A Single Bench of the Delhi High Court remarked that there’s a need for stricter rules against Chartered Accountant ( CA ) firms to improve accountability and transparency.
The court said the Institute of Chartered Accountants of India ( ICAI ) needs to be strengthened by implementing changes to the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, which was passed in 2022.
The amendments allow disciplinary action to be taken against CA firms, not just individual CAs.
The High Court pointed out that under current rules, a CA firm can designate a single person to be responsible for any allegations of misconduct.
However, the bench stated that, this would not be appropriate for situations involving complex arrangements between international firms.
The court also stated that the ICAI’s Disciplinary Committee can hold the entire firm responsible if they believe a single person is not being truthful about the allegations.
âThus, 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 âmember answerableâ. The firm as a whole has to be held responsible if found culpable, in such circumstances, failing which the Act would be rendered toothlessâ, the bench noted.
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.
Justice Prathiba M Singh made these comments while dismissing appeals filed by individuals against disciplinary proceedings by the ICAI.
The High Court ordered the individuals to pay a penalty. 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 allowed the individuals to respond to the ICAI’s notices and said a hearing date will be set.
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