The Chartered Accountant Firms in India having a network, association and simply being a member of an Association of Global Chartered Accountancy Network are caught on the wrong foot. The Report of the Institute of Chartered Accountants of India (ICAI)(Report) manifests the modus operandi adopted by the networked firms including sharing of fee, referral work to member firms, advertising affiliation amongst others. The Report was lying in dust in some corner until the Supreme Court of India, in a Civil Appeal filed by S. Sukumar and Writ petition filed by Centre for Public Interest Litigation, directed ICAI to 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. All the firms believed to be having some association with a foreign network or association as part of “information case” have been issued notices to submit their reply for formation of prima facie opinion.
The Supreme Court, in the afore stated judgment, observed that “the ICAI should have taken the matter to logical end, by drawing adverse inference, if information was withheld by the concerned groups.”Para 47 makes interesting reading:
“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 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.”
The present structure of the Chartered Accountants Act, 1949 (Act) does not empower ICAI to regulate so-called multinational network accounting firms. Neither does it have power to take disciplinary action against such firms.
The notices have been issued by ICAI to all such reported firms calling upon them to name a member answerable. Additionally, it mentions that if a name is not mentioned, then all the partners of the firm shall be considered as answerable. There is an established legal principle that ‘what cannot be done directly cannot be done indirectly’. ICAI does not have power to take action against the firms of chartered accountants. Most of the firms are in a quandary as the decision to join a network was a firm’s decision taken long time ago. The partners who took the decision may have retired or may no longer be with the firm. Identifying a single member or partner answerable for a unanimous decision of the firm is like censuring one in a discriminatory manner. The firms should take a stand that ICAI does not have power to proceed against a firm. Joint and several liability of partners in a partnership firm does not extend to professional misconduct unless specifically stated in any of the Schedules of the Act.
Provision for Referral Business
A mere provision of making or receiving referrals does not make a firm liable under Item (2) of Part I of the First Schedule. Actual payment does. Many firms have signed an agreement containing clauses of referrals but have neither received any referral nor made any payment for such referrals. Such firms are clearly outside the scope of First Schedule.
Response is the Key
An appropriate response by the firms may save the day for them. The reply to ICAI notices is crucial and they must reply appropriately after examining all the aspects. Take outside help, if needed.
Interesting battle is on between ICAI and Multinational Network Accounting Firms. Last word is yet to be written on this.
© Ashish Makhija: firstname.lastname@example.org
Disclaimer: The views expressed here are views based on my personal interpretation for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.
Report on Operation of Multinational Network Accounting Firms in India, 29thJuly, 2011.
Civil Appeal No. 2422 OF 2018 and Writ Petition (Civil) No. 991 of 2013.