Case Law Details
Manubhai And Shah LLP Chartered Accountants Vs Secretary, ICAI (Gujarat High Court)
Conclusion: ICAI had no power to conduct any disciplinary proceedings without written allegations and in the absence of any information as prescribed under Rules 7 of the Rules 2007 the prima facie opinion derived by the authority lacked jurisdiction and had no foundation.
Held: Assessee-chartered accountants was a Limited Liability Partnership (LLP) entered into a Representation Agreement with HLB International Ltd (“HLBI”) for providing common platform to the members of HLBI for sharing relevant knowledge, expertise and resources. ICAI had published Rules of Network and Merger – Demerger amongst the firms registered with ICAI which stipulated that any entity should not be treated as an affiliate merely for the reason that professional knowledge and database was shared or even if some professional assignments were required amongst network firm. In this regard, the network firms were required to file a declaration in Form-D in case of Networks with entities outside India and the same was submitted by assessee. A communication was addressed by High Powered Committee of the ICAI to assessee calling for details of agreement entered into with the HLBI. Assessee-firm replied to the aforesaid communication by providing the details called for and also specifically submitted that assessee and the HLBI did not have any profit-sharing arrangement nor did they share any human resources. Apex Court observed that though the Multinational Network Accounting Firms (MNAF) had got registered partnership firm with Indian partners, the real beneficiaries of transacting the business of Chartered Accountancy remains the Companies of the foreign entities. Apex Court, therefore, issued directions to the ICAI to initiate appropriate and effective proceedings against such MNAF for violating the Code of Conduct and the Act-1949. Apex Court also directed the relevant authorities to take appropriate actions for violation of Foreign and Direct Investment Policies, FEMA regulations and the Act-1949 after completing pending investigations that were initiated against the erring firms. Assessee also disclosed the details of remittances made to the HLBI in the form of membership fees and conference fees. Disciplinary Directorate of the ICAI issued communication dated 05.04.2018 based on some material available on record which was never supplied to assessee-firm and in view of the observations made by the Apex Court, decided to treat the matter as “Information” within the meaning of Rule 7 of the Chartered Accountants (Procedure of Investigations of Professional and other Misconduct and Conduct of Cases) Rules,2007 (for short the “Rules-2007) for violation of Sections 25 and 29 of the Act-1949 wherein assessee-firm was prima facie found guilty of professional misconduct within the meaning of Items (2) and (5) of Part I of the First Schedule and Item (1) of the Part II of the Second Schedule to the Act-1949 and in terms of Clause(b) of subrule (2) of the Rule (9) of the Rules-2007. It was held that on conjoint reading of Rules 3, 5, 7, 8, 9, 10 & 11, the basis on which the disciplinary proceedings were initiated in the facts of the case could not be proceeded further as the very basis for initiation of disciplinary proceedings was missing in form of any written information containing allegations against assessee-firm. Merely on the basis of the report of operation of MNAF in India and analysis of the Representation Agreement between assessee-firm and the HLBI, no disciplinary proceedings could have been initiated under the Rules-2007. Also, in absence of any “Information” as contemplated in Rule 7 of the Rules-2007, prima facie opinion arrived at by the authority was without jurisdiction and on the basis of such prima facie opinion formed without any foundation, the initiation of disciplinary inquiry would also be without any jurisdiction. Therefore, the holding of assessee-firm guilty of professional misconduct under the provisions of the Act-1949 and the decision to proceed further under Chapter-V of the Rules-2007 was without jurisdiction.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. By this petition under Article 226 of Constitution of India, the petitioner has prayed for the following relief(s):
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