S. SUKUMAR versus THE SECRETARY, INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA & ORS.

Citation: [2018] 2 S.C.R. 442 · Decided: 23-02-2018 · Supreme Court of India · Bench: ADARSH KUMAR GOEL · Disposal: Disposed off

Judgment (excerpt)

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SUPREME COURT REPORTS
[2018]  2 S.C.R.
S. SUKUMAR
v.
THE SECRETARY, INSTITUTE OF CHARTERED
ACCOUNTANTS OF INDIA & ORS.
(Civil Appeal No. 2422 of 2018 etc.)
FEBRUARY 23, 2018
[ADARSH KUMAR GOEL AND UDAY UMESH LALIT, JJ.]
Chartered Accountants Act, 1949: ss.25, 29 – Allegation that
Multi-National Accounting Firms (MAFs) soliciting professional
work in international brand name through registered Indian CA
firms with the same brand name – Illegal operation by MAFs in
India violating s.224 of Companies Act, s.25 and 29 of CA Act,
Foreign Direct Investment policy, Reserve Bank of India Act,  Foreign
Exchange Management Act and the Code of Conduct laid down by
ICAI – Writ petition seeking direction to initiate investigation against
MAFs and Indian Chartered Accountancy Firms (ICAFs) having
arrangement with such MAFs for breach of Code of Professional
Conduct under the CA Act and also seeking penal action by way of
cancellation of permission granted to them by ICAI –  Held: The
ICAI does not claim to have conducted complete investigation for
want of complete information into the issue whether the Chartered
Accountancy firms by receiving remittances from outside India or
remitting licence fee/network charges outside India have allowed
participation of a company or a foreign entity in the accountancy
business in violation of s.25 of the CA Act and whether use of
common brand name by the network firms is in violation of
reciprocity stipulated under s.29 of the CA Act – The ICAI ought to
have taken the matter to logical end, by drawing adverse inference,
if information was withheld by the concerned groups – –   The
Union of India directed the ICAI to constitute an expert panel to
update its enquiry and to look into the question whether and to
what extent the statutory framework to enforce the letter and spirit
of ss.25 and 29 of the CA Act and the statutory Code of Conduct
for the CAs requires revisit so as to appropriately discipline and
regulate MAFs – The Committee may also consider the need for an
appropriate legislation on the pattern of Sarbanes Oxley Act, 2002
and Dodd Frank Wall Street Reform and Consumer Protection Act,
[2018] 2  S.C.R. 442
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2010 in US or any other appropriate mechanism for oversight of
profession of the auditors – Question whether on account of conflict
of interest of auditors with consultants, the auditors’ profession may
need an exclusive oversight body may be examined – The Committee
may examine the Study Group and the Expert Group Reports – It
may also consider steps for effective enforcement of the provisions
of the FDI policy and the FEMA Regulations.
Chartered Accountants Act, 1949: ss.25, 29 – Auditing – Role
of auditor – Violation of statutory provisions by MAFs – Need for
separate oversight body – Held: Failure of  auditors have resulted
into scandals in the past – Absence of adequate oversight mechanism
results in infringing public interest and rule of law which are part
of fundamental rights under Arts.14 and 21 – The issue of separate
oversight body for auditing work and updating existing legal
framework is necessary – Therefore, auditing profession requires
proper oversight and such oversight mechanism needs to be revisited
from time to time.
Chartered Accountants Act, 1949: ss.25, 29 – Illegal
operation by MAFs in India – Lifting of corporate veil – As found
by the Expert Committee in its report, there is a compliance by MAFs
only in form and not in substance, by having got registered
partnership firms with the Indian partners, the real beneficiaries of
transacting the business of chartered accountancy remain the
companies of the foreign entities – The principle of lifting the
corporate veil has to apply when the law is sought to be circumvented
– Protection of public interest being of paramount importance, if
the corporate personality is to be used to evade obligations imposed
by law, the real state of affairs needs to be seen – The same principle
applies while overseeing the compliance of applicable ethics of not
permitting profit sharing or complying with the ceiling limit for the
business which is violated by using the technique of sub contracts
for outsourcing – If the premises are same, phone number/fax number
is same, brand name is same, the controlling entity is same, human
resources are same, it will be difficult to expect that there is full
compliance on mere separate registration of a firm – The prohibition
under s.25 of the CA Act ca

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