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Shaji Poulose vs The Institute of Chartered Accountants of India

Not available · 2024 INSC 451Decided 17 May 2024
Not available
Justice B.V. Nagarathna · Justice Augustine George Masih

Background

This was a common judgment disposing of a large batch of writ petitions and transferred cases (filed both directly in the Supreme Court under Article 32 and in various High Courts under Article 226, later transferred and clubbed together) challenging a Guideline issued by the Institute of Chartered Accountants of India (ICAI) under the Chartered Accountants Act, 1949. The Guideline capped the number of tax audit assignments a Chartered Accountant (or each partner of a CA firm) could accept in a financial year under Section 44AB of the Income Tax Act: a limit that had risen from 30 audits in 1989 to 60 by 2014. The petitioners, practising Chartered Accountants, argued the cap was illegal, arbitrary, and violated their fundamental right to practise a profession under Article 19(1)(g) of the Constitution, and sought quashing of disciplinary proceedings initiated against those who exceeded it.

Decision Breakdown

The Supreme Court framed two questions: whether ICAI had the legal competence to impose such a ceiling at all, and if so, whether the ceiling amounted to an unreasonable restriction on the right to practise a profession. The Court held that ICAI's Council did have the power under the 1949 Act to regulate this aspect of professional conduct, and that the ceiling limit was a reasonable restriction saved under Article 19(6) of the Constitution, aimed at ensuring audit quality and preventing concentration of assignments in fewer hands. However, taking into account the disruption a sudden enforcement would cause and monitoring gaps flagged during the case (including that a large share of members hadn't been consistently adhering to the limit), the Court directed that the ceiling clause and its subsequent amendment would not be given effect to until 1st April 2024, quashed all disciplinary proceedings already initiated under the Guideline against the petitioners, and left ICAI free to revise the ceiling number in future if it wished.

Lesson Learnt

A professional regulatory body can validly impose reasonable numerical limits on its members' practice (like a cap on audits per year) as a reasonable restriction on the right to practise a profession: such restrictions do not automatically violate Article 19(1)(g) so long as they serve a legitimate purpose like maintaining audit quality.

Official source (sci.gov.in)View Judgment (PDF)

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