Supreme Court clarifies “Other Misconduct” for Chartered Accountants: Council of the Institute of Chartered Accountants of India vs. Shri Gurvinder Singh & Anr. (2018) INSC 987

Introduction

Date of the Judgment: November 16, 2018

Citation: (2018) INSC 987

Judges: R.F. Nariman, J., Navin Sinha, J.

Can a Chartered Accountant be held guilty of “Other Misconduct” under the Chartered Accountants Act, 1949 for actions not directly related to their professional practice? The Supreme Court of India recently addressed this question in a case involving the sale of shares by a Chartered Accountant. The core issue revolves around whether the disciplinary jurisdiction of the Institute of Chartered Accountants of India extends to actions of its members in their personal capacity, if such actions bring disrepute to the profession. This judgment was delivered by a bench comprising Justice R.F. Nariman and Justice Navin Sinha, with the opinion authored by Justice R.F. Nariman.

Case Background

In 1999, Shri Gurvinder Singh, a Chartered Accountant (Respondent No. 1), sold 100 shares. These shares were subsequently transferred to his own name. A complaint was filed on March 16, 2005, against Shri Gurvinder Singh regarding this transaction. Although the matter was initially settled between the complainant and the Chartered Accountant, the Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) proceeded with the case. The Disciplinary Committee found the conduct of the Chartered Accountant to be derogatory and unbecoming, holding him guilty of “Other Misconduct” under Section 22 read with Section 21 of the Chartered Accountants Act, 1949.

Timeline

Course of Proceedings

The Council of the Institute of Chartered Accountants of India recommended to the High Court that the Chartered Accountant be removed from the rolls for six months. However, the High Court, in its judgment dated August 16, 2016, overturned this recommendation. The High Court held that the Chartered Accountant was acting in his individual capacity during the share transaction, which was deemed a purely commercial dealing. The High Court concluded that the Chartered Accountant was not acting in his professional capacity and was not discharging any function related to his practice. Consequently, the High Court did not impose any penalty on the Chartered Accountant.

Legal Framework

The Supreme Court referred to Section 21(3) of the Chartered Accountants Act, 1949, which outlines the procedure for dealing with misconduct by members. It states:

“(3) Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct mentioned in the First Schedule, he shall place the matter before the Board of Discipline and where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct mentioned in the Second Schedule or in both the Schedules, he shall place the matter before the Disciplinary Committee.”

The Court also examined Schedule I, Part IV of the Act, which defines “Other Misconduct” in relation to members of the Institute. Specifically, sub-clause (2) of Part IV states:

“A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if he-

(2) in the opinion of the Council, brings disrepute to the profession or the Institute as a result of his action whether or not related to his professional work.”

Arguments

The appellant, the Council of the Institute of Chartered Accountants of India, argued that the Disciplinary Committee had correctly found the Chartered Accountant guilty of “Other Misconduct” because his actions brought disrepute to the profession. The appellant emphasized that the misconduct need not be related to the professional work of the Chartered Accountant.

The respondent, Shri Gurvinder Singh, contended that his actions were purely personal and commercial, unrelated to his professional capacity as a Chartered Accountant. He argued that since the transaction did not involve his professional work, it should not fall under the purview of the Chartered Accountants Act, 1949.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the Court was whether the High Court had correctly interpreted Section 21(3) of the Chartered Accountants Act, 1949, read with Schedule I, Part IV, specifically sub-clause (2), in concluding that the Chartered Accountant’s actions did not constitute “Other Misconduct.” The sub-issue was whether the actions of a Chartered Accountant in his personal capacity could be considered “Other Misconduct” if they brought disrepute to the profession.

Treatment of the Issue by the Court

Authorities

The Supreme Court primarily relied on the following legal provisions:

✓ Section 21(3) of the Chartered Accountants Act, 1949: This section outlines the procedure for handling cases of misconduct by members of the Institute.

✓ Schedule I, Part IV, sub-clause (2) of the Chartered Accountants Act, 1949: This provision defines “Other Misconduct” as any action by a member that, in the opinion of the Council, brings disrepute to the profession, regardless of whether it is related to their professional work.

Judgment

The Supreme Court held that the High Court had incorrectly interpreted the scope of “Other Misconduct” under the Chartered Accountants Act, 1949. The Court emphasized that the Disciplinary Committee was entitled to find the Chartered Accountant guilty of “Other Misconduct” under Schedule I Part-IV sub-clause (2) if, in the opinion of the Council, such act brings disrepute to the profession whether or not related to his professional work. The Court stated:

“The Disciplinary Committee has, on facts, found the Chartered Accountant guilty of a practice which was not in the Chartered Accountant’s professional capacity. This, it was entitled to do under Schedule I Part-IV sub-clause(2) if, in the opinion of the Council, such act brings disrepute to the profession whether or not related to his professional work.”

The Supreme Court set aside the High Court’s judgment and remanded the matter back to the High Court for reconsideration, leaving all contentions open to both parties.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to uphold the integrity and reputation of the Chartered Accountancy profession. The Court emphasized that actions by a Chartered Accountant, even in their personal capacity, can have repercussions on the profession’s image. The Court’s reasoning was heavily influenced by the interpretation of Schedule I Part-IV sub-clause (2) of the Chartered Accountants Act, 1949, which explicitly states that actions bringing disrepute to the profession, whether or not related to professional work, constitute “Other Misconduct.”

Key Takeaways

✓ Chartered Accountants can be held accountable for actions that bring disrepute to the profession, even if those actions are not related to their professional work.

✓ The Disciplinary Committee of the Institute of Chartered Accountants of India has the authority to take action against members for “Other Misconduct” as defined in Schedule I, Part IV of the Chartered Accountants Act, 1949.

✓ The High Court’s interpretation of “Other Misconduct” was deemed incorrect by the Supreme Court.

✓ This judgment reinforces the importance of maintaining the integrity and reputation of the Chartered Accountancy profession.

Directions

The Supreme Court remanded the matter to the High Court to be decided afresh, leaving all contentions open to both parties.

Development of Law

The ratio decidendi of this case is that “Other Misconduct” under the Chartered Accountants Act, 1949, includes actions that bring disrepute to the profession, regardless of whether they are related to the professional work of the Chartered Accountant. This clarifies the scope of “Other Misconduct” and reinforces the disciplinary jurisdiction of the Institute of Chartered Accountants of India over its members, even for actions in their personal capacity. This judgment sets a precedent that personal actions of a Chartered Accountant can be grounds for disciplinary proceedings if they bring disrepute to the profession.

Conclusion

In conclusion, the Supreme Court’s judgment in Council of the Institute of Chartered Accountants of India vs. Shri Gurvinder Singh & Anr. clarifies that actions by Chartered Accountants, even in their personal capacity, can be considered “Other Misconduct” if they bring disrepute to the profession. The Court set aside the High Court’s judgment and remanded the matter for reconsideration, emphasizing the importance of maintaining the integrity and reputation of the Chartered Accountancy profession.