Supreme Court upholds the operation of the ICAI Rule
The Supreme Court on Friday May 17, 2024 upheld a rule issued by the Institute of Chartered Accountants of India (ICAI) that limits Chartered Accountants to a maximum of 60 tax audit assignments per financial year. The bench, comprising Justices BV Nagarathna and Augustine George Masih, ruled that the regulation (paragraph 6.0 of Chapter VI of the Council Guidelines No. 1-CA(7)/02/2008 dated August 8, 2008, and subsequent amendments) does not violate the fundamental right to practice a profession under Article 19(1)(g) of the Constitution.
The primary argument against the guidelines was that they infringed on the fundamental right to practice a profession under Article 19(1)(g) and the right to equality under Article 14. The petitioners also questioned the ICAI’s authority to impose such a restriction. Senior Advocate Paramjit Singh Patwalia represented the petitioners. Senior Advocate Arvind P. Datar, representing the ICAI, provided a historical overview of the compulsory audit requirements under the Income-tax Act, 1961.
The Court decided that this rule will be effective from April 1, 2024, and annulled the disciplinary proceedings against members who breached this limit prior to the effective date. “We quash the disciplinary proceedings initiated against the petitioners on the basis of the doctrine of legal uncertainty,” the bench declared. Additionally, the Court affirmed that the ICAI may increase the audit limit if deemed necessary.
In their judgment, the justices praised the ICAI for its high standards and significant contributions to the accounting profession, both nationally and internationally. “ICAI has, over time, received recognition as a premier accounting body domestically and globally for maintaining the highest standards…the ICAI has also played a significant role in ensuring the dynamism of the CA course and the credibility of the examination. We commend that the ICAI must be committed towards the convergence of accounting and ethical standards with international standards…the true test, however, lies in enforcement of these standards,” the Court noted.
The main findings of the ruling were outlined in the following manner:
1. Section 6 of Chapter VI and its subsequent modification are considered justifiable limitations under Article 19(1)(g).
2. This provision will be enforced starting from April 1, 2024, rendering any disciplinary measures taken prior to this date void.
3. The ICAI is authorized to regulate the quantity of audits that a Chartered Accountant may conduct.
A copy of the SC order is awaited.
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