employees of companies, firms or persons. Under the Second Schedule conduct of a Chartered Accountant as part of a firm is clearly dealt with. Section 21(A) of the Act empowers the Board of Discipline, specifically under Section 21(A)(3), to either reprimand a member or remove a member from the Register for a maximum period of three months or impose fine of maximum amount of Rs.1 lakh. The Disciplinary Committee as defined under Section 21B of the Act, however, has broader powers of reprimanding a member, 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) u....
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....e Act as also the aspects related to misconduct. Some of the relevant judgements are discussed below. The Council of The Institute of Chartered Accountants of India v. Lokesh Dhawan F.C.A (2007:DHC:1398-DB) 82. In this decision, ld. Division Bench of this Court considered the recommendation of the Council of ICAI which made reference under Section 21 (5) of the Act recommending that Mr. Lokesh Dhawan -CA, who was held guilty of 'other misconduct' in terms of the Act be removed from the Register of Members for a period of three months. The allegation was that Mr. Dhawan and Mr. Gulati were appointed as statutory auditors for a bank and had claimed expenses in excess of the permissible limits as stipulated by the RBI and that the firm had canvassed for procuring the computer business of the bank for a sister concern. Another allegation against the CA was that services of an external CA was used, who was neither a partner not an employee of the firm. The proceedings before the DC continued and finally, a recommendation was issue for 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) Whe....
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.... plea of disowning individual liability after the conclusion of the enquiry can only be viewed as an abuse of process aimed at frustrating the entire exercise. Accordingly the objection raised on the ground that the case is one of collective responsibility of the entire firm is without merit and is rejected as such." S. Sukumar v. The Secretary, Institute of Chartered Accounts of India & Ors. [(2018) 14 SCC 360] 84. The judgment of the Supreme Court in S. Sukumar (supra), which is relied upon heavily by the ICAI analysed the provisions of the Act and the Rules qua Price Waterhouse group. The facts and pleadings recorded in the judgment read as under: "44. The above resume of facts and pleadings shows the following: 44.1. There is a bar under the CA Act to practise as CAs for a company which includes a limited liability common partnership which has company as its partners. 44.2. The Code of Conduct for CAs prohibits fee sharing, advertisements but 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 r....
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....partners, operating under a common brand name from same infrastructure, with foreign entity is not ruled out. It is not possible to rule out violation of FDI Policies, FEMA Regulations and the CA Act. Thus, appropriate action may have to be taken in pending proceedings or initiated at appropriate forum." 85. From the above it is clear that action was directed to be taken in the pending proceedings before the ICAI, which was initiated in 2016. The Court observed in this decision that the ICAI ought to have taken the matter to a logical end, if proper information was being withheld. The observations of the Court are relevant and are set out below: "46...... The ICAI should have taken the matter to logical end, by drawing adverse inference, if information was withheld by the concerned groups. 47. No doubt, the report of the committee of experts of ICAI dated 29th July, 2011 does not specifically name the MAFs involved, groups A,B,C,D are mentioned. The ICAI ought to constitute an expert panel to update its enquiry. Being an expert body, it should examine the matter further to uphold the law and give a report to concerned authorities for appropriate action. Though ....
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....s context, the Court observed as under: "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." 87. Insofar as the final directions are concerned, the Court observed in Sukumar (supra) as under: "53. Accordingly, we issue the following directions: 53.1. The Union of India may constitute a three- member Committee of Experts to look into the question whether and to what extent the statutory framework to enforce the letter and spirit of Sections 25 and 29 of the CA Act and the statutory Code of Conduct for the CAs requires revisit so as to appropriately discipline and regulate MAFs. The Committee may also consider the need for an appropriate legislation on the pattern of the Sarbanes- Oxley Act, 2....
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....j Kumar Gupta 5 13377/2021 Rahul Chattopadhyay M/s Price Waterhouse & Co. Neeraj Kumar Gupta 6 13378/2021 Amitesh Dutta M/s Price Waterhouse & Co. Bangalore LLP Neeraj Kumar Gupta 7 13379/2021 Rajan Wadhwan Dinesh Yashwant Supekar 8 13380/2021 Priyanshu Dineshkumar Gundana M/s Dalal and Shah LLP Neeraj Kumar Gupta 9 13381/2021 Usha Rajeev M/s Price Waterhouse Calcut Neeraj Kumar Gupta 10 13382/2021 Anurag Khandelwal M/s Lovelock & Lewis N.K. Varadarajan 91. The chronology of events and circumstances, which are set out above, clearly show that the initiation of action qua the firms was pursuant to a report in 2010. Fourteen years have passed, however, there has been no effective action till date. Repeated notices, replies, decision of the Supreme Court in S. Sukumar (supra), and other proceedings before the Supreme Court, have not yet resulted in any concrete action. 92. Insofar as the first direction given by the Supreme Court in S. Sukumar (supra) is concerned, the Union of India constituted a Committee - Committee Of Experts On Regulating Audit Firms And The Networks, which reco....
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....name or names of the member or members concerned and to send particulars of acts of commission or omission or a copy of the complaint, as the case may be, to such members: Provided that while disclosing the name or names of the member or members, the firm shall also send a declaration signed or, as the case may be, jointly signed by the member or members concerned to the effect that he or she or they shall be responsible for answering the complaint and that the particulars of acts of commission or omission or the copy of the complaint sent to the firm by the Director had been duly received by him, her or them. Explanation - A notice to the firm shall be deemed to be a notice to all the members who are partners or employees of that firm as on the date of registration of the complaint. (2) A member whose name is disclosed by the firm shall be responsible for answering the complaint, provided such a member was associated, either as partner or employee, with the firm, against which the complaint has been filed, at the time of occurrence of the alleged misconduct: Provided that if no member, whether erstwhile or present, of the firm, own responsibilit....
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....member answerable for answering the complaint. 96. 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. 97. 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. 98. There are different kinds of misconducts that can be alleged against a firm. Misconduct can be individual centric or firm centric. If the misconduct is against a particular individual, then obviously that individual would be responsible for answering and for taking responsibility. A classic case of this nature is the case of Hema Gosain v. Institute of Chartered Accountants of India and Other....
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.... Court has held that as soon so as a person dies, he breaks all his connection with the worldly affairs, therefore, no disciplinary proceeding can be initiated against him......" (emphasis supplied) 12. In view of the above, it cannot be said that the Respondent No. 2/Firm has whittled away from its responsibility and the Respondent No. 1/ICAI is at fault for closing the complaint of the Petitioner. Therefore, this Court is of the opinion that the decision of Respondent No. 1/ICAI in closing the complaint of the Petitioner does not require any interference by this Court. 13. Accordingly, the Writ Petition is dismissed. Pending applications, if any, also stands dismissed" 99. 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 pi....
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.... 1949, the Cost and Works Accountants Act, 1959 and the Company Secretaries Act, 1980 (hereinafter referred to as the Acts), were enacted to make provision for the regulation of the profession of the chartered accountants, cost accountants and company secretaries, respectively. On account of changes in the economic and corporate environment in the country, it has become necessary to amend the Acts. Further, recent corporate events have put the profession of chartered accountancy under a considerable scrutiny. 2. The amendments to the Acts are based on the recommendations of a High Level Committee constituted by the Ministry of Corporate Affairs, inter alia, to examine the existing provisions in the Acts and the rules and regulations made thereunder, for dealing with the cases of misconduct in the three Professional Institutes, namely, the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India and the Institute of Company Secretaries of India and with a view to strengthening the existing mechanism and ensure speedy disposal of the disciplinary cases. 3. The Chartered Accountants, the Cost and Works Accountants and the Company Secret....
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....ry, 2024 would not be final. The conclusion of the ICAI is clear to the effect that there has been misconduct. The findings also show that there are various factors, which have led to the DC arriving at conclusion that there has been misconduct by the firms. Under Sections 21A and 21B of the Act as also read with Rule 8 of the Rules, the DC is free to proceed against the firm as a whole or its individual members as it deems appropriate, who shall be held responsible for answering the allegations. H. Conclusions & Directions: 107. The profession of Chartered Accountancy is one which forms an important and critical part of the economy of a country. CAs are like gatekeepers of the financial system, who can stop any misdemeanour in accounting by conducting proper audits and continuous supervision of their clients. CAs can also properly advise both on proper maintenance of accounts as also management and planning. Any omission or laxity in discharge of duties could lead to large scale losses and financial frauds. 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 al....