[BREAKING]ICAI DC can Hold Entire CA Firm Responsible, when Guilt of Individuals cannot be Found on Misconduct Allegations: Delhi HC [Read Order]

The Delhi High Court recently held that when the Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) is of the opinion that any one Chartered Accountant (CA) or Individual cannot be saddled with the responsibility, considering the nature of the allegations, the Disciplinary Committee can proceed against the firm as whole. 

The High Court Single Bench was hearing a batch of appeals filed by individuals against disciplinary proceedings by the ICAI.

The individuals had argued that under current rules, no action can be taken against a CA firm. The court disagreed, saying the ICAI can proceed against the entire firm or individual members,

The court said CAs are important for ensuring the financial system is healthy because they conduct audits and supervise clients. Stricter rules are needed to prevent misconduct, according to the court. The court also said that a consultation is needed to establish how multinational accounting firms can operate in India. The court said these firms can improve India's accounting practices and provide opportunities for young people.

It was noted that, “there is a recognized need for enhancing and strengthening the disciplinary mechanisms against firms and enhancing accountability and transparency by firms of CAs. Though the amendment Act of 2022 has not been notified yet, the current/extant Act and Rules cannot be read in a manner, which is contrary to the spirit of vested powers with the ICAI for taking action against firms or individuals, who are its members.”

The current rules allow CA firms to designate one person to be blamed for any wrongdoings, but the judge said this isn't sufficient, especially for complex situations involving international firms. The Single Bench Judge remarked that the Institute of Chartered Accountants of India (ICAI) needs to be strengthened by following new amendments to a law passed in 2022. These amendments allow disciplinary action to be taken against the entire CA firm, not just individual CAs.

“Thus, in a case where there is any complaint or allegation in respect of a single incident or an act of a member, the firm can designate that particular person, who was associated with the said act, which is alleged to be misconduct. The position would however not be the same, say, in a case where 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 bench noted.

Justice Prathiba M Singh made these comments while dismissing appeals filed by individuals against disciplinary proceedings by the ICAI, while directing the individuals to pay costs of Rs.1 Lakh each to Delhi High Court Bar Clerk Association.

To Read the full text of the Order CLICK HERE

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