Full Judgment Text
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CASE NO.:
Appeal (civil) 6835 of 2000
PETITIONER:
Institute of Chartered Financial Analysts of India & Ors
RESPONDENT:
Council of the Institute of Chartered Accountants of India & Ors
DATE OF JUDGMENT: 16/05/2007
BENCH:
Markandey Katju
JUDGMENT:
J U D G M E N T
MARKANDEY KATJU, J.
1. I have perused the judgment of my learned brother Hon’ble S.B.
Sinha, J. and am in respectful agreement with the same. However, I wish to
add some of my own reasons.
2. In recent years, the country has witnessed phenomenal growth in the
field of financial markets. The funds raised by the corporate sector from the
capital market have increased exponentially, the number of stock exchanges
have increased, the investor community has multiplied. The structural
developments in the markets are the inclusion of institutional and corporate
members, of stock exchanges, and formation of the regulatory authority
’SEBI’ to oversee the functioning of the capital market.
3. In recent decades the financial services industry has matured in our
country. A large number of mutual funds have been set up by the banks,
insurance companies and the corporate sectors, leasing and hire purchasing
companies have grown in size, content and operations. Credit rating
services have been launched. Venture Capital Funds have been set up to
meet the requirements of diversified industrial, research and entrepreneurial
enterprises. Reliance on international capital markets has become an
important source for financing many other developments as well in the
country. This makes it all the more important for India to have effective
management, controls and practices in line with those in the international
financial markets.
4. In view of these developments corporate financial management and
controls have become very sophisticated and, therefore, demand highly
specialized skills for planning, decision making and controls, consistent with
the practices of the world’s leading financial markets.
5. Obviously, to meet the growing professional requirements of the
financial industry, it became essential to set up an institute for education and
training of professionals in accordance with the norms, content, practices
and standards of the leading international markets. It is in this context that at
the request of the Indian financial industry, some eminent professionals with
extensive background in Finance/RBI/UTI/Stock Exchanges etc. promoted
and helped establishing the Institute of Chartered Financial Analysts of India
(in short ’ICFAI’) in active collaboration with the Institute of Chartered
Financial Analysts of USA.
6. This collaboration helped ICFAI in establishing educational standards
in the field of financial analysis, training people, conducting examinations
and awarding the qualification of ’Chartered Financial Analyst’ (hereinafter
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referred to as ’CFA’) - an internationally acclaimed qualification in the field
of financial management.
7. Similar institutions have been established by many other countries,
including Europe, Japan, Australia, Singapore etc. The profession of CFA is
now internationally highly regarded and recognized as vital for modern and
orderly development of financial markets. The response to the CFA
programme in India has been enormous. This is confirmed by the large
number of students who have been enrolled with the Institute. The students
also include Chartered Accountants and professionals from other fields. The
CFA programme does not give training to become Auditors or Accountants
or Cost Accountants or Income Tax law or Direct or Indirect Laws advisers
etc. These functions are performed and remain in the exclusive domain of
Chartered Accountants (hereinafter referred to as "C.A.") Cost Accountants,
and lawyers (though it is true that the C.F.A. course includes some study of
accountancy).
8. The submission of learned counsel for respondent no.1, Mr. Ganesh,
is that the object of the impugned notification dated 3.8.1989 is to avoid
conflict of interest. In our opinion this submission suffers from a total
misunderstanding of the functions of a C.F.A. vis-‘-vis a C.A. The main
function of the former is to study and analyze the financial markets and
advise his clients accordingly, whereas the main function of a C.A. is to do
auditing of a firm’s (or company’s) balance sheet and profit and loss
account. These are two altogether different functions. Of course, if a person
audits a firm’s balance sheet and P&L Accounts, there may be a conflict of
interest if he also advises the same firm about its investments. An auditor is
a watchdog on behalf of the shareholders, whereas a financial adviser
advises the management. Such a possible conflict of interest can no doubt
be prohibited by law, and such prohibition would be reasonable and in the
public interest.
9. However, the notification dated 3.8.1989 goes far beyond such a
reasonable restriction. It prohibits all C.As. from joining a C.F.A. course. A
C.A. can do auditing work for one firm and can be a financial adviser for
another, in which case there is no conflict of interest. It is only for the same
firm (or company) that he should not do both work. Moreover, a C.A. can
switch over and become exclusively a C.F.A.
10. Thus the notification dated 3.8.1989 amounts to excessive restriction,
and it is well settled that excessive restriction which is not required in the
public interest is not reasonable and hence not saved by Article 19(1)(g) vide
Maneklal Chotelal vs. M.E. Makwana, AIR 1967 SC 1373 (para 46),
Express Newspapaers Ltd. vs. Union of India, AIR 1958 SC 578 (para
168), etc.
11. In our opinion the contentions of the learned counsel for respondent
no.1 are not tenable. By the notification dated 3.8.1989 it was directed that
Chartered Accountants shall be deemed to be guilty of ’professional
misconduct’ if they become members of the ICFAI. The C.As. had been
directed to surrender their membership of ICFAI before 1st January, 1990.
12. We find it strange that the ICAI, renowned in its own field and with
various statutory responsibilities, should go out of its way to stop its
members i.e. Chartered Accountants from enhancing their knowledge,
training and ability by acquiring a ’CFA’ qualification. Instead of
appreciating such aspirations of Chartered Accountants who seek to widen
their know-how and horizons they are sought to be harassed and termed as
being guilty of ’professional misconduct’. Surely this cannot be regarded as
reasonable.
13. We find it difficult to understand how does the term ’professional
misconduct’ apply to a Chartered Accountant seeking additional training and
qualification of CFA ? In our opinion the impugned notification clearly and
flagrantly violates the fundamental rights of the writ petitioners under
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Articles 14 and 19(1)(g) of the Constitution of India.
14. With respect to the court below it has obviously misunderstood the
difference between the nature of functions of the Chartered Financial
Analysts and the Chartered Accountants. Thousands of Chartered
Accountants who have become students and/or have qualified as CFAs from
the Institute of Chartered Financial Analysts of India could not have done so
if the CFA programme did not offer training and education that was not
available in the CA programme. Their involvement in such large numbers is
in itself the testament to the CFA qualification.
15. In view of the above, the appeal is allowed. The impugned judgment
of the High Court is set aside and the notification dated 3.8.1989 issued by
the respondent No.1 is quashed.