Belling the big cats: how ICAI’s disciplinary body is compromised by its own leadership – The Economic Times

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SynopsisSuccessive presidents have abused the process; a clean chit given to past ICAI president Prafulla Chhajed in an election malpractices case, now with Bombay High Court, highlights deep rot in the system.

Two months after the then chairman of National Financial Reporting Authority (NFRA) hit out at the Institute of Chartered Accountants of India (ICAI) for attempting a regulatory capture and days before the triennial elections for its councils, the government of India took a tentative step at reforming the much-criticised disciplinary process of the institute.

It introduced the Chartered Accountants, Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021, which sought to — bring firms (against only individuals earlier) under the purview of the institute’s disciplinary mechanism, time-bound completion of investigation, change the tenure of the council and revise the constitution of the disciplinary committee to include a majority of non-CAs.

In a rare urge to consult, not on display in recent times, the government quickly sent the bill to the Parliamentary Standing Committee on Finance. The panel, which counts among its members, former Prime Minister Manmohan Singh and senior politicians such as Sukhbir Singh Badal, Praful Patel, Ravi Shankar Prasad and Saugata Ray, and is headed by former Union minister Jayant Sinha, is expected to begin its hearing on Wednesday.

The ICAI leadership, which was up in arms against changing the composition of disciplinary panels, questioning non-CAs’ understanding of audit intricacies, is likely to make its case before the panel.

Senior chartered accountants feel the real reason for opposition is less about understanding and more about maintaining control over the process.

Successive presidents have been able to pick the committee of their choice, say senior chartered accountants and this in turn has been used to gloss over irregularities and make cases against them vanish. Even members of the central council, the top decision-making body of the institute, feel helpless.

The long and draining battle by outgoing central council member Tarun Ghia to bring disciplinary action against his council colleague Prafulla Chhajed (ICAI president 2019-20) lays bare the farce the disciplinary process of the institute has been reduced to.

Elections of 2018
The term of the central council is three years. The election of 32 members takes place in accordance with the Chartered Accountants Act, 1949, and the rules made thereunder.

The council then every year on February 12 elects one council member as the president and one council member as the vice-president for the year. Under a convention, the vice-president elected for a year gets elevated to the position of the president the following year.

With the result that the vice-president in the third year of the council will have to get re-elected as a council member in the intervening ICAI general elections before he may be so elevated as the president in the first year of the subsequent council term.

The preceding council term was 2016-19. In the third year (2018-19), Chhajed was the vice-president till February 11, 2019. So, he had to contest ICAI general elections held in December 2018 to become the president next year.

Chhajed was leaving no stone unturned to ensure this. He turned to his friend, fellow CA and the then Union minister for commerce Suresh Prabhu. Therein began trouble. a one minute 53 second video circulated on social media during elections in 2018, Prabhu is seen saying, “I am very happy that my dear friend Prafulla Chhajed is contesting for ICAI central council elections again. I must thank all members for making him the vice-president. Normally as convention goes, the vice-president goes on to become the president. It is an honour that a hardworking, sincere and a genuine person like Prafulla Chhajed must get, as he has worked for it for the past several years.”

The minister goes on to add that he has known Chhajed for several years, and that he was “well-versed with functioning of the institute” and “has very good relationship with the government”, and, therefore, he was the ideal candidate.

This video, which was shared widely on Facebook and other platforms by Chhajed’s team during the ICAI elections held in December, ends with a glimpse of Chhajed’s profile along with his picture and ballot number. By December 25, 2018, the results were declared and Chhajed was among those elected.

On January 23, 2019, weeks before Chhajed took charge as president, Ghia filed a complaint.

His case was that getting any person to canvass/campaign for the candidature was against the institute’s election code and this attracted disciplinary proceedings. On the eve of Chhajed’s taking over he also wrote to him not to take over till the complaints are disposed of.

Power rush@2x

However, these requests fell on deaf ears and Chhajed took charge on February 12, 2019. The council duly delegated powers to him. He went on to announce names of various office-bearers including members and secretary of the disciplinary committee. Despite several pleas by Ghia, the matter was never taken up either by the disciplinary mechanism nor by the tribunal set up under the ministry to hear complaints against people in the government.

ET Prime has reviewed communications showing the delegation of powers to Chhajed, the subsequent announcement of appointees to various committees, and letters to the Ministry of Corporate Affairs (MCA).

Thus, Chhajed completed most of his tenure without these complaints being taken up for hearing. A month after his term as president endedin March 2020, the director discipline came up with the prima facie opinion finding Chhajed and Prabhu not guilty. In September 2020, the board of discipline (BoD) also upheld this without giving a speaking order. Ghia has since moved the Bombay High Court seeking relief against Chhajed, ICAI and its officials. According to him, BoD did not conduct an independent analysis and simply agreed with the prima facie opinions given by the director. He pleaded that the court itself decide the complaints on merit.

In an e-mail response, Chhajed said, “At the outset let me inform that certain points mentioned by you regarding appointment of Director Discipline etc. by me as then president of ICAI are totally wrong and without facts.”

To be sure, the then director discipline was not appointed by Chhajed, though he came under the administrative control of the president.

The disciplinary mechanism of the institute comprises a director discipline, BoD and disciplinary committee (DC). All complaints first go to the director discipline, who is under the administrative powers of the president. After the prima facie opinion of the director discipline, the matter goes to either BoD or the DC based on the schedule under which the alleged offences fall.

When asked to clarify that while law provides for the council to appoint these positions and that the council had delegated it to the president following which these appointments were announced, Chhajed replied, “As already mentioned since matter is before hon. high court, it will not be possible for me to comment further except as mentioned in my earlier mail.”

An email sent to the ICAI spokesperson remained unanswered.

‘Law leaves no ambiguity’
The law relevant for this purpose is laid down in the Chartered Accountants (Election to Council) Rules 2006, and more specifically in Rule 42(4)(iv) and Rule 42(4)(x) of the said rules.

The crux of the above rules is that in ICAI general elections, the contesting candidate, for promoting his own election prospects, cannot obtain, or procure, or even attempt to obtain or procure any assistance of a person serving under the government.

If a candidate obtains such a government person’s assistance to further his prospects in elections, then the candidate attracts disciplinary provisions.

Therefore, Chhajed attracted default under sub-rule (iv). Having participated in the act of canvassing and thereby concurred and connived, to further the election prospects of Chhajed, Prabhu has attracted default under sub-rule (x), according to the petitioner.

The above law is so clear that no minister in the past has so openly canvassed for a candidate in ICAI elections. The governments have maintained distance from ICAI elections. That the video was made by Prabhu, given to Chhajed, who then published it were facts not disputed.

Was connivance missing?
If the facts are agreed and admitted, then how was the decision given that both were not guilty? For giving the decisions in favour of both, the director discipline and the BoD have misused the mechanism and manipulated it mainly on three issues, Ghia alleges in his petition before the Bombay High Court.

According to a reading of his petition, a letter dated November 30, 2018, from the returning officer has emerged contentious.

The ICAI in its decision has attached this letter, which was not produced earlier during hearings/submissions. Accordingly, Chhajed had written about seeking permission from the returning officer to circulate Prabhu’s message on social media and on the same letter by hand the returning officer has jotted down his permission.

This letter is dubious, according to the petitioner, as this letter was never presented in the submissions before the disciplinary proceedings by Chhajed and Prabhu. Such a letter is directly obtained by the director discipline and produced in the judgement.

According to Ghia’s camp, this is in sharp violation of the principles of natural justice. “Such a permission has not appeared in any email. An email cannot be created backdated while a physical letter can be created backdated. Such a letter cannot be issued by the returning officer as it is in violation of law, the returning officers do not issue any such letters, the returning officer did not discuss this by formally placing this in the meeting of the election panel.”

Such a letter cannot allow Chhajed or Prabhu to violate the law, according to people close to Ghia.

The second manipulation alleged was that the director and the BoD took a stand that there was no connivance. “It is a mystery that they wanted to search and locate connivance as a separate product. The judgement itself shows that Chhajed as well as Prabhu acted in connivance. It is like the cops probing a crime scene saying, “the goods are missing, but where is the theft?” people close to Ghia said.

The judgment shows that they both have agreed that the video film was created by Prabhu. In the said video film there were praises for Chhajed in the context of elections along with canvassing details, photo and ballot paper number of Chhajed.

The video was given by Prabhu to Chhajed, who circulated it on his Facebook page. “So, what remains to be proved for connivance?” asks Ghia.

Thirdly, the director and the BoD took a view that there was no appeal for vote in the entire video film. Anyone watching the video would agree that Prabhu refers to elections and praises Chhajed from an election point of view. It also shows the picture, profile and ballot number of Chhajed. So, it was clearly an appeal for vote, argues Ghia’s petition.

Earlier cases involving presidents bungled
Some instances of earlier presidents messing up with the disciplinary mechanism were highlighted in a letter addressed to the MCA in March 2019.

A disciplinary case was filed against the then president, relating to unauthorised expenditure on Foundation Day of 2017, attended by Prime Minister Narendra Modi, and payments effected by the ICAI secretary in organising CA Day function at Indira Gandhi Indoor Stadium at New Delhi on July 1, 2017, for felicitation of the Hon’ble Prime Minister of India vanished.

An amount of INR7 crore was incurred for the hiring of premises, catering, infrastructure, stage, publicity, etc, without any sanction of the council or even without the sanction of the finance committee, the complaint had alleged.

Secondly, in 2012, the then president and vice-president had inked a land deal worth INR97 crore, the biggest by the institute at that time, without intimating the council, either prior or post deal. Though the deal got struck down, the legal expenses of over INR2.5 crore spent to defend them were never reimbursed.

There were also instances of questionable functioning of the disciplinary committee. In 2013, disciplinary cases were not heard and decided across the bench. The hearings were not even minuted.

The letter written to the MCA said, “In most quasi-criminal cases, the then president, would not decide the case across the bench, will not get minutes written and confirmed, will take decisions quite afterwards, as the proceedings vis-a-vis decisions materially differed in some cases including very big cases. Petitioner got the draft DC reports for signatures to which the petitioner had repeatedly responded that he will sign after incorporating his own views and that as the DC reports were prepared on computers, the same should be sent to petitioner by email and not hard copies in unsigned printed forms without any signature and without any stamps, as was being done.”

There were other issues of corruption etc. raised by the petitioner. “Petitioner’s signatures were being demanded backdated. Afterwards, the petitioner came to know that even though the petitioner had not signed and repeatedly refused in writing to sign backdated and without incorporating his own views, as aforesaid, the then president and disciplinary committee director sent the reports to the concerned parties, mentioning therein that the petitioner had signed the reports. The petitioner complained to the council of forgery, criminal breach of trust, misrepresentations etc,” the letter to the ministry had said.

Will things change for the better?
CAs ET Prime spoke to said that all major cases including against various presidents have always been forwarded by the complainants to the MCA.

MCA has all the records of wrongdoing at ICAI.

“I myself have forwarded in detail by my communication dated March 26, 2019 to the MCA the various huge wrongs by various presidents and disciplinary proceedings never took place whereas a common member is taken to tasks for years for simple mistakes. There are ample number of cases not just to suggest but to conclusively prove that ICAI disciplinary is silent against the presidents,” said Ghia.

New deal@2x

The changes now being introduced are mainly that the majority of members will be appointed by the government and not by the ICAI. The ratio of government to council members in the disciplinary committee will be 3:2.

But in the suggested new system also the chairman of the disciplinary committee though a non-CA, will be from the list of persons to be forwarded by the MCA but to be decided by the ICAI.

“So, the person wanting to become chairman will be at the pleasure of the ICAI president. Now the reference to the standing committee means the incoming president will be safe and new committees will be formed on February 12, 2022. So, the purpose of the incoming president will be served. ICAI runs like that only,” adds Ghia.

More the ICAI changes, the more it remains the same.

(Graphics by Sadhana Saxena)
(Originally published on Jan 12, 2022, 12:01 AM IST)

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