Need To Enhance Disciplinary Mechanisms Against CA Firms, ICAI Must Be Strengthened By Notifying 2022 Amendment Act: Delhi High Court

The Delhi High Court has observed that there is a need for enhancing and strengthening the disciplinary mechanisms against firms of Chartered Accountants (CAs) as well as to enhance the accountability and transparency of such firms.Justice Prathiba M Singh said there is an imminent need for strengthening the Institute of Chartered Accountants of India (ICAI) by expeditiously notifying the amendments passed by the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, 2022. Though the Act has been passed, it has not been notified yet. As per the amendments, proceedings for misconduct can be held against CA firms as well. Various other provisions for looking over the misconduct by the firms have also been incorporated by the Amendment. Referring to various provisions, the court observed where there is any complaint or allegation in respect of a single incident or an act of a member, the firm can designate that person who is alleged of misconduct. However, it added, that the position would not be the same when 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 pinned down in such situations to be responsible for answering the complaint as 'member answerable'. The firm as a whole has to be held responsible if found culpable, in such circumstances, failing which the Act would be rendered toothless,” the court said. It added if the ICAI's Disciplinary Committee is of the opinion that a member is incorrectly taking responsibility for allegations which are wide-ranging, the ICAI is fully empowered to hold the firm as a whole as being responsible.“Obviously if the ICAI feels that one member cannot be held responsible in respect of allegations against the firm, it is fully empowered to proceed against the firm as a whole,” the court said. It added: “The Court has today interpreted Rule 8 of the Rules and has held that when the DC is of the opinion that any one individual cannot be saddled with the responsibility, considering the nature of the allegations, the Disciplinary Committee can proceed against the firm as whole.”Justice Singh said 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.Observing that any omission or laxity in the discharge of duties could lead to large-scale losses and financial fraud, the court said:“Proper mechanism for the purpose of ensuring that there is no misconduct is essential to preserve the robustness and the integrity of the profession. If firms are permitted to only pin down one single individual in respect of alleged misconduct spanning over decades, the entire purpose of the Act and the Rules would be completely defeated.”It further said that there is a need to undertake a consultation to set out the framework in which multinational accounting firms, whose presence is also necessary in India, can operate. The court observed that such firms also contribute to bringing global best practices to India with immense opportunities for youngsters and 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,” the court said. Justice Singh made the observations while dismissing 10 pleas filed by various individuals against ICAI in furtherance to disciplinary proceedings conducted by it. The court imposed Rs. 1 lakh costs on each petitioner to be paid to Delhi High Court Bar Clerk Association.It was the petitioners' case that under the Act as well as the Rules, no action can be taken against a firm. They contended that as per Rule 8 of the Rules, once a member answerable or responsible is notified then no action can be taken against the firm as a whole or any other member.The court observed that the conclusion of the ICAI was clear to the effect that there was misconduct and that there were various factors which led to the Disciplinary Committee arriving at conclusion that there was 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,” the court said. While rejecting the pleas, the court gave the Petitioners, including their firms, an opportunity to file a reply to the notices issued by ICAI and ordered that a date of hearing be fixed for their appearance. “The Petitioners and their firms are free to file their written statements within eight weeks before the DC. The DC shall, after giving a hearing to the Petitioners and their firms, shall proceed further with the enquiry against the firms and the Petitioners, in accordance with law,” the court said. Title: HARINDERJIT SINGH v. DISCIPLINARY...

Need To Enhance Disciplinary Mechanisms Against CA Firms, ICAI Must Be Strengthened By Notifying 2022 Amendment Act: Delhi High Court

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Need To Enhance Disciplinary Mechanisms Against CA Firms, ICAI Must Be Strengthened By Notifying 2022 Amendment Act: Delhi High Court

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