Can your accountant also assist you on drafting a joint venture agreement? Or is this work best left to a lawyer to check for compliance with various rules and legislation? And what happens when one company drops a nasty legal notice on the former joint venture partner? Is when things get contentious and litigious the line where only a lawyer can step in and take care of business?
Indian law firms’ only representative body, the Society of Indian Law Firms (SILF), believes that the line should be drawn much earlier and has complained to the Bar Council of Delhi against the world’s Big Four accountants—EY, KPMG, PwC and Deloitte—alleging that they have been practising law illegally in India, as first reported by ET Now last week.
SILF filed four 30-odd-page complaints, each with around a dozen annexures as evidence against each of the Big Four and SILF president Lalit Bhasin has vowed to go after other Indian accountancy firms as well in the coming week.
“Chartered accountants (CAs) are governed by the Chartered Accountants Act and Advocates are governed by the Advocates Act. (CAs) have been blatantly doing work which they are not authorized to do under the Act. It includes all kinds of work, including, they are advising clients, giving legal opinions, appearing in courts for clients, everything,” said Bhasin.
Chartered accountants beg to differ, arguing that even before lawyers ever got in on the act, CAs dealt with managing companies’ legal risks and compliances while lawyers were still largely tasked with their exclusive domain of litigating for the companies before courts.
“There are clear-cut demarcations in law about (the forums before which a CA) can appear (to represent clients) and where he cannot appear, where he can put his signature and where he cannot put his signature,” said former Institute of Chartered Accountants of India (ICAI) president Subodh Kumar Agrawal. “But the knowledge domain is an open area. You cannot demarcate (authorized and unauthorized practice areas) in a domain in which the globe is opening.”
SILF has relied on a number of landmark cases, including the Bombay high court’s 2009 ruling against three foreign law firms in the Lawyers Collective case and the A.K. Balaji case against 31 foreign law firms, in which the Madras high court in 2012 decided that “practice of law” under the Advocates Act includes both litigation and non-litigation matters. Unfortunately, none of the judgments have made it very clear where “practice of law” begins and where it ends and the line remains vague.
A spokesperson for Deloitte, one of the Big Four accounting firms said: “We are in receipt of a letter from the Bar Council of Delhi and shall respond to it in due course. We remain committed to compliance with the applicable rules and regulations that govern us.”
Domain history
Since 1949, when the Chartered Accountants Act came into force, in-house accountants and accountancy firms have been taking care of what lawyers would call the legal aspects of a company’s functioning, such as its incorporation and representing it before India’s tax tribunals, which was later explicitly authorized by the Companies Act 1956.
In 1961, the Advocates Act was enacted and the economic liberalization in the 1990s opened up the Indian market to more complex corporate activity, laws and regulations that paved the way for the dominance of domestic corporate law firms, which until then were outliers in India’s fast-growing legal profession.
Corporate law firms have dedicated practices with retained associates, senior associates and partners who deal with all legal aspects of joint ventures and all other corporate transactions, from initial public offerings, local sales regulation compliance to optimizing the tax liability of a company’s promoters.
SILF has complained that most modern-day corporate law firms’ specializations are being encroached upon by the Big Four.
But corporate lawyers are not the only ones qualified in specialized business laws. ICAI’s course curriculum includes, in addition to audit and accounting principles, the Companies Act 1956, the Indian Contract Act 1872, the Negotiable Instruments Act 1881, the Payment of Bonus Act 1965, the Employees Provident Fund and Miscellaneous Provisions Act 1952, the Payment of Gratuity Act 1972, the Income Tax Act 1961, indirect taxes and other business laws in India.
Agrawal remarked: “In my course curriculum, there is sufficient curriculum, and if my practice and exposure supplement that and my clients are comfortable with coming to me, how can I be debarred from (using my curricular knowledge)?”
In principle
But there is another fundamental issue at stake than just the overlap between what accountants and corporate lawyers can do for companies. “In general most (CAs) don’t do practice of law though I have seen stray attempts on (CAs) giving legal advice without labelling it as such,” said a general counsel (GC) of a financial institution, who declined to be named.
SILF has cried foul in part over accountancy and management firms’ growing practice of employing law graduates who then provide their legal services to these firms in contravention of the Advocates Act. The A.K. Balaji Madras high court judgment, quoted in SILF’s complaints, stated that “the oversight of the Bar Council on non-litigation activities of (corporate) law firms was virtually nil till now”, enabling the accountancy firms to employ lawyers “exploiting this loop hole”.
In April this year, EY India recruited 150 lawyers in a new vertical—e-Discovery—to provide back-end support to law firms, The Economic Timesreported. And globally, expansion into legal is very much on the Big Four’s strategic agenda: PwC Global’s legal arm would already be the world’s 10th-biggest law firm by its headcount alone while the other three would all be ranked in the top 40 law firms globally, reported The Economist in March. This is worrying to lawyers who fear being outgunned by a better-funded opponent: the top 100 law firms’ revenues of $89 billion are dwarfed by the $120 billion in revenues of the Big Four alone.
and ICAI member Rajkumar Adukia told Legally India that under the existing legal framework (the Chartered Accountants Act 1949, the Advocates Act 1961 and the Bar Council of India Rules 1966), the only legal work CAs were debarred from doing was representing clients before the Supreme Court, high courts and lower courts of India.
ICAI fellow and Supreme Court advocate H.P. Ranina said on CNBC TV18’s show The Firm on 17 July that in most law firms, there was a legal member and an accounting member, and that this practice is permissible under law. So why should the reverse situation of lawyers working in CA firms be forbidden, he asked.
However, all is not identical under the law. For example, lawyers are bound under the Advocates Act and the Bar Council of India Rules by client confidentiality rules (protecting client information obtained in the course of advising) and conflict of interest obligations (not to represent interests that significantly clash with the client’s interest without his or her permission).
CAs and consultants are not. In fact, if anything, accountants are obligated to disclose material information under the core value of a CA’s attest function, which creates a conflict of obligations that is arguably impossible to reconcile when lawyers are employed by accounting firms.
“Illegal or borderline is a technicality. It’s a question of where the line is drawn. I think the principle is important and must be made clear,” commented one law firm partner, who declined to be named, about whether what CA firms are doing is illegal. “Trained in the law has to count higher than not trained in the law. It has to. No matter the tier. Or else you are saying that all that matters in commercial deals is tax and accounts and I can’t buy that.”
Multi-disciplinary practices
Despite SILF having focused for the majority of its 15-year existence on fighting against the entry of foreign law firms to India, the issue of CAs encroaching on law firms’ domains “was always a live one”, according to one SILF member partner who wanted to remain anonymous.
What CAs are “good at is process-oriented regulatory compliance work on an industrial scale”, said the GC quoted earlier, but the lucrative litigation practice has lain untapped and many CAs have wondered why they should surrender a client and the relationship at that point to law firms.
“Many of the sharper/smarter accounting firms have created virtual and appearance-wise independent law firms comprised of lawyers only,” said the GC, though he wasn’t sure about revenue-sharing arrangements, if any, between those entities.
SILF’s latest action was triggered by exactly that, as CA firms began aggressively poaching lawyers and partners from law firms indirectly. The CA firms operated through their so-called best friend law firms. Best friend CA and law firms are separate entities but allegedly work nearly exclusively with each other, though it is not clear if any revenue is shared between the entities. (LIVE MINT)
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