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Restoring faith in accounting profession
January, 16th 2009

The article titled Corporate scandals: ensuring fast deterrent action by Mr B. S. Raghavan (Business Line, January 9) makes interesting reading, and his forethought in cautioning, through a series of articles, against financial frauds likely to occur in India from the inception of this decade is commendable. Although the article has many valuable suggestions that need to be acted upon, the one relating to reforms in the ICAI disciplinary me chanism has been largely accomplished.

It was during 2002 that a special committee (later known as the Manoharan Committee) was constituted with me as the convenor to study the various provisions of The Chartered Accountants Act, 1949, particularly the provisions relating to the disciplinary mechanism and make recommendations.

The Committee made a detailed study of not only the Indian scene, but also the law prevalent in many other countries and made recommendations that were considered by the Council and forwarded to the Ministry of Corporate Affairs.

The Ministry of Corporate Affairs pro-actively evaluated those recommendations and moved, in Parliament, the Chartered Accountants (Amendment) Bill. The Bill was passed and received the assent of the President on March 22, 2006 bringing about many reforms such as those related to multi-disciplinary partnership firms and drastic changes in the procedure relating to adjudication of disciplinary cases.
Shortcomings of old procedure

However, in order to comprehend the efficacy of the new procedure, one needs to know the gist of the procedure as per the erstwhile law, applicable to cases registered up to November 17, 2006. Under the old law, the Council had to satisfy that a member is prima facie guilty and only then could the matter be referred to the Disciplinary Committee.

There was no differentiation made in procedure between a technical offence, such as non-communication with the previous auditor before accepting an audit, falling within the First Schedule, and a grave offence, such as gross negligence in carrying out an attest function, falling under the Second Schedule.

All cases were referred to a single Disciplinary Committee, empowered only to enquire and give its finding whether the respondent was guilty or not. The Disciplinary Committee was not conferred with the power to prescribe any punishment to a member found guilty of any offence.

On receiving the report from the Disciplinary Committee, the Council had to consider the report and again hear the parties concerned before deciding to accept the report or refer the matter back to the Disciplinary Committee for further enquiry.
Disciplinary committee

If the Council accepts the report of the Disciplinary Committee, wherein the member is held guilty, another opportunity to be heard must be given to the respondent by the Council before awarding punishment.

For offences specified in the First Schedule, if the member ought to be removed for a period exceeding five years or permanently, or where the offence committed by the member was covered by the Second Schedule, then the Council should refer the case to the High Court, with its recommendations.

It was felt that if the involvement of the Council, comprising 40 members, including eight Government nominees, could be obviated by the Director (Discipline), who functions on a daily basis and the Disciplinary Committee (five members), which could meet frequently, the disciplinary mechanism could be faster.

Given the fact that the Council meets only 8-10 times in a year, and as it has many other items of agenda to transact including policy matters and formulation of technical standards, the best way to expedite disposal of disciplinary cases was to eliminate the role of the Council.

Consequently, the amended law provides that the Director (Discipline), heading the Disciplinary Directorate, on receipt of any information or Complaint, shall arrive at a prima facie opinion on the occurrence of alleged misconduct.

If the offence falls within the ambit of the First Schedule (mostly technical omissions or commissions), the matter shall be placed before the Board of Discipline and if it falls in the Second Schedule (serious offences), or in both the schedules, the matter would go to the Disciplinary Committee. The Disciplinary Board as well as the Disciplinary Committee have powers not merely to enquire and reach a finding but also to pronounce the punishments at one go.

In respect of the First Schedule offences, the punishment can range from reprimanding to removal from membership up to a period of three months, with a fine up to Rs 1 lakh. In respect of the Second Schedule offences, the name of the member can be removed permanently and a fine up to Rs 5 lakh can be imposed.

An aggrieved party, either the member or the Director (Discipline), can move an appeal before an Appellate Authority constituted under Section 22A of the Chartered Accountants Act, exclusively for disposing of such appeals.
Fast track

As neither the Council of the ICAI nor the High Court is involved at all in the new procedure laid down, any action initiated against members can be disposed of in fast-track mode, which would restore the faith and confidence of the public in the profession.

Similarly, a member who is accused of the offence but ultimately held not guilty will also be relived of needless mental agony by avoiding the prolonged procedures. The President of the ICAI recently constituted a six-member High Powered Committee, headed by the Vice-President, to probe into the Satyam fiasco and submit a report to the Council by February 11, 2009.

The Committee, besides making other recommendations, would do well to suggest to the Council to invoke the power to constitute an additional and exclusive Disciplinary Committee by virtue of the proviso to Section 21B(1). Such a move adopted at the right time by the Council would enhance the image of the ICAI in the public perception as the guardian of ethical values enshrined in the law regulating the profession.

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