ICAI's Rs 100 cr Mis-adventure?
Published on Sat, Feb 02,2013 | 12:44, Updated at Sat, Feb 02 at 12:44Source : Moneycontrol.com
By: Arun Giri & PS Prabhakar
ICAI, by its own admission, is 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 (icai.org). But recent happenings have put a black spot on such proud proclamations. For sometime now, a lot has been written and said about the murky land deal that ICAI President Jaydeep Shah entered into at Nagpur (incidentally, his home town) for a whopping Rs. 100 crores and more (which is almost one sixth of the total balance sheet size of the institution).
That even the highest decision making body ie: the Central Council - consisting of 32 elected and 8 Government nominated members was consciously kept in dark about the deal (it was finalised in a record 21 days – from concept to culmination) is not the only controversial issue.
The deal first came to light via newspaper reports (even Council members found out via the media) and went viral immediately. Several questions were raised regarding the opacity of the deal terms with many ICAI members raising potential issues of mis-governance and mis-appropriation – that too by a self-regulatory body that sets ethical standards for the profession.
Some such fundamental questions that Jaydeep Shah was faced with include:
1. Why was Nagpur selected for building a Centre of Excellence? Surely the number of C.As (barely 1500 Chartered Accountants) and the number of students (just a couple of thousand) cannot justify a 250,000 sq. ft facility on a sprawling 14 acre plot of land. Is it only because Jaydeep Shah hails from Nagpur?
2. Was the Rs.100cr capital commitment budgeted for at beginning of Jaydeep Shah’s term?? Shockingly the investment, amounting to 1/6th of ICAI’s corpus, did not even get a mention in the capital budget for the year!
3. Given that the ICAI is a quasi-state body, why were competitive bids not called for as laid down by the CVC?
4. Was the land price (Rs. 3900/per sq. ft) mentioned by the developer in EOI accepted without any negotiation? And an additional 10% lease charge agreed upon voluntarily?
5. Why did the ICAI not seek a land allotment by the State govt. – a practice it has successfully followed in other cities/states?
Which brings us to the most critical question…..
6. Could this entire Rs. 100cr deal have favoured one chosen developer? Why else were lower bids ignored and under whose instructions and….to benefit whom all?
7. When was the last time the ICAI entered a multi-crore rupee development contract with a developer, who has hardly any past track record to showcase??
Prompted by member group agitations the ICAI’s Central Council raised these issues in its recent meeting putting the President in a tough spot. While the Council has yet to put out any formal communication, sources in the meeting claim the land deal has been cancelled on the basis of a sub-committee report. A new, much smaller deal for Rs. 10 cr is said to be brewing. Interestingly, the advance paid to the Nagpur developer is Rs. 10 cr. However, permitting such a truncation may not only be immoral, but could be illegal as well. In a landmark judgment delivered just over a year ago, the Supreme Court held the ICAI to be a “State. ” Not just that, under the Prevention Of Corruption Act, 1988…ICAI Council members fall under the category of “Public Servant”. One only needs to read this excerpt from a historic Supreme Court ruling in the case of Kumari Shrilekha Vidyarthi, wherein the apex court held that “Arbitrariness is the very negation of the rule of law. Satisfaction of this basic test in every State action is sine qua non to its validity and in this respect. The State cannot claim comparison with a private individual even in the field of contract. Every State action must be informed by reason and it follows, that an act uninformed by reason, is arbitrary. Rule of law contemplates governance by laws and not by humour, whims or caprices of the men to whom the governance is entrusted for the time being.”
While the deal was preposterous per se, the scenario that is facilitated for the ICAI President being allowed to walk out of this mess scot-free, is doubly so. Why hasn’t the Vice President (who is to take over the reins as President) raised any objection? Was it because that he was also among those that favoured the deal?
Can these things be allowed to happen in an institution that has for over 60 years stood for financial probity and ethics in governance and is in fact a conscience keeper of India Inc.? But unfortunately that is exactly how the ICAI functions. Too much power concentrated in the hands of the President, with remaining 31 Council members behaving like puppets, basing most of their decisions not on principles but with both eyes on the annual Vice-Presidential elections. The consequence – ICAI is now perceived as a soft/non-regulator.
We have only to quote from RBI Governor D Subbarao’s address at an Institute conference in December 2011. He rightly said "The profession has argued for years that self-regulation and peer review are the right way to maintain standards. But the conduct of Enron, Parmalat etc. under the very nose of auditors has raised question about the effectiveness of soft regulation. The profession has to find a way of remedying this if it wants to prevent the imposition of an external regulator." Dr.Subbarao could see the writing on the wall but our profession could not..which is why today the new Companies Bill (passed by Lok Sabha), has proposed a super regulator - National Financial Reporting Authority (a body which will have sweeping powers over accounting and auditing related issues).
The last few years have seen many balance sheets being constructed through 'legal opinions.' Despite being aware of the same, there has been no action initiated and where a notice has been sent, it’s gathering dust somewhere. Forget self-regulation of general members...the Council does not even have a code of conduct for itself (which has been in draft and discussion stage for 9 years). One Council member is facing serious criminal and corruption charges but the leadership has shown no willingness to act against the member. The Regional Councils and ICAI branches function more like event management bodies conducting seminars and conferences, self granting visibility to the office bearers of the Regional Councils, most of whom have dreams of making it to the Central Council and to win the coveted position of Vice President in the future. Interest of the profession is secondary, if at all. The other noteworthy ‘achievement’ is that in 10 years the ICAI has put up 100 buildings across the country...giving the likes of DLF some stiff competition. The ICAI President spends most of his 12 month tenure attending innumerable felicitation functions across the 100 and odd branches...but when it comes to Disciplinary Committee meetings – there rarely clock the frequency of even one a month! In the last 12 months, not even 12 Disciplinary Committee meetings have been held!!! And the disciplinary cases are a pile.
But it would be wrong to blame only the Council leadership for this mess. It is the 2 lakh members of this once august profession, who must share equal responsibility for this steady rot. The ordinary accountant is satisfied completing his audits & consulting assignments, but has little time or interest to participate in the affairs of his alma mater. As a result, there is little accountability as hierarchies narrow and least at the top. Sweeping reforms are a long pending demand but who will bell the cat? Or will it take collective outrage over every issue (like it happened during Nagpur deal) for the Council to reform itself? For now, let us recognize the Council members who stuck their neck out to get the Nagpur deal cancelled – Amarjit Chopra, Jayant Gokhale, Pankaj Jain, Atul Bheda, Sanjay Agarwal, Vinod Jain & Rajkumar Adukia.
(The authors of this article are Chartered Accountants.)