15 April 2022 1:55 PM GMT
On 30.03.2022, the Lok Sabha passed the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2022, which seeks to amend the Chartered Accountants Act, 1949, Cost and Works Accountants Act, 1959 and the Company Secretaries Act, 1980. As observed by the Standing Committee on Finance, in their 45th Report, factors including large pendency...
On 30.03.2022, the Lok Sabha passed the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2022, which seeks to amend the Chartered Accountants Act, 1949, Cost and Works Accountants Act, 1959 and the Company Secretaries Act, 1980. As observed by the Standing Committee on Finance, in their 45th Report, factors including large pendency of disciplinary cases particularly with the Institute of Chartered Accountants of India, unreasonably high disposal time of cases and the alleged involvement of the auditors in some financial scams created a need to revisit the disciplinary processes for regulating the conduct of Chartered Accountants, Company Secretaries and the Cost Accountants. This article focuses on some of the material amendments made to the Chartered Accountants Act, 1949 (hereinafter for short the 'amendments').
The amendments seek to strengthen the disciplinary mechanism for regulating the conduct of chartered accountants. The Act for the first time also provides for registration of the Firms and also seeks to open a window for inclusion of Firms under the purview of the Disciplinary Mechanism.
Depending upon the gravity of the misconduct, which is defined in the First Schedule and the Second Schedule of the Chartered Accountants Act, the prima facie opinion of the Director Discipline, (post amendment referred to as the Preliminary Enquiry Report) is either placed before the Board of Discipline or the Disciplinary Committee. The lesser misconduct is dealt with by the Board of Discipline and allegations of serious misconduct are enquired into by the Disciplinary Committee.
By the amendments now introduced, the composition of both the Board of Discipline and the Disciplinary Committee has been changed. By the amendment Bill, it has been provided that of the three members of the Board of Discipline, two would be appointed by the central government from a panel prepared by the Council, and who should not be members of the Council. Similarly with respect to Disciplinary Committee, of the total five members, three members are to be nominated by the central government from a panel to be prepared by the Council, and who should not be a member of the Council. Thus, post-amendment, the majority of the members both in the Board of Discipline and the Disciplinary Committee are nominees of the central government and not members of the Council.
These amendments surely take away the power from the Council to self-regulate its affairs as regards enforcement of discipline is concerned. Since the majority of the members are nominees of the Central Government, albeit appointed from the panel prepare by the Council, it would not be totally wrong to say that some amount of indirect governmental control is also sought to be exercised over the disciplinary affairs of the chartered accountants. Any self-regulation necessarily involves duplicity of functions particularly administrative and disciplinary. The statement of objects and reasons specifically stipulate that the object of Act inter-alia is to, "address conflict of interest between the administrative and disciplinary arms of the Institute". In other words, the object admittedly is to bring about an element of independence in the Disciplinary Bodies of the Institute to ensure that integrity associated with financial reporting is not diminished. During parliamentary debates reference was also made to large corporate scams including Satyam and IL&FS to justify taking away the autonomy of the Council. Only time will tell whether, these amendments would prevent corporate frauds in future.
Even before this amendment Act, the Council was not completely autonomous and self-regulatory in its nature. In the year 2006, a new disciplinary set up was introduced to deal with complaints of professional misconduct by chartered accountants. The 2006 amendment Act, put in place an Appellate Authority to hear appeals against the orders passed by the Board of Discipline and the Disciplinary Committee, imposing any of the penalties. The Appellate Authority is headed by a retired judge of High Court, with two nominees of Central government and two nominees of the Council. Thus, the majority of the members of the Appellate Authoritywere independent members, and this composition has remained unchanged. In 2006, the Council was partially denuded of its autonomy to self-regulate and vide the present amendments, in matters of discipline, the autonomy of the Council is further diminished.Though autonomy of the Institute is compromised, the amendments endeavour to make the Disciplinary bodies independent of the Council and are thus likely bring about an element of objectivity in their decision making.
Another important attempt that has been made by way of these amendments is to bring the chartered accountancy firms within the loop of the disciplinary mechanism. The amendment Act (Section 20A) now mandates every Firm to be registered with the Institute. The Director (Discipline) is now empowered to investigate allegations of misconduct against the Firm as well. If the Director (Discipline) prima facie finds the Firm 'guilty' he is required to place the Preliminary Enquiry Report either before the Board of Discipline or the Disciplinary Committee, depending upon the nature of misconduct.
It is only natural and obvious to assume that every enquiry or investigation, either by the Board of Discipline or the Disciplinary Directorate culminates into a final finding on the issue of guilt, followed by the order of punishment. However, as per the proposed amendment, a Firm can be penalised only in case of an enquiry against a member, who is a partner or owner of the firm, and has 'repeatedly' been held guilty of misconduct. If that were the objective, it is not understood as to why the Director (Discipline) and the Disciplinary Bodies namely the Board of Discipline and the Disciplinary Committee have been conferred with the power to investigate complaints against the Firms. Though the Act is laudable in its intent of bringing Firms within the ambit of the disciplinary mechanism, however, by restricting imposition of penalty on Firms only in the event of 'repeated' misconduct by the partner or owner, clearly defeats this very intent. Further, the Act used a vague expression 'repeatedly', which can be assigned a different meaning by different benches of the Board of Discipline and/or Disciplinary Committee, potentially exposing their orders to the allegation of the vice of arbitrariness.
The author is an Advocate On Record at the Supreme Court of India. Views are personal.