CA Rules| Disciplinary Committee Can Proceed Against Entire Firm If It Deems No Single Individual Can Be Solely Responsible: Delhi HC

The Delhi High Court has observed that as per Rule 8 of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules 2007, the Disciplinary Committee can proceed against the entire firm if it deems that no single individual can be solely responsible.

In that context, the Bench of Justice Pratibha M Singh observed that, "The Court has today interpreted Rule 8 of the Rules and has held that when the DC is of the opinion that any one individual cannot be saddled with the responsibility, considering the nature of the allegations, the Disciplinary Committee can proceed against the firm as whole."

Ten individuals filed pleas against the ICAI in response to disciplinary proceedings. The petitioners argued that according to the Act and the Rules, no action could be taken against a firm. They contended that under Rule 8, once a responsible member is identified, no further action should be taken against the firm or other members.

The High Court observed that, "The profession of Chartered Accountancy is one which forms an important and critical part of the economy of a country. CAs are like gatekeepers of the financial system, who can stop any misdemeanour in accounting by conducting proper audits and continuous supervision of their clients. CAs can also properly advise both on proper maintenance of accounts as also management and planning. Any omission or laxity in discharge of duties could lead to large scale losses and financial frauds. CAs owe a responsibility not just to their clients but also to ensure, in the process of rendering their services, that there is compliance of law. The said profession also owes a duty to the country as also to the economy as a whole. Thus, regulation of the profession of CAs by establishment of the Regulatory body like the ICAI is an important feature of the said profession itself."

The Court emphasized the necessity of a proper mechanism to prevent misconduct and preserve the integrity of the profession. It argued that allowing firms to blame a single individual for misconduct spanning decades would undermine the purpose of the Act and Rules. The Court highlighted the need for strengthening the ICAI through the quick notification of amendments passed by the Amendment Act of 2022 and conducting a consultation to establish a framework for multinational accounting firms operating in India.

The Court noted that the petitioners initially filed applications to withdraw their petitions but later withdrew these applications, asserting that no further inquiry could be held against them since final findings had been rendered. Therefore, the applications for withdrawal were dismissed as withdrawn.

The petitioners and their firms were directed to participate in the proceedings, respond to the notices issued by the ICAI, and appear before the DC. The DC was instructed to continue the inquiry after giving the petitioners and their firms a hearing.

The Court dismissed the writ petitions with costs of Rs. 1 lakh each, to be paid to the Delhi High Court Bar Clerk Association. The judgment also included instructions for the Secretary, Ministry of Corporate Affairs, Government of India to take appropriate action in line with the Court's observations.

The applications were disposed of accordingly.

Cause Title: Harinderjit Singh vs Disciplinary Committee Bench III (Neutral Citation: 2024: DHC: 4917)

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