ICAI: Mis-governance and a tin of ghee!

Ya esa suptesu Jagriti! Immortal words from the Kathopanishad. Roughly translated, it exhorts men to be awake even when asleep.

Lest one comes to a conclusion that this is a catch phrase for a graveyard shift in a BPO, let me hasten to add that it is the motto of the Institute of Chartered Accountants of India (ICAI), the premier accounting body of the country.

The reference here to sleep is not merely physical. It is metaphysical, perhaps spiritual.

Being the second largest accounting body in the world, the ICAI is a statutory body established under the Chartered Accountants Act, 1949 for the regulation of the accounting and auditing profession in India.

As a sentinel of the financial sector of the country ICAI has a larger role in establishing appropriate benchmark for its members and crucially for itself.

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During its 61 years of existence, the official website of the ICAI claims that it has achieved recognition as a premier accounting body not only in the country but also globally, for its contribution in the fields of education, professional development, maintenance of high accounting, auditing and 'ethical standards'.

Yes, 'ethical standards' is the issue. For a nation where most public institutions runs on ethical deficit, ethics or more importantly the lack of them is central to the debate on hand.

Simply put, for an oversight body that prescribes ethical standards for its members who in turn are the vanguards of the financial sector, ethics is its soul.

Increasingly, as the functioning of the ICAI comes under greater public scrutiny, it is found -- more often than not -- that as an apex regulatory body in the country the ICAI is unable to meet the high expectations from its members and general public. Surely, something is wrong somewhere.

In an article titled ICAI in dire need of complete overhaul, I had pointed out: 'The elections to the council of the ICAI are due this December. Experience tells me that it would turn out to more pompous than the elections in UP, more vitriolic than it is in Tamil Nadu and of course more virulent than it is in Bihar. With the sole exception of booth capturing, all the ills plaguing the general elections in India are witnessed in our elections.'

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I was wrong. And I plead guilty. I had underestimated the ability of some of my brothers in the profession. In what must stun an ordinary reader, election to the Council of ICAI held in late 2009 was marred by booth capturing --  yes, booth capturing!

According to a report in Hindu BusinessLine, captioned 'Booth-capturing at CA institute polls' [December 8, 2009], ;The elections to the 21st Central Council and the 20th Regional Councils of the Institute of Chartered Accountants of India (ICAI) ran into rough weather after a booth capturing incident.'

Explaining the incident further the report added, 'At least four unidentified men, including one toting a pistol, stormed an ICAI election booth at Vaishali (near Ghaziabad) on Saturday, tampering the ballot box and stuffing ballot papers, sources said. The returning officer to the elections and ICAI secretary, T Karthikeyan, confirmed the incident and added that a First Information Report (FIR) had been lodged with a police station.'

Ethically challenged

The issue is not about any member involved in the booth capturing. The issue is of the ICAI having turned a Nelson's eye to this gory episode of booth capturing for nearly two years despite a committee report holding one council member guilty.

It is the silence of council, not the booth capturing, which has undermined the prestige of ICAI.

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But lest the reader comes to a conclusion that this issue is an exception, let me hasten to add that there are several inconvenient questions on which the ICAI has maintained a Sphinx-like silence.

For instance, commenting on the arrangement that certain Indian accounting firms have with their foreign counterparts (in contravention to Indian laws), the ICAI in June 2002 issue of its official Journal observed, 'The government should review the alternative route of entry of accounting firms in India in the name of management consulting firm, and, circumvention of the law of the land taking place directly and indirectly by performing accounting services by them.'

Readers may note that this was almost a decade ago. Yet, ICAI has been loath to take action on the alleged 'circumvention of the law of the land' by its own members in India!

In the interregnum, successive presidents of ICAI have roared at the beginning of their tenure to take action against such errant firms only to turn into pussycats by the end of their tenure.

It does not take too much intelligence to figure out that there must be some quid pro quo that turns these lions into pussycats. Further, several reports on this subject by the committee constituted by ICAI have been buried fathoms deep by its council.

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Obviously, when the top man is even seen to be compromised, everything can be managed.

No wonder, approximately three years after the Satyam imbroglio, the ICAI is yet to nail the guilty. In contrast, the said firm has reportedly been held guilty in the Satyam case by regulators in the United States.

Forget Satyam. Even more importantly, the ICAI is yet to take matters involving the very same accounting in the GTB (Global Trust Bank) scam of 2004 to a logical conclusion even now.

The reason for such contrasting approaches in the US and by the ICAI here is not merely systemic. In fact, the men who drive the system in India, who sabotage and dynamite it from within are responsible for the mess. And believe me, almost everyone is a 'negotiable instrument'.

As someone put it, 'hazaar (thousand) Hazares cannot clean the mess within ICAI.'

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Lack of benchmark

In this diffused scenario, obviously it is a free-for-all within the council. On the one hand, a council member has certain 'privileges' which allow him to use or misuse his office. Given the overall lack of transparency, ICAI, perhaps has to do some intense soul-searching.

This is where things turn worse. Insiders tell me that there is no code of conduct for the council members, which I understand is under 'discussion' since 2005. That allows them to function with absolute impunity.

Where is the question of breaking the rule when the rule is absent in the first place? That is ICAI for you.

In an institution where tolerance to booth capturing by its elected members is well demonstrated and even accepted, financial impropriety is passe. Recently, one council member from Pune has been accused of being involved in entering into a contract with the ICAI for conducting classes for students without disclosing the same to the council.

Did I hear someone whisper 'corporate governance'? Anyway, one must have been able to guess by now that ICAI does not have much in the form of corporate governance, including a norm for entering into contracts with its own council members!

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That enables the council member in question take a simple defence -- in the absence of any norm he has not flouted any norm! And pray who will prescribe the norm -- the council members themselves!

What is indeed adding fat to the fire is the fact that ICAI has been held to be a 'State' by the Supreme Court recently. That, in effect, means that council members would well and truly fall within the purview of Prevention of Corruption Act.

Naturally, given this legal imperative (as much as it is moral) it is incumbent on the ICAI to prescribe a norm for its council members. Yet there is thundering silence from all concerned.

Contrast this paradigm to a decision by the Bombay high court in Walchandnagar Industries Ltd versus Ratanchand Khimchand Motishaw (1953) where the court held a director guilty of supplying a tin of ghee -- yes, a tin of ghee! -- to his company without the appropriate approval of the board of the said company.

In this connection the court observed, 'although it may be unfortunate that the plaintiff should be disqualified by reason of a very small and petty contract which he entered into, in allowing the appeal we are enforcing the section, although realising that it may cause hardship in this particular case to the plaintiff, in the large and wider interest which the Legislature had in mind and in order to prevent directors from using their responsible office to their own advantage.'

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When queried one council member brushed aside my apprehensions while conceding that the 'revenue derived by the member in question from the orientation programme is minuscule and negligible'.

That explains why chartered accountants even go to the extent of capturing booths during polls to get elected to the council of the ICAI and why the council responds through silence.

Yet the world of finance and commerce trusts this very institution to 'maintain ethical standards', little realising that the ICAI has become virtually irrelevant by its own acts of omissions and commissions. It is time that the ICAI is woken up from its slumber.

PS: Perhaps, it is time to do a bit of Gandhigiri by sending tins of ghee to council members of ICAI.

The author is a Chennai-based chartered accountant. Comments can be sent to mrv@mrv.net.in