ICAI Corruption and Malfunctioning

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ICAI: Belling the big cats: how ICAI’s disciplinary body is compromised by its own leadership - The Economic Times 30/03/22, 9:36 PM
Belling the big cats: how ICAI’s

disciplinary body is compromised
by its own leadership
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
https://economictimes.indiatimes.com/prime/corporate-governance/…-compromised-by-its-own-leadership/primearticleshow/88839940.cms Page 1 of 13
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.
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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.
https://economictimes.indiatimes.com/prime/corporate-governance/…compromised-by-its-own-leadership/primearticleshow/88839940.cms Page 2 of 13
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.
In 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.
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 ended, in
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
https://economictimes.indiatimes.com/prime/corporate-governance…compromised-by-its-own-leadership/primearticleshow/88839940.cms Page 10 of 13
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.
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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- Common members are suffering
- Students are suffering
- Even CCMs are suffering
There was a need for change, and here are we.

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Belling the big cats: how ICAI’s

Two months after the then chairman of National Financial Reporting

It introduced the Chartered Accountants, Cost and Works Accountants

institute’s disciplinary mechanism, time-bound completion of

In a rare urge to consult, not on display in recent times, the government

The ICAI leadership, which was up in arms against changing the

MORE STORIES FOR YOU ✕

Successive presidents have been able to pick the committee of their

Chhajed was leaving no stone unturned to ensure this. He turned to his

In a one minute 53 second video circulated on social media during

On January 23, 2019, weeks before Chhajed took charge as president,

ET Prime has reviewed communications showing the delegation of powers

Thus, Chhajed completed most of his tenure without these complaints

To be sure, the then director discipline was not appointed by Chhajed,

The disciplinary mechanism of the institute comprises a director

the director discipline, who is under the administrative powers of the

An email sent to the ICAI spokesperson remained unanswered.

‘Law leaves no ambiguity’

If a candidate obtains such a government person’s assistance to further

Therefore, Chhajed attracted default under sub-rule (iv). Having

Was connivance missing?

According to a reading of his petition, a letter dated November 30, 2018,

According to Ghia’s camp, this is in sharp violation of the principles of

The video was given by Prabhu to Chhajed, who circulated it on his

Earlier cases involving presidents bungled

A disciplinary case was filed against the then president, relating to

There were also instances of questionable functioning of the disciplinary

stamps, as was being done.”

There were other issues of corruption etc. raised by the petitioner.

Will things change for the better?

MCA has all the records of wrongdoing at ICAI.

“I myself have forwarded in detail by my communication dated March 26,

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

(Graphics by Sadhana Saxena)

The latest from ET Prime is now on Telegram. To subscribe to our

Telegram newsletter click here.

There was a need for change, and here are we.

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