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*        IN THE HIGH COURT OF DELHI AT NEW DELHI

+       W.P.(C) 10523/2020

BURMAN SINGH AND ASSOCIATES & ANR…….. Petitioners

Through:     Mr. Priyadarshi Banerjee with Mr.

Suryaneel Das, Advs.

versus

INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

….. Respondent

Through:     Ms. Pooja Saigal, Adv.

CORAM:

HON’BLE MR. JUSTICE NAVIN CHAWLA

O R D E R

%   17.12.2020

This petition has been heard through video conferencing.

CM APPL. 33295/2020 (Exemption)

Allowed, subject to all just exceptions.

W.P.(C) 10523/2020 & CM APPL. 33294/2020

On the oral prayer of the counsel for the petitioners, the Reserve Bank of India (RBI) is made party-respondent to the petition. Let an Amended Memo of Parties be filed within two days.

Issue notice. Notice is accepted by Ms. Pooja Saigal, Advocate on behalf of the respondent no.1. Let notice of this petition be served on the respondent no.2/newly added respondent by the petitioner by way of speed post, courier and electronic mode, returnable on 19^th March, 2021.

Counter affidavit be filed within a period of three weeks. Rejoinder thereto, if any, be filed within two weeks thereafter.

NAVIN CHAWLA, J

DECEMBER 17, 2020

IN THE HON’BLE HIGH COURT OF DELHI AT NEW DELHI

CIVIL WRIT JURISDICTION

WRIT PETITION (CIVIL) NO.   OF 2020

IN THE MATTER OF:

 urman Singh & Associates & Anr.                        … PETITIONERS

versus

Institute of Chartered Accountants of India        … RESPONDENT

PETITION UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA SEEKING SETTING ASIDE OF RESPONDENT’S ILLEGAL AND MANIFESTLY ARBITRARY REQUIREMENT OF CONFIDENTIAL FINANCIAL INFORMATION / INCOME TAX RETURNS FOR EMPLACEMENT AS STATUTORY BRANCH AUDITOR FOR 2020-21.

MOST RESPECTFULLY SHOWETH:

1. The Petitioners are aggrieved by the illegal and wrongful act of the Respondent in demanding confidential financial information in the form of detailed Income Tax Returns (ITR) in the Multipurpose Enrolment Form 2020-21 (“MEF”), for being considered for empanelment as Statutory Branch Auditors (SBA) for the year 2020-21. The mandatory requirement of submission of confidential ITR pertaining to the year 2018-19 is ultra vires the powers of the Respondent and further is in violation of the Petitioners’ right to privacy as protected under Article 21 of the Constitution of India. Furthermore, the Respondent intends to share the confidential information to third party private individuals / firms, albeit for purposes of verification, without so much as intimating the Petitioners in that regard, and thereby being in gross violation of the rights of the Petitioners. Furthermore, the confidential information sought by the Respondent has absolutely no nexus to the process of preparingthe list of eligible auditors / audit firmsfor empanelment as SBAs for the year 2020-21, and therefore, is manifestly arbitrary and deserves to be set aside/ quashed by this Hon’ble Court. Copies of the Advisories/Notifications issued by the Respondent for MEF 2020-21 are annexed herewith and marked as Annexure P-1 (Colly.).
2. That the Petitioner No. 1 is a partnership firm of chartered accountants constituted in 2005 and has since 29.12.2005 continuing as such. The Head Office of the said Petitioner is at the above mentioned address, whereas it has branch offices in Mumbai, Jaipur, Sitamarhi, Dhanbad and Sorbhog. Presently the Petitioner is constituted of eight (8) partners, including Petitioner No. 2 herein, who are all qualified chartered accountants and members of the Respondent Institute.The Petitioner No. 1 has been successful in getting itself empanelled as SBA since FY 2007-08 and has vast experience in the conducting statutory audit in branches of Public Sector Banks. The Petitioner No. 1 is registered with the Respondent, as is legally required, and updated details of the said Petitioner as maintained by the Respondent and certified in its certificate dated 06.11.2020, is annexed herewith and marked as Annexure P-2.
3. The Petitioner No. 2 is a practicing Chartered Accountant and a well respected fellow member of the Respondent Institute. He is also a partner in the Petitioner No. 1 firm from its inception, and is deeply prejudiced by the illegal and arbitrary action of the Respondent.
4. The Respondent being the Institute ofChartered Accountants of India(hereafter referred to as the “ICAI”) is statutorily established under the Chartered Accountants Act, 1949 with specific statutory functions for regulating the profession of chartered accountancy and professional conduct of its members. The Central Government exercises pervasive control over the Respondent under the statutory scheme of the Chartered Accountants Act, 1949 and is thus State within the meaning of Article 12 of the Constitution of India and is hence amenable to the writ jurisdiction of this Hon’ble Court.
5. BRIEF FACTS:

The brief facts leading up to the present petition are as follows:

• The Respondent Institute annually prepares the list of eligible firms / membersfor empanelment for statutory branch audits of public sector banks, of its members and chartered accountancy audit firms such as the Petitioners which are registered with the Respondent. However, the process of appointment of such statutory branch auditors happens under the strict norms laid down by the Reserve Bank of India (hereafter the “RBI”) under various provisions of the Banking Regulation Act, 1949.
• Like previous years, the RBI had specified norms for the empanelment of audit firms to be appointed as SBAs for public sector banks, adopting the categorization and eligibility criteria laid down by it for year 2016-17 and onwards (hereafter referred to as “Norms”). A copy of the RBI’s Norms on eligibility, empanelment and selection of SBAs in public sector banks is annexed herewith and marked as Annexure P-3.
• Paragraph B-2(i) of the RBI’s Norms entrusts the Respondent Institute to prepare a list of eligible audit firms / its membersin accordance with the norms prescribed by the RBI. Therefore, the Respondent has no power or authority to add to, subtract from, amend or modify these norms laid down by the RBI towards which the RBI has been statutorily empowered.
• For this purpose, akin to the process previously adopted by the Respondent, it has published a Multipurpose Enrollment Form 2020-21 (“MEF”) which is required to be filled and submitted by interested practicing chartered accountants or audit firms. It is apposite to mention herein that the number of audits or the volume of work is allotted as per the strength of the partnership firm. Thus, a Partnership firm of 25 partners would be given audits of bigger branch of a bank, whereas a partnership firm with lesser number of partners or individual Chartered Accountants would be given smaller audits. The income of the professional is never a criteria for allotment of audits and thus, a firm with fewer partners but a large quantum of professional income would still not be given bigger branches for audit compared to a large firm with lesser income.
• At this juncture it is also pertinent to mention that hitherto, the Respondent had never required applicants to furnish confidential financial information such as balance sheet, or profit and loss accounts, or ITR at the time of submission of applications for emplacement as SBAs. Therefore, it is curious that without any material change in the Norms under which the Respondent is stated to be empowered to prepare the list of eligible auditors / audit firms for empanelment, it has on its own accord, inexplicably added additional conditions for the same. It is respectfully submitted that in previous years, the Respondent for the purpose of verification required only a randomised set of 5% of the applicants to additionally submit their ITR-V Form (i.e., the acknowledgement issued by the relevant authority denoting due submission of income tax returns). However, to the best of the Petitioners’ knowledge, such information which had been hitherto filed with the Respondent had never been shared by the Respondent with any private third party, which is starkly different in the present year.
• That along with the MEF, the Respondent also notified an advisory for filling the said MEF, calling for applications for emplacement as SBAs with the last date of submission being 12.10.2020 (hereafter, the “1^st Notification”). Subsequently, the Respondent had notified a subsequent advisory clarifying certain aspects and further extending the last date of submission to 10.11.2020 (hereafter, the “2^nd Notification”). Copies of the 1^st and the 2^nd Notification have already been annexed and marked herein above.
• It is pertinent to note that the Respondent in the 1^st and the 2^nd Notifications clarified the eligibility criteria in Paragraph 2 in the respective notifications, such as that the period to be considered for exclusive association of a partner with an audit firm shall be reckoned on01.01.2020, etc. However, the confidential financial documents such as the ITR which has been sought pertains to the Financial Year 2018-19 as required under these Notifications and therefore, in no manner contributes to the verification of any details pertaining to the applicants such as the Petitioners.
• It is respectfully submitted that the arbitrary requirement whimsically being insisted upon by the Respondent in the form of disclosure of entire income tax returns shall compel the applicants in the process to divulge all confidential information such as their Bank Account numbers, IFSC Code, address of all properties owned by them, details of agricultural land owned by the applicant(s), details of their ancestral properties, details of insurance policies and annuity policies, etc.In fact, some of these information may not even have any tax implications but are sought by the Income Tax Department for statistical purposes. In effect, therefore,applicants are being arbitrarily required to disclose their income from capital gains, income from house property as well as income from other sources, apart from their income from profession. That the  emplacement and ultimate appointment of the eligible members and audit firms shall be on the basis of the experience and size (i.e., number of partners in a firm) of an applicant firm, the elaborate requirement of divulging sensitive confidential private financial and commercial information is de hors any palpable nexus with that criteria.
• That subsequent to the publication of the above mentioned notifications, the Respondent Institute issued a notice for inviting expression of interest (EOI) dated 29.10.2020 calling for applications from private chartered accountants firms for auditing the financial documents submitted by the applicants with the MEF. Hence, the Respondent demonstrably intends to share the entire confidential information collected by them without any authority of law from the applicants including the Petitioners herein with third party private CA firms, which also happens to be a fellow professional competitor. A copy of the Notice for Inviting Expression of Interest dated 29.10.2020 issued by the Respondent is annexed herewith and marked as Annexure P-4.
• That pursuant to the 1^st Notification, the online MEF did not carry any separate tab for submission of the entire ITRs of the applicant firms or its partners. At that stage, the Petitioner No. 1 had completed its application, solely with the ITR-V form i.e., acknowledgement of ITR by the relevant authority. However, the Petitioner No. 2 received a notice vide email dated 10.11.2020 from the Respondent illegally requiring the Petitioner to upload complete ITR of the Petitioners as a mandatory requirement for emplacement as SBAs. A copy of the MEF submitted on behalf of the Petitioners dated 25.09.2020 is annexed herewith and marked as Annexure P-5.A copy of the email dated 10.11.2020 from the Respondent to Petitioner No. 2 is annexed herewith and marked as Annexure P-6.
• That the Respondent’s email dated 10.11.2020 was issued to the Petitioner at the last moment, i.e., on the last date of submission for the MEF, thereby rendering any possible representation on behalf of the Petitioners in this regard as futile.
• It is respectfully submitted that the rights of the Petitioners are being infringed by the acts of the Respondent, hence the Petitioners are constrained to approach this Hon’ble Court for urgent relief.

6. GROUNDS

The Petitioners are assailing the illegal acts of the Respondent on various grounds as follows, which are without prejudice to each other:

1. BECAUSE the requirement of submission of confidential ITR of the Petitioners pertaining to the financial year 2018-19 is manifestly arbitrary inasmuch as it has no correlation to the publication of the list of eligible audit firms / membersfor empanelment for appointment as SBAs for the year 2020-21 under the norms so determined by the RBI for this purpose.

2. BECAUSE even assuming without conceding that the financial records and details of the applicants are necessary for the appointment as SCBs, it does not hold up to any rationale why the requirement of submission of entire ITRs has been arbitrarily introduced by the Respondent in the middle of the empanelment process commenced for the year 2020-21. It is humbly submitted that even to gauge the professional income of any applicant, the acknowledgment of ITR along with computation is more than enough. At this juncture, it maybe apposite to mention that total income of a person as per the Income Tax Act, 1961 is the cumulative computation under five heads, namely, income from salary, income from business and profession, Capital Gains, Income from House Property and Income from other sources. A practicing CA who has applied for empanelment may have income under the heads of Income from House Property and Income from other sources apart from income from business and profession, however, it is beyond logical credence and de hors the law as to why such disclosure of income under all the heads would be necessary and too sharing such information with a private third party. Therefore, the mandatory requirement illegally imposed by the Respondent on the Petitioners to furnish complete ITRs causes an unwarranted invasion of their privacy.

3. BECAUSE the Respondent has blatantly ignored the nature of ITRs and rights of privacy and confidentiality of the Petitioners herein in demanding complete ITRs without any legal authority, which is a mandatory legal requirement for derogating from the privacy rights of the Petitioners. It is respectfully submitted that the Respondent has entirely failed to consider that ITRs which contain sensitive and personal information and which stand exempted from disclosure even under the Right to Information Act, 2005, are protected from illegal and unauthorized disclosure inasmuch as they relate to informational privacy of the Petitioners.

1961. BECAUSE the Respondent in mandatory requiring the disclosure of the complete ITR of the Petitioners and partners in the Petitioner No. 1 has completely ignored the nature of the information which has thus been sought inasmuch as it is subject to confidentiality under Section 138 of the Income Tax Act, 1961. The Respondent has committed a palpable error in disregarding the decision of the Hon’ble Supreme Court in Supreme Court of India v. Subhash Chandra Agarwal, (2020) 5 SCC 481 whereby it has been held that personal information such as income tax returns is entitled to protection from unwarranted invasion of privacy. Therefore, ITRs are an integral part of the informational privacy of individuals, whose disclosure cannot be nonchalantly mandated without following appropriate safeguards, as necessary for derogation from any fundamental right.

4. BECAUSE the Respondent’s casual insistence on the mandatory disclosure of ITR details of the Petitioners is in teeth of the law relating to informational privacy as laid down by the Hon’ble Supreme Court in S. Puttaswamy v. Union of India & Ors., (2017) 10 SCC 1. The disclosure of the ITRs shall amount to a serious invasion of the fundamental right of privacy which can only be undertaken with appropriate backing of law, which is wholly absent in the present circumstance.

5. BECAUSE the requirement of mandatory disclosure of ITR as imposed by the Respondent, fails to satisfy the necessary triple test laid down by the Hon’ble Supreme Court in S. Puttaswamy (supra.). The Hon’ble Supreme Court has laid down that the procedural and content-based mandate of Article 21 requires that for any restraint on privacy (such as through requiring disclosure of personal information), there must be (i) a law in existence to justify an encroachment; (ii) a legitimate State aim or need must exist; and (iii) that the State action must be proportional to the need. In the instant case, the action of the Respondent in seeking complete ITRs of the Petitioners is not predicated upon any law, and therefore the same is wholly illegal and arbitrary. Without prejudice to the afore, inasmuch as the required ITRs pertaining to the FY 2018-19 is completely irrelevant for any determination / verification with regard to the qualification period commencing from 01.01.2020, there is no justifiable or legitimate aim for seeking such disclosure. It is respectfully submitted that the eligibility list / panel is being prepared by the Respondent for the audit to be conducted in the month of April 2021. Therefore, there is a delay of about two years between the information sought and the actual audit exercise to be conducted. It is respectfully submitted that it completely eliminates the possibility of the confidential information being required for any meaningful verification purpose.Furthermore, arbitrary requirement of submission of entire ITRs for the year 2018-19 is wholly disproportional to any assumed relevance that it may have with regard to the qualification period which commences only from 01.01.2020. That in any case the Respondent has sought for the Statement of Computation of Total Income along with the MEF, thereby the requirement for the complete ITR is excessive and disproportional.

6. BECAUSE the imposition by the Respondent of the mandatory requirement of submission of confidential ITRs by the Petitioners to participate in the empanelment for SBAs, without any law empowering them as such to this effect, amount to imposition of an unconstitutional condition by the Respondent on the Petitioners. It is respectfully submitted that the doctrine of ‘unconstitutional condition’ implies any stipulation imposed upon the grant of a State privilege (such as appointment as SBA in the present case) which in effect requires the recipient of the privilege to relinquish some constitutional right. The insistence of the Respondent for submission of complete ITRs for being considered for appointment as SBA results in the constitutional guarantee of informational privacy being destroyed through a process of requiring a surrender, which though in form voluntary, in fact lacks none of the elements of compulsion.

7. BECAUSE It is humbly submitted that in effect, the Petitioners are not given any choice in the matter of maintaining confidentiality of their financial information, except to forego a privilege which is otherwise guaranteed under the constitutional scheme. It is submitted that the Respondent’s insistence on disclosure of ITRs without any legal requirement to that effect results in the Petitioners’ fundamental right being indirectly circumvented by conditioning their waiver upon receipt of a privilege that the Petitioners are in no real position to reject for the sake of their professional progress.

8. BECAUSE the unconstitutional condition imposed by the Respondent results in the Petitioners’ application for empanelment not being considered in the circumstance that they choose not to disclose their confidential information. Thus, an unconstitutional impediment is being created for the Petitioner to exercise his freedom of profession thereby violating the rights of the Petitioner as enshrined in Article 19(1)(g) of the Constitution of India.

9. BECAUSE the Respondent, completely unmindful that documents and details with the MEF are submitted to the Respondent Institute in a fiduciary capacity intends to pass on the same to third party private competitors of the Petitioners which is evident from its Notice for Inviting Expression of Interest dated 29.10.2020. Therefore, while the Respondent is fully aware of its intention to further transmit the confidential personal information of the applicants such as the Petitioners herein, it has failed to so much as inform the subject of that personal information regarding the manner in which it seeks to deal with the information that it is collecting. This is crucially relevant given that the audit firms who may be handed over the confidential personal financial information of the Petitioners would be a professional competitor of the Petitioners being another audit firm such as the Petitioner No. 1. Therefore, the arbitrary exercise of thus surreptitiously collecting and further parting with the Petitioners’ personal information is illegal and deserves to be struck down by this Hon’ble Court.

10. That the Petitioners crave leave of this Hon’ble Court to add, amend or modify any of the grounds in support of the instant Petition.

11. That the Petitioner shave not filed any other petition or proceedings before this Hon’ble Court or any other Court or forum in respect of the subject-matter of the present Petition.

12.That this Hon’ble Court has jurisdiction to decide the present Petition since the Respondents having its office within the jurisdiction of this Hon’ble Court. It is respectfully submitted that cause of action has arisen within the jurisdiction of this Hon’ble Court. It is respectfully submitted that the head office of the Respondent is within the jurisdiction of this Hon’ble Court. It is respectfully submitted that this Hon’ble Court is forum convenient to entertain the present Petition. It is respectfully submitted that this Hon’ble Court has jurisdiction under Article 226 of the Constitution of India to entertain the present Petition.

13. That there is no other alternative or efficacious remedy available with the Petitioners except to approach this Hon’ble Court.

14. That all the annexures as filed with the present Petition are true copies / print-outs of their respective originals or documents as available on the Respondent’s website.

15.That the Petitioners are filing appropriate court fees along with the present petition.

16. That the present Petition is bona fide and in the interest of justice.

PRAYER

          In view of the facts and grounds stated herein above, it is most humbly and respectfully prayed that this Hon’ble Court may be pleased to pass writ(s), order(s) and/or direction(s), to:

• Declare that the requirement of furnishing complete Income Tax Returns of the Petitioners and partners in the Petitioner No. 1 firm, for the Financial Year 2018-19,along with the Multipurpose Enrolment Form 2020-21 (“MEF”) for empanelment for appointment as Statutory Branch Auditors for Public Sector Banks, is arbitrary, illegal, null and void;
• Set aside any requirement of furnishing complete Income Tax Returns of the Petitioners and partners in the Petitioner No. 1 firm, for the Financial Year 2018-19, along with the Multipurpose Enrolment Form 2020-21 (“MEF”) for empanelment for appointment as Statutory Branch Auditors for Public Sector Banks;
• Declare the Respondent’s email dated 10.11.2020 to the Petitioners as null and void;; and
• Pass any other order(s) / direction(s) in favour of the Petitioner as this Hon’ble Court deems fit and proper.

Through: