Disputes between CA Firms partners not governed by CA Act but by Partnership Act: Kerala HC

Disputes between the partners of a chartered accountants firm are not governed by the Chartered Accountants Act but by the Indian Partnership Act – High Court of Kerala

The Hon’ble High Court of Kerala in Joshy John Vs. the Institute of Chartered Accountants of India (WP [C] No. 5833 of 2020 dated: 26.04.2021) has held that disputes between the partners of a chartered accountants firm are not governed by the Chartered Accountants Act, 1949 (CA Act for short) but by the Indian Partnership Act. The petitioner, herein is a Chartered Accountant (CA for short) registered with the Institute of Chartered Accountants of India (ICAI for short) and applied for sole proprietorship on its website but ICAI has refused to do so. Aggrieved thereby, the petitioner approached the Hon’ble High Court of Kerala through a writ petition under article 226 of the Constitution of India.

Facts of the case

• The petitioner along with the 2nd and the 3rd respondents in the writ petition were partners of a CA firm namely “R. Menon & Associates” in Ernakulam, started in 2015. The duration of the said partnership was at “will” and ICAI has issued registration certificate in 2018. At the same time a partner, 2nd respondent herein was practicing as a practicing as Sole Practitioner also. According to the petitioner, he was the only working partner and the other two partners were not active and one was residing in Kozhikode and the other was in Dubai. Meanwhile, husband of the 3rd respondent as landlord, issued notice to the petitioner to vacate the partnership office premises. Thereon, the Firm surrendered the premises to the said landlord, as both the other partners gave consent to vacate the premises. The petitioner, who had invested in the premises, stood to lose his investments due to vacating the premises.
• In fact, he was no longer interested in continuing with the partnership and hence sent notice to the other two partners, dissolving the partnership with effect from 20.11.2019. The 3rd respondent, however, sent a reply stating that the partnership cannot be so dissolved unilaterally. In the said reply, the 3rd respondent stated that if the petitioner wanted to exit, he should have resigned, leaving the other partners to reconstitute and continue with the same partnership.
• Though the petitioner submitted an application to the ICAI (1st respondent herein) to record dissolution of the partnership, it has not been recorded as the web portal of the ICAI insisted on OTP confirmation by other partners. The petitioner desired to continue as CA at a different address, as a partnership in the name and style “Joshi John & Associates”. On his application to register the new Firm, the 1st respondent ICAI noted in the web portal that since the petitioner is in charge of another partnership at different address, he has to change his Head Office address.
• Thereafter, the petitioner proposed to register “Joshi John & Co.” as a sole proprietorship. Though the petitioner tried to upload Form-18 in respect of the proprietorship, the Form-18 by default is showing the petitioner as partner of the dissolved “R. Menon & Associates”. The petitioner sent a series of letters pointing out his difficulties in uploading the Form-18. The 1st respondent is taking a stand that in order to dissolve the Firm ‘R. Menon & Associates’, the consent of other two partners is required. The stand of the 1st respondent seems to be that when an activity of dissolution of a Partnership Firm is pending, another activity of registration of a Proprietary Firm cannot be initiated.
• As the issue involved is one affecting the fundamental right of the petitioner to pursue a profession, the Court passed an interim order on 20.10.2020 directing the 1st respondent to upload the Form-18 pertaining to the petitioner’s proprietary concern. The petitioner would submit that though the Form-18 was uploaded pursuant to the interim order of the Court, since the name of the dissolved Firm still exists in the records of the 1st respondent ICAI, the petitioner is denied the right to apply for Multi Purpose Empanelment to obtain audit assignments of Banks and Public Sector Undertakings.
• When the writ petition was heard on 26.02.2021, the counsel for respondents, 2 and 3 submitted that their objection is to the unilateral dissolution of the Firm by the petitioner and if the petitioner makes an application for retirement from Partnership, the respondents 2 and 3 will give their endorsement, without prejudice to the right of the parties for resorting to adjudication process for resolution of partnership claims. Respondents 2 and 3 undertook not to object to the retirement of the petitioner from “R. Menon & Associates”. However, on 30.03.2021, when the writ petition was heard, respondents 2 and 3 submitted that retirement of the petitioner can be permitted only after settlement of partnership accounts.
• Meanwhile, the 1st respondent, ICAI filed a statement resisting the writ petition. According to the ICAI, as per Regulation 190(1) of the Chartered Accountants Regulations, 1988, a CA shall, before commencing practice in a Trade name or Firm name, apply to the Council to use a Trade or Firm name. As per Regulation 190(7), every time there is a change in the particulars of office or Firm, the Member or the Firm, as the case may be, shall communicate it to the Council. The Council of the ICAI in its 165th meeting held on 24.11.1993 decided that in the case of retirement of partner(s), if other partner(s) do not confirm the retirement within the specified period, such retirement would not be noted in the records of the partnership. However, the fact that there is a dispute among the partners of a Firm would be intimated to the C & AG/RBI while furnishing the particulars of the Firm for empanelment of Bank/C&AG audit.
• The ICAI further submitted that in view of the decision of the Council at its 300th meeting held on 24th to 26th November, 2010, where a Firm is ‘at will’, retirement or reconstitution cannot be permitted if partners object to it on being put to notice. The ICAI further stated that in view of Section 27(1) of the CA Act, 1949, where a CA in practice or a Firm, has more than one office in India, each one of such offices shall be in the separate charge of a member of the Institute. In the light of Section 27(1) of the Act and of the Regulation 187(1), the petitioner cannot register his sole proprietorship in the self-service portal at a different address unless he is relieved as in charge of the Head Office of the Firm, contended the 1st respondent ICAI.
• Respondents 2 and 3 filed counter affidavit and strongly opposed the writ petition. The respondents stated that after surrender of the leased premises to the husband of the 3rd respondent, the petitioner sent notice of dissolution. Respondents 2 and 3 informed the petitioner that he may retire and they will reconstitute the Firm and will continue with the Partnership. They also suggested that before dissolution, the Firm needs to be valued on the basis of existing gross billing, or multiple of Net Profits or even on the basis of sharing of the clientele. The respondents 2 and 3 contended that the petitioner, instead of dissolving the partnership in a fair manner, has appropriated all the works, business and clientele without settling the accounts and apportioning the business in a reasonable manner.

Issues involved