Delhi High Court Rules on Disciplinary Proceedings Against Chartered Accountant Firms

The Delhi High Court recently issued a significant ruling concerning the disciplinary proceedings against firms of Chartered Accountants (CAs). In the case [Harinderjit Singh vs Disciplinary Committee Bench III The Institute of Chartered Accountants of India & Anr], the court clarified that the Disciplinary Committee (DC) of the Institute of Chartered Accountants of India (ICAI) can proceed against an entire firm when an individual member cannot be held solely responsible for the allegations in a complaint.

Justice Prathiba M Singh rejected the argument that only those nominated as ‘members concerned’ under Rule 8 of The Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, are answerable to ICAI in respect of any complaint alleging misconduct. The court interpreted Rule 8 and held that when the DC finds it inappropriate to saddle any single individual with the responsibility, the committee can proceed against the firm as a whole.

The court emphasized that the rules indicate that a notice to the firm is effectively a notice to all partners or employees of the firm as of the complaint’s registration date. According to the court, the firm can designate an individual responsible for answering the complaint, provided that the individual was associated with the firm either as a partner or employee at the time of the alleged misconduct. However, the court noted that if no member owns responsibility, the firm as a whole shall be held accountable.

Justice Singh further elaborated that ICAI is fully empowered to take action against a firm and issue notices to it, especially in cases where agreements made by the firm span over long periods and involve multiple agreements. The court stated that in such situations, it is unreasonable to hold a single individual responsible; hence, the firm must be held accountable.

The ruling came while hearing a batch of 10 petitions from various CAs of different firms against pending disciplinary proceedings before ICAI. The petitioners argued that they were not the ‘members concerned’ or ‘members answerable’ and should be discharged from the proceedings. The court dismissed these petitions, imposing a cost of ₹1 lakh on each petitioner, and provided them and their firms an opportunity to file a reply to the notices issued by ICAI within eight weeks.

Justice Singh underscored the importance of enhancing and strengthening the disciplinary mechanisms against firms, emphasizing the critical role of Chartered Accountants in the economy. The court highlighted that any laxity in their duties could lead to significant financial losses and fraud, stressing the need for CAs to ensure compliance with the law and uphold their responsibilities to the economy.

The court concluded by urging the need to:

• Strengthen ICAI by expeditiously notifying the amendments passed by the Amendment Act of 2022.

• Undertake consultations to clearly establish the framework in which multinational accounting firms can operate.

These firms, according to the court, contribute to bringing global best practices to India and offer substantial opportunities for young professionals. They also serve Indian businesses on a global scale, necessitating a review of provisions related to licensing agreements and brand usage.

The matter underscored the judiciary's commitment to upholding professional standards within the accounting sector, ensuring accountability, and maintaining the integrity of financial practices.

Author: Anushka Taraniya

News writer