Professional misconduct, as defined by the Institute of Chartered Accountants of India (ICAI), refers to any act or omission by a chartered accountant in connection with his professional duties that violates the established standards, guidelines, or ethical principles set forth by the ICAI. The ICAI, being the regulatory body for chartered accountants in India, outlines specific provisions related to professional misconduct in the Chartered Accountants Act, 1949.
As per Section 22 of the Chartered Accountants Act, 1949 “professional or other misconduct” shall include any act or profession omission as in any of the schedule but nothing in this Section shall be construed to limit in any way powers conferred to enquire into conduct of any Member of ICAI under any circumstances.
Since the schedules of Chartered Accountants Act, 1949 mentioned in Section 22 which becomes the basis for particular professional or any other misconduct. We will refer to I Schedule- Part 1, Part 2, Part 3 & Part 4 :-
Schedule-I consist of Part 1, Part 2, Part 3 & Part 4 –
Thus, there are a total 19 deemed misconduct under Schedule I.
Schedule II
According to the Delhi bench of National Company Law Appellate Tribunal (NCLAT), NFRA has been empowered to investigate either suo-moto or on a reference made to it by Central Government to investigate into the matters of professional or other misconduct committee by any member or firm of CA’s registered under the Chartered Accountants Act.
Provison to this sub Section 132(4) provides that no other institute or body shall initiate or continue any proceeding in such matters of misconduct where NFRA has initiated an investigation under this Section.
Chapter V of Chartered Accountants Act, on misconduct consists of two sections, namely, Section 21 and Section 22. Section 21 describes the disciplinary directorate and empowers the Council of ICAI and to establish a disciplinary directorate headed by Director (Discipline).
According Section 21(3), where the Director Discipline is of opinion that Member is guilty of any professional or other misconduct mentioned in Schedule I , he is duty bound to place the matter before the “Board of Discipline” and where Director Discipline is of opinion that member is guilty of professional or other misconduct mentioned in II Schedule or both Schedules, Director Disciplinary is required to place matter before the “Disciplinary Committee”.
Powers of Board of Discipline
Board of Discipline in terms of Section 21 A of the Chartered Accountants Act have been given the following three powers:-
a) Reprimand the member;
b) Remove the name of the member from the Register up to a period of three months,
c) Impose such a fine as it may think fit, which may extend to rupees one lakh.
Powers of Disciplinary Committee
The Disciplinary Committee of ICAI which is headed by President or Vice President of Council as presiding officer, generally deals in serious offences as stipulated in Schedule II or both schedules. The Disciplinary Committee has been empowered to take following action after following due process :-
a) Reprimand the member;
b) Remove the name of the member from the Register permanently or for such period, as it thinks fit;
c) Impose such a fine as it may think fit, which may extend to rupees five lakhs.
In 2006, the Chartered Accountants Act, 1949 underwent changes in how it dealt with auditor misconduct. Before this amendment, the ICAI Council managed disciplinary proceedings, deciding whether a case warranted referral to the Disciplinary Committee. If the Committee’s report confirmed misconduct, the Council could remove the Chartered Accountant’s name from the register for up to five years, as per Section 21(4). Serious offenses under Schedule II required Council to refer cases to the High Court under Section 21(5).
After the 2006 changes to the Chartered Accountants Act, 1949, the High Court is no longer involved in disciplinary proceedings for Chartered Accountants. This remained the practice until the establishment of NFRA in 2018. Now, NFRA has the authority to investigate matters under Section 132 of the Companies Act, 2013.
The appellate tribunal had stated that it’s important to understand that NFRA doesn’t have the same distinctions between Schedule I and Schedule II as seen in Sections 21 and 22 of the Chartered Accountants Act, 1949. NFRA can investigate matters covered under Section 22, which automatically includes both Schedule I and Schedule II of the Chartered Accountants Act, 1949. This means that NFRA’s powers are broader and more extensive compared to those of ICAI, as discussed earlier.
In summary, Schedule I misconduct is generally less severe, involving patterns of practice, remuneration, or work solicitation. On the contrary, Schedule II of the Chartered Accountants Act, 1949, deals with more serious offences, such as disclosing confidential information, negligence in examining financial statements, and failure to report material misstatements. Professional misconduct is outlined in Section 22 of the Chartered Accountants Act, 1949, in conjunction with Schedules I and II.
Thus, it was observed that the professional misconduct continues to be defined under Section 22 of the Chartered Accountants Act, 1949 r/w Schedule I and Schedule II of Chartered Accountants Act, 1949.
The Delhi bench of NCLAT in the case of Harish Kumar T.K v. NFRA observed that thereis no bar on ICAI or NFRA to restrict investigation of professional misconduct covered only under Section 22 of the Chartered Accountants Act, 1949. The powers are far more and wider and any conduct which makes an auditor unbecoming of such profession will make him liable for suitable investigation and if found guilty may face punishment as per law.
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