Delhi HC empowers ICAI to hold CA firms accountable for misconduct

Sending a stern message to the chartered accountant firms to enhance accountability and maintain transparency, the Delhi High Court has held that the Institute of Chartered Accountants of India’s disciplinary body is empowered to proceed for misconduct even against the CA firms besides individual chartered accountants.

It said that there was a need for enhancing and strengthening the disciplinary mechanisms against firms of Chartered Accountants by expediting the notification of the amendments to the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, 2022, that states that proceedings for misconduct can be held against CA firms as well.

While dismissing a batch of 10 petitions filed by individual CAs’ from various firms, including BSR and Associates LLP, Price Waterhouse and Lovelock & Lewes, Justice Prathiba M. Singh said that 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 and any omission or laxity in the discharge of duties could lead to large-scale losses and financial fraud.

It also imposed a fine of one lakh rupees on each petitioner to be paid to Delhi High Court Bar Clerk Association. The petitioners are Rakesh Dewan (BSR and Associates LLP), Harinderjit Singh and Abhishek Rara (Price Waterhouse & Co. Chartered Accounts LLP) , Usha Rajeev and Priyanshu Dineshkumar Gundana (M/s Dalal and Shah LLP), Rahul Chattopadhyay (Price Waterhouse & Co. Chennai, LLP), Rajan Wadhawan (Price Waterhouse & Co. LLP), Amitesh Dutta (Price Waterhouse & Co. Bangalore, LLP), Usha Rajeev (Price Waterhouse, Kolkata) and Anurag Khandelwal (Lovelock & Lew es, Kolkata).

However, the HC 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 issue before the HC was whether the regulatory body can take action against the CA firm for professional misconduct under the existing law or it can take action against one person, who is identified by the firm.

The HC said that when there was any complaint or allegation in respect to a single incident or an act of a member, the firm can designate that person who is alleged of misconduct. However, the position will 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 judgment stated.

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 and proceed against the firm.

Justice Singh also underlined the need to undertake a consultation in order to clearly set out a framework in which multinational accounting firms, whose presence is also necessary in India, can operate.

The HC said that such firms contribute to bringing global best practices to India with immense opportunities for youngsters. "Thus, the provisions relating to licensing agreements, brand usage etc., also need to be looked into,” the order stated.

The petitions were filed against the ICAI in furtherance of some disciplinary proceedings. The CA petitioners, some of whom are the senior partners, had sought to be released from disciplinary proceedings being conducted by the ICAI on the grounds that they were not the nominated members in the concerned misconduct proceedings as per Rule 8 of The Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules 2007.

The judge said that the ICAI’s conclusion was clear that there was misconduct and that there were various factors which led to the disciplinary committee arriving at the 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,” said the court.