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April 30, 2021

High Court of Kerala has issued ruling against ICAI with regards CA’s right to practice

by Mahesh Mara in Legal Court Judgement

High Court of Kerala has issued ruling against ICAI with regards CA’s right to practice

Fact and Issue of the case

The petitioner, who is a Chartered Accountant registered with the 1st respondent-Institute of Chartered Accountants of India, is aggrieved by the refusal of the 1st respondent to register his sole proprietorship on its website. The petitioner sought to command the respondent to record the dissolution of the firm ‘R Menon and Associates’ in view of Section 43 of the Partnership Act as well and to delete the petitioner’s name from the records pertaining to the said firm in all capacities whatsoever with effect from 21 November 2019. Certain other incidental reliefs were also sought.

The petitioner states that Anitha C. Shenoy (respondents 2) and Girija P.K (respondents 3) and the petitioner were Partners of a Firm “R. Menon & Associates”, having office at Ernakulam. The partnership was constituted as per Partnership Agreement dated 30.06.2015. The duration of the partnership was ‘at will’. The 1st respondent issued Registration Certificate dated 15.02.2018 to the partnership. The 2nd respondent, at the same time, was practising as Sole Practitioner also. According to the petitioner, he was the Working Partner and respondents 2 and 3 were residing at Kozhikode and Dubai and were not taking active role in running the partnership. The husband of the 3rd respondent, as landlord, issued notice to the petitioner to vacate the partnership office premises. A Rent Control Petition was also filed. The Firm surrendered the premises to the said landlord, as both the other Partners gave consent to vacate the premises.

The petitioner, who had invested in the premises, stood to lose his investments due to vacating the premises. He was no longer interested in continuing with the partnership and hence sent notice to respondents 2 and 3, dissolving the partnership with effect from 20.11.2019. The 3rd respondent, however, sent reply stating that the partnership cannot be so dissolved unilaterally. The 3rd respondent stated that 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 the 1st respondent-Institute to record dissolution of the Partnership, it has not been recorded as the web portal of the 1st respondent-Institute insisted on OTP confirmation by other Partners. The petitioner desired to continue as Chartered Accountant at a different address, as a partnership in the name and style “Joshi John & Associates”. On his application to register the new Firm, the 1st respondent noted in the web portal that since the petitioner is in charge of another partnership at different address, he has to change his Head Office address. 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 is showing 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 1st respondent is taking a stand that in order to dissolve the Firm ‘R. Menon & Associates’, the consent of other two Partners is required. The stand of the 1st respondent seems to be that when an activity of dissolution of a Partnership Firm is pending, another activity of registration of a Proprietary Firm cannot be initiated. As the issue involved is one affecting the fundamental right of the petitioner to pursue a profession.

Observation of the court

It has to be noticed that the Chartered Accountants Act does not empower the Council to adjudicate inter se dispute between members of the Institute or disputes between partner-members of a Firm, unless those disputes fall within the ambit of Chapter V of the Act, 1949. Though the decision of the Council to evolve a mechanism of Alternate Dispute Resolution (ADR) to resolve inter se disputes between their members/Firms is laudable, availability of such ADR mechanism cannot be a reason not to record the current status of a Chartered Accountant in a Firm, in the registers maintained under Regulation 190. Non-recording of such retirement in the Registers, will have serious adverse consequences on a Chartered Accountant. It can be seen from the facts of this case, in spite of retirement from ‘M/s. R. Kumar and Associates’, the petitioner is shown as the Chartered Accountant having charge of the said Firm. The petitioner has now started a proprietary firm ‘Joshi John & Co.’, of which also he is in charge. As per Section 27 of the Act, 1949 where a Chartered Accountant has more than one office in India, each one of such offices shall be in the separate charge of a member. Due to the partnership dispute, the petitioner is forced to violate Section 27 of the Act, 1949. 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 C & A.G. and Reserve Bank of India, while furnishing the particulars of a Firm for empanelment of Bank/C&AG audits. Such recording and communication will indeed affect the chances of the petitioner to get audit assignments.

The decision of the 1st respondent-Institute not to recognise and record the retirement of the petitioner from ‘M/s. R. Kumar and Associates’ will therefore cause unnecessary and unwarranted hindrance to the professional advancement of the petitioner. 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.

Conclusion

The writ petition is therefore allowed. The 1st respondent is directed to recognise the retirement of the petitioner from the Firm ‘M/s. R. Kumar and Associates’. The 1st respondent shall remove the name of the petitioner from the list of partners of ‘M/s. R. Kumar and Associates maintained under Regulation 190 of the Chartered Accountants Regulations, 1988. The 1st respondent may permit the respondents 2 and 3 to re-constitute the Firm, if they so desire and are eligible. These directions are without prejudice to the right of the petitioner and respondents 2 and 3 to get their claims in respect of the partnership, adjudicated through appropriate legal proceedings.

Read order of the Kerala High Court from below

High-Court-of-Kerala-has-issued-ruling-against-ICAI-with-regards-CAs-right-to-practice

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