Chartered Accountants Act does not empower ICAI to decide disputes between partners of CA firm; Kerala High Court upholds CA’s right to practice

The Kerala High Court recently held that Institute of Chartered Accountants of India (ICAI) cannot refuse to recognise the retirement of a Chartered Accountant (CA) from a CA firm thereby preventing him from registering a new firm (Joshi John v. Institute of Chartered Accountants of India)..Chartered Accountants Act, 1949 does not empower the Council of ICAI to adjudicate inter se dispute between members of the Institute or disputes between partner-members of a firm, unless such disputes fall within the ambit of Chapter V of the Act (which deals with misconduct), the Kerala High Court held..The forcible continuance of a CA, as a partner of a firm which is loaded with partnership disputes, has civil consequences and will impinge upon the fundamental right of the concerned CA to practice a profession freely under Article 19(1)(a) of the Constitution, the High Court ruled.“Non-recording of such retirement in the Register of Partnerships (maintained by ICAI), will have serious adverse consequences on a Chartered Accountant. It will offend the fundamental right of the petitioner to practice a profession freely, guaranteed to him under Article 19(1)(g) of the Constitution of India,” the Court held..Importantly, the Court held that dissolution of a partnership firm is governed by the Indian Partnership Act as per which partner may retire by giving notice in writing to all other partners of his intention to retire.The ICAI cannot take a stand that they will not recognise such retirement for the purpose of Regulation 190 of the Chartered Accountant Regulations, the Court made it clear.The judgment was delivered by single-judge Justice N Nagaresh in a petition preferred by a CA, Joshi John..BackgroundJohn, who is a Chartered Accountant registered with the ICAI, was aggrieved by the refusal of the ICAI’s to register his sole proprietorship on its website.This itself was because of the fact that John was earlier a partner at a CA Firm, R Menon and Associates which had two other partners.He was no longer interested in continuing with the partnership and hence sent notice to the other partners, dissolving the partnership firm. One of the partners replied stating that the partnership cannot be so dissolved unilaterally and if the petitioner wanted to exit, he should have resigned, leaving the other Partners to reconstitute and continue with the partnership.Though the petitioner submitted an application to ICAI to record dissolution of the partnership, it was not recorded as the web portal of ICAI insisted on OTP confirmation by other Partners.Thereafter, the petitioner proposed to register “Joshi John & Co.” as a sole proprietorship. Though the petitioner tried to upload Form-18 in respect of the proprietorship, the Form-18 by default showed the petitioner as partner of the dissolved 'R Menon & Associates'. The petitioner sent a series of letters pointing out his difficulties in uploading the Form-18.The ICAI, however, took a stand that in order to dissolve the firm 'R Menon & Associates', the consent of other two partners is required. It was their contention that when an activity of dissolution of a partnership Firm is pending, another activity of registration of a proprietary firm cannot be initiated.The led to the petition before the High Court..ICAI’s argumentThe ICAI placed reliance on Regulation 190(1) of the Chartered Accountants Regulations, 1988, as per which a CA shall, before commencing practice in a trade name or firm name, apply to the Council of ICAI to use a trade or firm name.As per Regulation 190(7), every time there is a change in the particulars of office or firm, the member or the firm should communicate it to the Council.It was pointed out that the Council of ICAI in its 165th meeting held in November, 1993 had decided that in the case of retirement of partner(s), if other partner(s) do not confirm the retirement within the specified period, such retirement would not be noted in the records of the partnership. However, the fact that there is a dispute among the partners of a firm would be intimated to the CAG/RBI while furnishing the particulars of the Firm for empanelment of Bank/C&AG audit.It was further submitted that in view of Section 27(1) of the Chartered Accountants Act, 1949, where a CA in practice or a firm, has more than one office in India, each one of such offices shall be in the separate charge of a member of the Institute. In the light of Section 27(1) of the Act and of the Regulation 187(1), the petitioner cannot register his sole proprietorship in the self-service portal at a different address unless he is relieved as in charge of the head office of the firm..IssueThe Court considered the following legal questionCan ICAI force a Chartered Accountant to continue in a partnership of Chartered Accountants even after dissolution of the partnership firm or retirement of the CA, by retaining such unwilling partner in the partnership firm, in the register of partnerships maintained by ICAI..RulingThe Court examined the Scheme of the Chartered Accountants Act, 1949 which provides for Registration of Members.Two important provisions were highlighted in this regard.Section 4 of the Act lays down eligibility of persons to have their names entered in the register and Section 19 provides for maintenance of Register of Members.Sections 4 read with Section 19, contemplates maintenance of only a Register of Members, the Court noted.“Section 19 does not require maintenance of a register of firms, whether proprietary or partnership of Chartered Accountants. However, under Section 19(2)(e), the register shall include any other particulars 'which may be prescribed'. The term “prescribed” as per Section 2(1)(f), means prescribed by regulations made under the Act,” it was observed.The Court also noted that though the provisions of the Act, 1949 do not make provision for registration of partnerships of Chartered Accountants, the Act recognises existence of partnerships of Chartered Accountants. By an amendment to Section 27 brought about by the Act 15 of 1959, it was mandated that where a Firm of Chartered Accountants in practice has more than one office in India, each one of such offices shall be in the separate charge of a member of the Institute.The Court then alluded to the most important provision - Regulation 190 of CA Regulations which deals with Register of Offices and Firms.Regulation 190 is intended only to regulate the Trade name or Firm name of Chartered Accountants. The Regulation 190(1) mandates approval of Firm name and the Regulation 190(7) mandates communication to the Council, of changes in the particulars of a Firm, the Court said..Thus, it is clear from the scheme and provisions of the Act, 1949 that the Act is not intended to register the partnerships of Chartered Accountants or regulate inter se relations or disputes between partners, the Court opined.Regulation 190 is intended only to regulate the trade name or firm name of Chartered Accountants. Regulation 190(1) mandates approval of firm name and Regulation 190(7) mandates communication to the Council, of changes in the particulars of a firm.The Registration and regulation of a partnership Firm of Chartered Accountants, like any other partnerships therefore are to be governed by the Indian Partnership Act, 1932, the Court made it clear.“Section 43 of the Indian Partnership Act, 1932 provides that when a partnership is 'at will', the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The Firm is dissolved as from the date mentioned in the notice and if no date is so mentioned, as from the date of communication of the notice,” it was stated..Applying it to the instant case, the Court held that the 'M/s. R. Menon and Associates' being a partnership at will should ordinarily be treated as dissolved from the date in which the petitioner sent the dissolution notice.The Court also adverted to Section 32 of the Indian Partnership Act.Section 32(1)(c) of the Indian Partnership Act, 1932 provides that a partner may retire, where the partnership is at will, by giving notice in writing to all other partners of his intention to retire.The petitioner had given notice of his retirement to other two partners and in view of Section 32(1)(c), the petitioner stands retired from the partnership namely 'R Menon and Associates, the Court concluded. “The legal position under the Indian Partnership Act being so, the ICAI cannot take a stand that they will not recognise such retirement for the purpose of Regulation 190. As stated earlier, the Regulation 190 is intended for the limited purpose of approving the trade name or firm name of a Chartered Accountant or a firm and for maintaining Register of Offices and Firms," the judgment said..Moreover, the forcible continuance of the petitioner, as a partner of a firm which is loaded with partnership disputes, has civil consequences also on the petitioner. "As per the general decisions taken by the Council, the Council will not only record in their registers that the partnership is under dispute, but will communicate the said fact CAG and Reserve Bank of India, while furnishing the particulars of a firm for empanelment of Bank/CAG audits. Such recording and communication will indeed affect the chances of the petitioner to get audit assignments," the judgment stated. .The decision of the ICAI to not recognise and record the retirement of the petitioner from 'M/s. R. Menon and Associates' will therefore cause unnecessary and unwarranted hindrance to the professional advancement of the petitioner, the single-judge ruled. "It will offend the fundamental right of the petitioner to practice a profession freely, guaranteed to him under Article 19(1)(g) of the Constitution of India. The petitioner is therefore entitled to reliefs, in this writ petition," the judge concluded. .[Read Judgment]