NDLI: S. Sukumar Vs. The Secretary, Institute of Chartered Accountants of India & Ors

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	29 – Chartered Accountants Act 1949: ss.25
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Chartered Accountants Act, 1949 (38 of 1949)
Case(s) Referred	Referred Case 0
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Case Disposed Off
Headnote	Chartered Accountants Act, 1949: ss.25, 29; Allegation that Multi-National Accounting Firms (MAFs) soliciting professional work in international brand name through registered Indian CA firms with the same brand name – Illegal operation by MAFs in India violating s.224 of Companies Act, s.25 and 29 of CA Act, Foreign Direct Investment policy, Reserve Bank of India Act, Foreign Exchange Management Act and the Code of Conduct laid down by ICAI – Writ petition seeking direction to initiate investigation against MAFs and Indian Chartered Accountancy Firms (ICAFs) having arrangement with such MAFs for breach of Code of Professional Conduct under the CA Act and also seeking penal action by way of cancellation of permission granted to them by ICAI – Held: The ICAI does not claim to have conducted complete investigation for want of complete information into the issue whether the Chartered Accountancy firms by receiving remittances from outside India or remitting licence fee/network charges outside India have allowed participation of a company or a foreign entity in the accountancy business in violation of s.25 of the CA Act and whether use of common brand name by the network firms is in violation of reciprocity stipulated under s.29 of the CA Act – The ICAI ought to have taken the matter to logical end, by drawing adverse inference, if information was withheld by the concerned groups – – The Union of India directed the ICAI to constitute an expert panel to update its enquiry and to look into the question whether and to what extent the statutory framework to enforce the letter and spirit of ss.25 and 29 of the CA Act and the statutory Code of Conduct for the CAs requires revisit so as to appropriately discipline and regulate MAFs – The Committee may also consider the need for an appropriate legislation on the pattern of Sarbanes Oxley Act, 2002 and Dodd Frank Wall Street Reform and Consumer Protection Act, 2010 in US or any other appropriate mechanism for oversight of profession of the auditors – Question whether on account of conflict of interest of auditors with consultants, the auditors’ profession may need an exclusive oversight body may be examined – The Committee may examine the Study Group and the Expert Group Reports – It may also consider steps for effective enforcement of the provisions of the FDI policy and the FEMA Regulations. Chartered Accountants Act, 1949: ss.25, 29 – Auditing – Role of auditor – Violation of statutory provisions by MAFs – Need for separate oversight body – Held: Failure of auditors have resulted into scandals in the past – Absence of adequate oversight mechanism results in infringing public interest and rule of law which are part of fundamental rights under Arts.14 and 21 – The issue of separate oversight body for auditing work and updating existing legal framework is necessary – Therefore, auditing profession requires proper oversight and such oversight mechanism needs to be revisited from time to time. Chartered Accountants Act, 1949: ss.25, 29 – Illegal operation by MAFs in India – Lifting of corporate veil – As found by the Expert Committee in its report, there is a compliance by MAFs only in form and not in substance, by having got registered partnership firms with the Indian partners, the real beneficiaries of transacting the business of chartered accountancy remain the companies of the foreign entities – The principle of lifting the corporate veil has to apply when the law is sought to be circumvented – Protection of public interest being of paramount importance, if the corporate personality is to be used to evade obligations imposed by law, the real state of affairs needs to be seen – The same principle applies while overseeing the compliance of applicable ethics of not permitting profit sharing or complying with the ceiling limit for the business which is violated by using the technique of sub contracts for outsourcing – If the premises are same, phone number/fax number is same, brand name is same, the controlling entity is same, human resources are same, it will be difficult to expect that there is full compliance on mere separate registration of a firm – The prohibition under s.25 of the CA Act can be held to be defeated. Administrative law: Expert body – ICAI – Allegation that members of ICAI lending their names to the MAFs who are nonmembers and enabling them to illegally operate in the field of Chartered Accountancy and sharing fees and profits with them – Held: Being an expert body, ICAI should examine the matter further to uphold the law and give a report to concerned authorities for appropriate action – Though the Committee analysed available facts and found that MAFs were involved in violating ethics and law, it took hyper technical view that non availability of complete information and the groups as such were not amenable to its disciplinary jurisdiction in absence of registration – A premier professionals body cannot limit its oversight functions on technicalities and is expected to play proactive role for upholding ethics and values of the profession by going into all connected and incidental issues – Thus, a case is made out for examination not only by ED and further examination by the ICAI but also by the Central Government having regard to the issues of violation of RBI/ FDI policies and the CA Act by secret arrangements – Benami Transactions – Chartered Accountants Act, 1949 – ss.25, 29.
Judge	Hon'ble Mr. Justice Adarsh Kumar Goel
Neutral Citation	2018 INSC 199
Petitioner	S. Sukumar
Respondent	The Secretary, Institute Of Chartered Accountants Of India & Ors
SCR	[2018] 2 S.C.R. 442
Judgement Date	2018-02-23
Case Number	2422

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