THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA & ORS. versus SHAJI POULOSE & ORS. on 9 December 2020

1. These transfer petitions have been filed by the Institute ofChartered Accountants of India under Article 139-A(1) of the Constitutionof India read with Order XL Rule 1 of the Supreme Court Rules, 2013for transfer of several writ petitions pending in the Kerala High Court,FMadras High Court and Calcutta High Court.

2. Notices were issued in the transfer petitions. A counter affidavithas also been filed by one of the respondents, i.e., respondent No.1.

3. We have heard Shri Arvind Datar, learned senior counsel forthe petitioners and Shri R. Basant, learned senior counsel and otherGcounsel appearing for respondents.

4. In the writ petitions, which are sought to be transferred, writpetitioners have challenged validity of Chapter VI of Guidelines No.1-CA(7)/02/2008 dated 08.08.2008 issued by the Council of petitionerInstitute on the ground that the same is violative of Article 19(1)(g) ofthe Constitution of India. The said Chapter VI of the Guidelines datedH08.08.2008 stipulates that a member of the Institute in practice shall not accept, in a financial year, more than the “specified number of tax auditassignments”, which is at present 60 under Section 44AB of the Income-tax Act, 1961. Further, Section 22 of the Chartered Accountants Act,1949 defines “professional or other misconduct” to include any act oromission provided in any of the Schedules to the Act. Clause (1) of PartII of the Second Schedule to the Act stipulates that a member of theInstitute, whether in practice or not, shall be deemed to be guilty ofprofessional misconduct if he contravenes any of the provisions of theAct or the regulations made thereunder or any guidelines issued by theCouncil of the Institute. As such, if a member of the Institute contravenesthe provisions of the aforesaid Chapter VI of the Guidelines dated08.08.2008, he shall be deemed to be guilty of professional misconductunder the Chartered Accountants Act, 1949.

5. Learned senior counsel submits that in order to avoid multiplicityof proceedings, conflict of decisions and also settle the lawcomprehensively, which is a question of law of general public importance,the Institute of Chartered Accountants of India being the regulatory bodyfor the profession of Chartered Accountants has filed the present transferpetitions for transfer of all the aforesaid writ petitions to this Court forfinal and conclusive determination of the issues involved.

6. Shri R. Basant, learned senior counsel appearing for therespondent and other counsels have submitted that there is no good reasonfor transfer of the writ petitions pending in the different High Courts. Itis submitted that the only reason of transfer of the writ petitions isconvenience of the petitioners, whereas the constitutional protection andright availed by the writ petitioners under Article 226 of the Constitutionwill be taken away, if the transfer is allowed. The provisions of Article139A is an exception to the general rule of law, which can be exercisedonly rarely and in exceptional circumstances. By the impugned Guidelines,the applicants have introduced a cap on the number of audit assignmentsthat can be taken up by each Chartered Accountant throughout the countryirrespective of the nature of the audit, the nature and volume of businessof the clients, the local conditions, local laws, the place of practice ofeach Chartered Accountant etc., all these questions are important whiledeciding the question of breach of Articles 14 and 19(1)(g) of theConstitution. It is necessary that this Court may have the advantage ofthe judgments of different High Courts in different parts of the country.It is submitted that there are earlier occasions where such transfer petitions AB

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Ahave been dismissed. It is further submitted that in event, it is foundnecessary to transfer all writ petitions be transferred to one High Courtinstead of transferring petitions to this Court. It is lastly submitted bylearned counsel for the respondent that in several writ petitions, variousinterim orders are operating in favour of the writ petitioners, which maybe allowed to continue.B7. We have heard the learned counsel for the parties and haveperused the records.

8. Section 44AB of the Income-tax Act, 1961 was inserted in thestatute book by the Finance Act, 1984 and the same came into forceCw.e.f. 01.04.1985. Section 44AB provides that every person carrying onbusiness, if his total sales, turnover or gross receipts exceed Rs.1 crore,and every person carrying on a profession, if his gross receipts exceedRs.50 lakhs, in any previous year, is required to get his accounts of suchprevious year audited by a Chartered Accountant, and obtain before thespecified date, a report of the audit in the prescribed form duly signedDand verified by such Chartered Accountant. The said provisions arepopularly called “compulsory tax audits”. The said Section 44AB hadbeen enacted to prevent evasion of taxes, plug loopholes enabling taxavoidance and also facilitate tax administration, which would ensure thatthe economic system does not result in concentration of wealth to theEcommon detriment. The said section therefore fulfilled the directiveprinciples laid down under Article 39(c) of the Constitution of India.

9. In exercise of the powers conferred by Clause (ii) of Part II ofthe Second Schedule to the Act, the council of the Institute issued anotification bearing No.1-CA(7)/3/88 dated 13.01.1989 specifying thatFa member of the Institute in practice shall be deemed to be guilty ofprofessional misconduct, if he accepts in a financial year, more thanspecified number of tax audit assignments under Section 44AB of theIncome-tax Act, 1961. The specified number being 30 in a financialyear, whether in respect of corporate or non-corporate assesses. OneK. Bhagavatheeswaran, who was a practicing Chartered Accountant,Gfiled Writ Petition No.5925 of 1989 before the Madras High Courtchallenging the legality and validity of the Notification dated 13.01.1989and Writ Petition No.5926 of 1989 challenging the legality and validity ofthe Notification dated 25.05.1987 being violative of Article 19(1)(g) ofthe Constitution. Misc. Petition No.2844 of 1989 - Prem Chand & Ors.Vs. Institute of Chartered Accountants of India & Anr. was filed beforeH

the High Court of Madhya Pradesh at Jabalpur, challenging the validityand legality of the Notification dated 13.01.1989.

10. There were other writ petitions filed in different High Courts.The transfer petitions were filed by Institute of Chartered Accountantsof India being Transfer Petition Nos. 614-615 of 1990, which wererejected by this Court on 03.04.1991 observing that the concerned HighCourts may dispose of the writ petitions at an early date. A Writ PetitionNo.2085 of 1993 – Prakash Mehta Vs. ICAI where validity and legalityof the Notification dated 13.01.1989 was challenged, was dismissed on16.05.2005. Madhya Pradesh High Court vide its judgments dated18.04.1995 in Writ Petition No.2844 of 1989 had held that the Notificationdated 13.01.1989 does not take away the right of a Chartered Accountantto carry on profession, against which judgment, a Special Leave PetitionNo.21988 of 1995 was filed, in which leave was granted but Civil Appealwas dismissed as withdrawn by order dated 04.05.1999. Madras HighCourt vide its judgment dated 13.07.1998 had allowed the Writ PetitionNo.5925 of 1989 – K. Bhagavatheeswaran Vs. Vs. Institute of CharteredAccountants of India and Ors., which judgment was also confirmed bythe Division Bench in a writ appeal.

11. The Chartered Accountants Act, 1949 was amended by theParliament by the Chartered Accountants (Amendment) Act, 2006, afterwhich amendment, the erstwhile Notifications were superseded byGuidelines dated 08.08.2008. After the above Guidelines, this Court byorder dated 01.04.2013 dismissed the Civil Appeal Nos.7208-7209 of2005 having become infructuous, which order was to the following effect:- “In view of the above, we do not propose to hear the appealson merit and the same are dismissed as having become infructuous.However, in case any member is aggrieved of the existingguidelines and files a representation before the appellant, theappellant shall consider it and pass appropriate order, and if anymember is aggrieved thereof whether he has made representationor not, would have right to challenge it before the appropriateforum.”

12. After issuance of the Guidelines dated 08.08.2008, variouswrit petitions have been filed in different High Courts, details of variouswrit petitions as given in the transfer petition are as follows:- AB

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A“(1)W.P. (C) No.25662/2016 titled as ‘Shaji Poulose vs. TheInstitute of Chartered Accountants of India & Ors.’ Pendingbefore the Hon’ble High Court of Judicature of Kerala atErnakulam;

(2) W.P. (C) No.12963/2017 titled as ‘T.R. Mohan Das vs.BThe Institute of Chartered Accountants of India & Ors.’pending before the Hon’ble High Court of Judicature ofKerala at Ernakulam;

(3) W.P. (C) No.19026/2017 titled as ‘E. Hrishikesan vs. TheInstitute of Chartered Accountants of India & Ors.’ pendingCbefore the Hon’ble High Court of Judicature of Kerala atErnakulam;

(4) W.P. Nos.17956 to 17958/2017 titled as ‘Mr. R. Murlidharanvs. The Comptroller & Auditor General of India & Ors.’pending before the Hon’ble High Court of Judicature atMadras; D

(5) W.P. NO.22771/2017 titled as ‘Radha Kanta Das vs. TheInstitute of Chartered Accountants of India & Ors.’ pendingbefore the Hon’ble High Court of Judicature at Calcutta;

(6) W.P. (C) No.12273/2019 titled as ‘C. Suresh Kumar vs.EThe Institute of Chartered Accountants of India & Ors.’pending before the Hon’ble High Court of Judicature ofKerala at Ernakulam;

(7) W.P. No.19162/2019 titled as ‘Ms. V. Gayathri Devi vs.The Institute of Chartered Accountants of India & Ors.’Fpending before the Hon’ble High Court of Judicature atMadras;

(8) W.P. No.18124/2019 titled as ‘Kamalesh Mitra vs. TheInstitute of Chartered Accountants of India & Ors.’ pendingbolero the Hon’ble High Court at Calcutta, and G

(9) W.P. No.18590/2019 titled as ‘Pralay Chakraborty vs. TheInstitute of Chartered Accountants of India & Ors.’ pendingbefore the Hon’ble High Court at Calcutta.

13. In various writ petitions filed in different High Courts apartfrom challenging the guidelines dated 08.08.2008, disciplinary proceedingsH

initiated against the writ petitioner for violation of the guidelines dated08.08.2008 were also challenged. For example, in writ petition No.25662of 2016, Shaji Poulose versus Institute of Chartered Accountant of Indiaand others, the guidelines dated 08.08.2008 as well as communicationdated 28.03.2015, 23.06.2016 and 13.07.2016 were under challenge. TheHigh Court issued notice and stayed the disciplinary proceeding againstthe writ petitioner therein.

14. Learned counsel for the respondents have also relied on thejudgment of this Court in Institute of Chartered Accountants of Indiaversus Southern Petrochemical Industries Corporation Limitedand another, (2007) 15 SCC 649, in which case the Transfer petitionwas filed in this Court by the Institute of Chartered Accountants of Indiafor transferring writ petitions filed in different High Courts challengingConstitutional validity of paragraph 33 of Accounting Standard 22 framedby Institute of Chartered Accountant of India. This Court allowed theTransfer petition and directed all the writ petitions to be heard by CalcuttaHigh Court. Learned counsel for the respondent submits that this Courtmay consider transferring all the writ petitions to any one High Court inthe present matter also.

15. The fact that this Court on 03.04.1991 had dismissed theTransfer Petition Nos.614-615 of 1990 observing that the concernedHigh Courts may dispose of the writ petition on early date cannot betreated any kind of bar in transferring the writ petition in the presentbatch of cases. At the time when the earlier transfer petition wasdismissed, conflicting judgments on subject in issue by different HighCourts had not come. As noted above, with respect to the cap on thenumber of audits, there are conflicting judgments of different High Courtstaking different views on the similar guidelines. Further, this Court’sjudgment in Institute of Chartered Accountants of India versusSouthern Petrochemical Industries Corporation Limited andanother (supra), transferring the writ petition to one High Court i.e.Calcutta High Court does not preclude the consideration of prayer ofthe petitioner for transferring the writ petitions to this Court in presentmatter.

16. The guidelines which are impugned in the High Court andconsequent disciplinary proceedings initiated against various charteredaccountants throughout the country is an issue of public importanceaffecting Chartered Accountants as well as the citizens who have to AB

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Aobtain compulsory tax audits. We are satisfied that to settle the law andto clear the uncertainty among tax professionals and citizens, it isappropriate that this Court may transfer the writ petition, to authoritativelypronounce the law on the subject.

17. We, however, find substance in the submissions made byBlearned counsel for the respondents-writ petitioners that the interim ordersoperating in different writ petitions which are sought to be transferredshould be allowed to be continued till this Court considers the matter andpasses any other order.

18. In result, these Transfer Petitions are allowed. The writ petitionsCmentioned above are withdrawn to this Court.

19. The Registry should transmit this order to the respective HighCourts immediately. The interim orders passed in the writ petitions whichare being transferred to this Court shall continue till any other order ispassed by this Court.

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Ankit GyanTransfer Petitions allowed.

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