K. Bhagavatheeswaran Vs. Institute of Chartered Accountants of India and Another - Court Judgment

1. After hearing both Mr. C. Harikrishnan for the petitioner and Mr. S. Sampathkumar for the first respondent, I find that there is a prima facie case made out for grant of injunction. In W. P. No. 5925 of 1989, the challenge is to the validity of the notification bearing Number 1 CA (7)/3/88, dated January 13, 1989 (* See [1989] 65 Comp Cas (St). 552), issued by the Institute of Chartered Accountants of India, New Delhi. That notification states that the total number of audit assignments under section 44AB of the Income-tax Act, 1961, in the case of chartered accountants in practice, shall be restricted to thirty tax audit assignments in a financial year and, similarly, in the case of a firm of chartered accountants in practice, it shall be restricted to thirty tax audit assignments per partner of the firm. in a financial year. Learned counsel for the petitioner would contend that there is no sanctity in the above limitation prescribed by the Institute prescribing thirty tax audit assignments as the outer limit in so far as chartered accountants are concerned. He would also contend that a chartered accountant of experience and ability would be easily in a position to accept and fulfil more than thirty tax audit assignments in a financial year and by artificially imposing this restriction, the petitioner's fundamental right to practise the profession guaranteed under article 19(1)(g) of the Constitution is unreasonably restricted.

2. In answer to the Mr. Sampathkumar, learned counsel for the first respondent, would submit that the Institute is authorised to frame regulations and that power not being questioned, the circular prescribing the total number of tax audit assignments in a financial year to be undertaken being reasonable and imposed in the larger interests of practising auditors should not be interfered with. He would emphasize his contention that, for assuring quality in tax audit assignments and also to bring about an equitable distribution of work, as a large number of junior practitioners get furstrated for want of assignments and are tempted to abandon the profession and seek employment elsewhere, the Institute thought it necessary to restrict the number of tax audits to thirty ; these tax audits which are compulsory under the statute,consume quite a considerable time; if an auditor were to sincerely discharge his duties, he can do only thirty tax audits in a year and the Institute of Chartered Accountants, being in the best position to decide on that question, had restricted the number of tax audit assignments to thirty in a financial year.

3. It is seen that auditors had been accepting assignments without any restriction whatsoever in the years past. For more than 40 years, the Institute has been managing the affairs and regulating the conduct of chartered accountants. All these years, no such restriction regarding the number of assignments to be undertaken was thought of. It is a matter which can judicially be taken notice of. The time taken for audit by an able chartered accountant may be far less than the time taken by another chartered accountant of restricted ability. All the auditors cannot be placed on an equal footing and an assumption cannot be made that an auditor would be able to fulfil his obligations only up to 30 tax audit assignments under section 44AB of the Income-tax Act in the financial year. No statistics have been produced in support of the contention of the respondents that only 30 tax assignments can be undertaken by a chartered accountant. What applies to an individual chartered accountant would equally apply to a partner of a firm in whose case also, the restriction is 30 tax audit assignments in a financial year. The Act does not contemplate distribution of available work to all the chartered accountants on the roll of the Institute, nor does it impose an obligation on the Institute to provide work for a young and aspiring chartered accountant. That is an area which the respective chartered accountant has to look after himself. Since a prima facie case is made out, in W. M. P. No. 8677 of 1989, there will be an order of interim injunction restraining the respondents from applying Notification. No. 1-CA (7) /3/88, dated January 13, 1989 [1989] 65 Comp Cas to the petitioner and the firm, Suri and Co., in which the petitioner is a partner, in so far as the petitioner is concerned, until further orders.

4. So far as W. P. 5926 of 1989 is concerned, the challenge is to the validity of Notification No. 1-CA (7)/158/87, dated May 25, 1987 (* * [1989] 62 Comp Cas (St.) 241., under which it is stipulated that, in a firm of chartered accountants in which a chartered accountant is a partner and if the firm consists of four or more partners but less than eight partners, the fees chargeable for any audit work in cities with a population of two million and above shall not be below Rs. 1,500 per annum and in cities and towns having a population of less than two million, it shall not be below Rs. 1,000 per annum. Similar limits have also been prescribed in respect of a partner of a firm having more than eight partners, but the minimum fee is prescribed as Rs. 3,000 per annum in cities with a population of two million and above and Rs. 2,000 per annum in cities and towns having a population of less than two million. In challenging the validity of this notification, learned counsel would submit that this fixation is arbitrary and unreasonable. He would also submit that this is in violation of article 14 of the Constitution. He would state that the minimum fee is prescribed only for a chartered accountant who is a partner of the firm and no such minimum is prescribed for an individual practising as a chartered accountant. He would state that this discrimination, which is writ large, would vitiate the notification. He would also state that all these years, the chartered accountants were free agents who could negotiate and settle their fees with their respective clients and that is an area in which the Institute has never been interfering with. Therefore, he would submit that this restriction, apart from being discriminatory, is also unreasonable.

5. Learned counsel for the first respondent on the contrary would submit that it is the bounden duty of the Institute to regulate the conduct of chartered accountants which would include the regulations relating to the demand and collection of fees. He would state that these regulations have been made to prevent the development of unhealthy practices in the profession. He would submit that this would encourage up and coming youngsters in the profession.

6. Whatever may be the motive of the Institute in introducing this regulation prescribing the minimum fees, in so far as there is violation of article 14 and in so far as this prescription is confined only to a partner of a firm and an individual practising as a chartered accountant is not subjected to any restriction, there is a prima facie case made out by the petitioner and, consequently, there will be an order of interim injunction restraining the respondents from applying Notification No. 1-CA(7)/158/87, dated May 25, 1987 [1987] 62 Comp Cas 241 (St)to the petitioner and the firm, Suri and Co., in which the petitioner is a partner, in so far as the petitioner is concerned, until further orders.

7. Issue notice to the second respondent. Having regard to the importance of the question to be decided in these writ petitions, both the writ petitions will be posted for final disposal on April 2,1990.