The Hindu Business Line : Cinema shows and professional occupation cannot be treated alike

THE recent judgment of the Madras High Court in the Bhagvatheeswaran case is a must read for all professionals. It discusses what can be reasonable restrictions that a professional body such as the Institute of Chartered Accountants of India (ICAI) can impose.

At the core of the dispute was the Institute's diktat that a CA "shall be deemed to be guilty of professional misconduct" if he accepted, in a financial year, more than `the specified number' of tax audit assignments. In a communiqué issued almost two decades ago, the ICAI specified the number as 30, and also gave detailed instructions how the limit was to be reckoned. For instance, each year's audit counts as `a separate assignment'; audit of the head office and branch offices of a concern "shall be regarded as one tax audit assignment"; and audit of one or more branches of the same concern by one CA in practice "shall be construed as only one tax audit assignment".

Bhagavatheeswaran, a CA associated with a 70-year-old firm, was unhappy with another notification of the ICAI too — the one that specified what minimum audit fee CA firms should charge, depending on the population of the place and the number of partners in the firm. He challenged the ICAI's notifications on the ground that they violate his fundamental rights guaranteed under Article 19(1)(g) (that is, to practise any profession, or to carry on any occupation, trade or business) and Article 14 (that is, equality before law), of the Constitution, and also alleged that the impugned notifications were arbitrary and unreasonable.

Counter affidavits were on predictable lines. Limit in the number of tax audits was justified by the ICAI as enabling "a larger section of the members of the Institute in practice all over the country to conduct tax audit assignments and thus cater to enlargement of the work of professional CAs as a result of the introduction of compulsory tax audit in respect of assessees and professional persons."

It was also argued that the restrictions imposed by the Institute ensured diversification and distribution of professional work "among young and less advantaged members who are clamouring for professional work and livelihood". Accordingly, in the view of the ICAI, there was "no unreasonable restriction of which any grievance can be made by any professional member of the Institute." However, the court said that the imposition of restriction on the volume of audits and fee, which a CA can accept, was on "a wholly unreasonable and untenable ground" of enabling younger and less fortunate CAs to get professional work.

Don't penalise professional's intelligence

To decide the case, the court looked not merely at written rules and regulations. "Every profession has its own historical and traditional unwritten conventions, norms and work culture, and when deciding whether the restrictions are reasonable or not under Article 19(6) of the Constitution, the court cannot be oblivious to these unwritten conventions and traditions," reads the judgment. The court added: "It has never been the convention, tradition, custom or practice among professions like lawyers' profession, CAs' profession, and so on, that work must be diversified to young and less fortunate professionals by restricting the number of cases/audits which can be accepted by a lawyer/ CA."

Therefore, such restrictions are unreasonable "under Article 19(6) of the Constitution and is also violative of Article 14, taking into account the historical growth and development of these professions, and their traditional and customary practices."

There was more: "A client must be free to chose his lawyer/CA, and conversely the number of cases/audits which can be accepted by a professional must be left free to decide by the lawyer/CA of his own free will. Such restrictions can only be voluntary and not imposed by any external authority on the members of the profession." A free play to market forces, that is.

The judgment reasons that some lawyers/accountants are more intelligent and harder working than others. Therefore, any restriction would be "penalising them for their intelligence, knowledge and hard work". Leave the choice of the lawyer/CA, and also the fee to the client, said the court. For, "It is a matter of free contact between the client and the Lawyer/CA." Any restrictions such as the ones in dispute were `artificial devices' that cannot be accepted in professional occupations, ruled the court.

Professional misconduct and fee are unrelated

Is it right to say that a CA who accepts a larger number of audits is guilty of professional misconduct? The court deliberated on this issue and said: "So far as it relates to the CA's profession, `professional misconduct' really means acts mentioned in the Schedules to the Act or similar acts like cheating or dishonesty; but it cannot mean accepting a large number of cases/audits or a certain fee." This should come as a reprieve for all those CAs whose dossiers are languishing in the hallowed chambers of the disciplinary committee of the ICAI merely because they exceeded the specified number of audits.

What did the court say about the fee? It concurred with the earlier judgment by a single Judge in the same case that the ICAI's notification in this regard was "arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution". Charging a certain fee by a professional can never be regarded as unprofessional, declared the court.

"What will be the fee is a matter to be decided by mutual consent between the client and the professional and the parties must be left free in this connection. Charging higher or lower fee can certainly not be regarded as professional misconduct.

The matter must be left to the discretion of the client and the professional. Some lawyers/CAs charge higher fee while others charge lower fee, and even the fee of the same professional some times differs from client to client. All these must be left to the free and voluntary agreement between the parties and there should not be any artificial restrictions placed by some external authority." There can be no ambiguity in interpreting these lines.

Cinema = CA practice?

Sidelights of the case are also interesting. The Institute seems to have a predilection to movies, as seen from its choice of cases to buttress its stand. For instance, the ICAI's counsel argued on the strength of an apex court decision in Minerva Talkies, Bangalore vs State of Karnataka. There, it was held that a rule limiting the cinema shows to four per day was not ultra vires the Constitution. Another case relied upon by the ICAI was Deepak Theatre, Dhuri vs State of Punjab, where the Supreme Court upheld the validity of a rule classifying the number of seats in a cinema theatre and fixing the rates of admission. On a different tack, however, was the ICAI's reliance on the decision in T. Velayudhan Achari vs Union of India, where it was held that limiting the number of depositors that can be accepted by an individual, firm or unincorporated associations under the Banking Laws (Amendment) Act, 1983 is not violative of Article 19(1)(g) of the Constitution as it protects the larger interests of the depositors.

What did the Madras High Court say in response? That "cinema shows and professional occupation cannot be treated alike." Running of the cinema is in the nature of a business, whereas professional occupations are not business enterprises, pointed out the judges, Chief Justice Markandey Katju, and Justice D. Murugesan. "Professions have their own long historical traditions and conventions which are totally different from that of business enterprises. Hence, the aforesaid decision is distinguishable."

Then came an instructive comment aimed at those who blindly cite decided cases: "Rulings of the Supreme Court or other Courts cannot be applied mechanically without properly understanding the context in which those rulings were delivered. What may be a reasonable restriction for a business may be unreasonable for a profession." Stung to the quick the Institute is keen on getting this decision reversed and is beating a trail to the apex court.

Professional or provisional

Some times the Institute's restrictions can be hurting not only for members but students, even if unintended, as a recent announcement on changes to eligibility criteria shows. "It is clarified in no uncertain terms that the modification to the eligibility requirements are only proposals at this stage and until the same are approved by the Central Government and notified in the Gazette of India as the approved Regulations, the admission of such candidates in PE-II examination to be held in May 2005 shall be on purely provisional basis and declaration of result thereof shall be subject to the decision of the Central Government," reads the ICAI's announcement.

With the approval yet to come and the exams less than a week away, one can only empathise with the affected CA students who would be forced to sit through a professional examination that is at best provisional.

AccountSpeak@TheHindu.co.in

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