The Board of Discipline of the Institute of Chartered Accountants of India (ICAI) has cleared the CA Firm M/s Carvalho Associates of all charges with respect to a case of alleged fee sharing/referral by way of an agreement with M/s Kreston International Ltd.
The attention of the Disciplinary Directorate was drawn to the Report on Operation of Multinational Network Accounting Firms in India, which was considered by the Council of ICAI in the year 2010 and finalized by a Group constituted by the Council in July 2011.
Subsequently, while considering further course of action in respect of the reconunendaLiuns as contained in Para 7 of the aforesaid report, the Council at its meeting held in January 2013 had authorized the Secretary, ICAI to take necessary action as considered appropriate by him. In accordance with the said decision of the Council, upon placing the matter before the Secretary, he considered the issues relating to violations of provisions of the Chartered Accountants Act, 1949 by the various firms and forwarded the same along with his recommendations for necessary action to the Director (Discipline).
The Respondent firm, in its letter dated 27th July 2009 at para 8 mentioned that the cost of running the International Office is funded by membership subscriptions. In para 12 of the said letter, it mentioned that in January 2009, it remitted annual subscription fee of GBP 239.69. The same is in violation of Item (2) of Part I of the First Schedule to the Chartered Accountants Act, 1949. The Respondent firm further mentioned in its letter dated 27th July, 2009 that it has been told by Kreston International to sign a new agreement. This implies that the Respondent firm has entered into an agreement with Kreston International, a copy of which has not been sent by the Respondent firm.
“During the continuance of this Agreement, the Association shall levy a subscription equally for each Member firm that shall be calculated as a fixed fee for each member mode up to two parts, a standard flat fee not exceeding GBP 2,000 together with a further flat fee not to exceed GBP 1,000 per partner”, the paragraph 2.2 of the said agreement stated.
The Respondent firm did not disclose as to what comprises membership subscription and what services have been received by it from Kreston International or from its member firms in lieu of the subscription. The purpose of this payment has not been disclosed by the Respondent firm. The information has been given for the year 2009 only. Presumably, remittances have been made by the firm in other years as well.
“The Respondent firm has not furnished any data in support of their claim that the money remitted by them to the multinational entity is in respect of above matters only and that the same in no way relates to the volume of business generated through the efforts of the multinational entity and through use of brand name. Moreover, the information has been given for one year only. Such an act on the part of the Respondent firm appears to be in violation of Item (2) of Part I of the First Schedule to the Chartered Accountants Act, 1949”, the BoD observed.
A recent judgment of Hon’ble Supreme Court in CIVIL APPEAL No. 2422/2018 and W.P. NO. 991/2013 was brought to the attention of the Disciplinary Directorate. The Hon’ble Apex Court observed violation of Sections 25 and Section 29 of the Chartered Accountants Act, 1949 and also raised certain questions on the way and manner the fee is being shared by the Indian CA firms who are associates of multinational international entities.
At the time of hearing held in the case on 19th April 2023 the Respondent was present in person before the Board and was put on Oath. The charges alleged against the Respondent were taken as read with his consent. On being asl<ed by the Board as to whether the Respondent pleaded guilty in respect of the charges alleged against him, he replied in negative and made his submissions before the Board.
Thereafter, at the time of hearing held in the case on 20th April 2023 the Respondent was present in person before the Board and submitted an Affidavit. Thus, on consideration of the
documents and submissions on record, the Board concluded the proceedings in the case.
The Respondent on behalf of the firm, responded in all fairness and integrity, the circumstances that prevailed after the demise of Late Mr Angelo Carvalho and as a member continuing in practice in the firm, it was Respondent’s moral and professional duty to respond to such notices/letters.
The Supreme Court had come out with the whole gamut of the issues surrounding Operation of Multinational Network Accounting Firms in its Judgment dated 23rd February 2018. This means, intricacies surrounding operation of multinational network accounting firms came to light as late as in 2018. The Respondent as a member of the Institute with his foresight decided to exit the network way back in 2013, according to his submissions.
Drawing reference to Item (2) of Part I of First Schedule (Professional misconduct in relation to Chartered Accountants in practice) to the Chartered Accountants Act, 1949, the respondent CA. Manjunath C.S. stated that, “no share, commission or brokerage in the fees or profits were ever paid by him or firm. All payments pertained to membership and subscription.”
He was neither a party to the payment nor did he authorize the payments and there was no sharing of fees to M/s Kreston and all payments were towards membership, he added.
The Board of Discipline comprising CA. Rajendra Kumar P (Presiding Officer) and Ms. Dolly Chakrabarty (IAAS, retd.) (Government Nominee) noted that, “the Respondent firm’s association with M/s Kreston International Ltd. was from 17th November 2009 to 17th November 2012.During the said period, apart from the Subscription Fee, the Respondent Firm paid a sole as well as miniscule referral Fee of GBP 12.79 on 25th January 2012 to M/s Kreston International Ltd. which was around 5 % of all gross fees earned as a result of work referred to it. Apart from that there is no evidence to indicate any further payment made to M/s Kreston International Ltd. by the Respondent firm. The said fact has also been affirmed by the Respondent on an Affidavit.”
It was also noted that, “there is only a solitary miniscule payment of Referral Fee by the Respondent Firm to M/s Kreston International Ltd. way back in 2012 and the Agreement between the two had been terminated within 3 years” because of which the Board took a pragmatic view and decided to hold the Respondent Not Guilty in respect of the charge alleged.
Thus, in conclusion, the board held that, “the Respondent is NOT GUILTY of Professional Misconduct falling within the meaning of Item (2) of Part I of the First Schedule to the Chartered Accountants Act, 1949”. Accordingly, the Board passed the order of clausure in the matter.
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