The Rajya Sabha has passed the Chartered Accountants (Amendment) Bill, 2011 on 12 December 2011 which proposes to amend the Chartered Accountants Act, 1949 (“CA Act”). According to the said bill the following changes has been proposed to be made:
(i) To apply certain provisions of the Limited Liability Partnership Act, 2008 (“LLP Act”) to the CA Act in order to allow the members of the institute to form the limited liability partnership.
(ii) To amend the CA Act by allowing the members to form partnership with members of such other recognized professions.
The Bill has proposed to amend the definition clause by inserting various terms like partnership, limited liability partnership and sole proprietorship.
Also, the proposed amended section 2(2) states that a member of the Institute shall be deemed “to be in practice”, when individually or in partnership with chartered accountants in practice or in partnership with members of such other recognized professions as may be prescribed, he, in consideration of remuneration received or to be received does and act or renders services as mentioned in the section.
Thus it is different with the earlier position where a chartered accountant was deemed to be in practice only when he practiced individually or in partnership with other chartered accountant who was also in practice.
Therefore this amendment will also permit CAs to be in practice if he has entered into partnership with a member of some other recognized profession.
As regards what will constitute the “other recognized professions”, the same has not been clarified or explained in the said Bill or by the ICAI. Thus, if we consider that professionals like Company Secretaries or Advocates are allowed to enter into partnership with members of the ICAI, then similar amendments in the governing acts of these professions has to be made.
For instance, in the Company Secretaries Act, 1980 (“CS ACT”), amendments have been proposed by way of the Company Secretaries (Amendment) Bill, 2011 with respect to insertion of various terms like partnership, limited liability partnership and sole proprietorship in the definition clause of the CS Act.
But as regards the proposed amendment in the CA Act which allows CAs to be in practice if he has entered into partnership with a member of some other recognized profession, the same has not been incorporated in the proposed amendment bill for CS Act.
The Bar Council of India (“BCI”) rules under Section 49(1)(ah) of the Advocates Act, 1961, provides that an advocate shall not enter into a partnership or any other arrangement for sharing remuneration with any person or legal practitioner who is not an advocate. Therefore, advocates are prohibited to enter into any co-operation with non- advocates unless necessary amendments are made for the same.
Also, if the above partnership is entered, the firm cannot be appointed as auditor for a company as the existing provisions of Section 226 of the Companies Act, 1956 requires all the partners in the firm to be a practicing CAs. But the new Companies Bill provides for the amendment of the said provision wherein a firm can be an auditor for a company if the majority of partners are practicing CAs in India.
Therefore, unless amendments are made pursuant to various laws governing other professions, the said partnership of CAs with other professionals cannot come into being.
The amendment bill has also inserted an explanation to the Section 25. The section 25 states as follows:
“Companies not to engage in accountancy:
(1) No company, whether incorporated in India or elsewhere, shall practice as chartered accountants.
(2) If any company contravenes the provisions of sub-section (1), then, without prejudice to any other proceedings which may be taken against the company, every director, manager, secretary and any other officer thereof who is knowingly a party to such contravention shall be punishable with fine which may extend on first conviction to one thousand rupees, and on any subsequent conviction to five thousand rupees.”
The explanation added by the proposed amendment is:
“Explanation.—For the removal of doubts, it is hereby declared that the “company” shall include any limited liability partnership which has company as its partner for the purposes of this section.”
Thus this explanation has extended the restriction of practicing to those LLP’s which have company as there partner. Therefore this section is an exception to the section 2(2).