ICAI can proceed against entire CA firm for professional misconduct: Delhi High Court

Dismissing a batch of 10 writ petitions filed by partners from firms including BSR and Associates LLP, Price Waterhouse and Lovelock & Lewes, Justice Prathiba M. Singh ruled that the DC is free to proceed against the firm as a whole or its individual members, as deemed appropriate, in response to allegations of professional misconduct.

The main question that arose in the ten writ petitions was whether CA Institute can take action against chartered accountant firms under the CA Act or is the ICAI empowered to only take action against one person, who is identified by the firm as a “member answerable”?

The petitioners had contended that ICAI lacks the authority to proceed against partners who are not specifically named or identified as responsible for the alleged misconduct. Had this argument been accepted by the Delhi High Court, then the ICAI would in effect only have the power to take action against the persons identified as ‘members answerable’ by the firm itself, and not against the firm as a whole.

The latest Delhi HC ruling is significant as post the break out of Satyam scam in January 2009, the CA Institute has been taking a stance that it enjoyed power to proceed against the erring firm. This stance was however challenged by audit firms contending that no explicit provision existed in law to penalise or proceed against the firm.

However, with the amendments introduced in year 2022 to the CA Act, the audit firms too were brought under disciplinary mechanism. The only issue has been that the Corporate Affairs Ministry (MCA) has so far not notified this disciplinary mechanism related provisions.

Noting that CAs are like “gatekeepers” of the financial system, Singh underscored the need for a proper mechanism to ensure that there is no misconduct and to preserve the robustness and the integrity of the profession.