In this article, Mansi Bathija of UPES Dehradun discusses can a CA sue his client for non-payment of fees.

Role of a Chartered Accountant

• A Chartered Accountant helps in making financial reports, which is contrasted and the contender’s reports and administration utilize their bookkeeping administrations to survey the productivity of their operations.
• As commanded by state and government likewise, business needs bookkeeping and detailing administrations. Finance experts are in huge demand with fast development in the economy and changing statutory necessity.
• Chartered Accountants (CA) have increased greater popularity over the period and are in persistent demand in Industry. Lately, accountancy has turned into a famous career option.

Chartered Accountancy as a profession

Chartered Accountancy is a dynamic, testing and compensating profession. Every country has its own particular Accountancy Association which manages the procedure and educational programs of the people in this field.

Chartered Accountancy Course is an expert course in Accounting presented in our nation in 1949, with the enactment of the Chartered Accountants Act. Also, as indicated by the Companies Act, just CA in proficient practice can be named as auditors of organizations in India.

Accountancy in business helps shareholders make better business resolutions by giving financial data. Its primary thought process is to supply accurate data to its managers. It associates the administrators, proprietors, and speculators with intense data so as to assess the organization’s financial introduction. Financial bookkeeping incorporates balance sheets, pay statements, and statements of cash flows.

The vital legislations which govern the chartered accountants in India are Chartered Accountants Act, 1949, The Company’s (Indian Accounting Standards) Rules, 2015,Section 92e of the income tax act,1961,44ab of the income tax act 1961 and Companies Act, 2013.

Duties of CA under the Companies Act

The auditor has the following duties under the Companies Act:

1. To make special inquiries and investigations in connection with the matters related to loans and advances made by the company, transactions which are not prejudicial to the interest of the company, sale of shares, debentures and other assets, personal expenses charged to revenue accounts, cash transactions and its statement in books. (Sec. 227 (IA)).
2. To make the report of the balance sheet and all the profit and loss account to the shareholders. (Section 227 (2, 3 & 4)).
3. Duty to state the reasons for the answers in negative.
4. Duty to include in the report the matters as directed by the Central government. Section 227 (4A)
5. Duty to sign the audit report before submitting to the secretary of the company. (Section 229).
6. Duty to certify the Statutory Report. (Section 165 (4)).
7. Duty to declare the solvency of the Directors, (Section 488 (2) (b)),
8. Duty to give a report on the Profit and Loss Account and the Balance Sheet enclosed with the Declaration of Solvency. (Section 488 (2) (b)).
9. Duty to assist the Investigators (Section 240 (v) (b)).
10. Duty to assist the Advocate General.

Last resort – take legal action.

This should be your last resort and it is important to make sure that the cost involved will not exceed the amount that you are owed. You should also be aware that if you decide to pursue this option your relationship with this client will most likely be over.

Ways to take a Legal Action against the client

Send a legal notice

The prime motive of notice is to settle the issue without moving toward the court or to illuminate the grievance outside the court. Notice is likewise can be said as the last warning to look into the issue according to the legal provision and if that course is defended to make, correct or settles the case out of Court.

A Notice of Past Due Payment is a correspondence to someone else educating them that they have a commitment to make a payment as payment has not been gotten and is currently past due.

Obviously, the initial step ought to be to hire a lawyer who might serve a legal notice on the defaulting party but it is not mandatory, an individual can issue a legal notice too.The most evident strategy for recovery of a debt through the legal procedure is to record a recovery suit under the Code of Civil Procedure, 1908.

Legal notice is mentioned under section 80 of CPC &  sec 138 of Negotiable Instrument Act. The notice should be addressed to the defaulting party and should contain the cause of issuing a legal notice. It must mention the past communication between the parties too. The most important thing to keep in mind is to send it via a RPAD.^[1]

File a summary suit

A Summary suit is planned to encourage the expedient transfer of cases. The motive that underlies the summary procedure is to make preparations for postponing strategies that are enjoyed by a defendant, who may have no genuine defence. To keep it simple, the essence of summary suits is that the defendant is not, as in a ordinary suit, consequently invested with the privilege to guard a suit.

The right to exercise his defence will be allowed to the defendant just if the court is persuaded with regards to the validness of his cases. The summary suit is an effective weapon in the hands of a court to demoralise negligible defences. Provisions identifying with summary suits are found in order 37, Rules 1 to 7 of the Code of civil procedure.

CAs working as partners in a CA firm can sue and be sued in the name of the firm under order 30 of the code of civil procedure.

Right to lien

Right to lien is defined in the section 171 of the indian contracts act. A right of lien is a right to retain possession of property belonging to someone else, pending payment of an outstanding debt. Although it was considered unethical earlier in the case of RD saxena v Balram prasad^[2], it was later confirmed by the section 240.4F of code of ethics of ICAI that in the case of non payment of fees, the CA can exercise his right to lien and refuse to pass on the information unless the dues are cleared.

4. For other fee disputes the parties can opt to take up arbitration services. The icas fee arbitration scheme has been set up by the board to reach out to this particular issue.

Is the customer always right?

• Customer satisfaction is a promoting term that measures how items or administrations provided by an organization meet or outperform a customer’s desire.
• Customer satisfaction is essential since it gives advertisers and entrepreneurs with a metric that they can use to oversee and enhance their organizations.
• The possibility that the customer is constantly right is the main reason the customer assumes they are constantly right. It appears to give customers the conviction that they can be as inconsiderate as they need and say anything they please and it doesn’t make a difference since they are the customer.
• They can gripe about anything and hope to be given discounts or new things, regardless of if the issue is caused by them in any case. It is a strange thought to trust they are constantly right.

Ways to deal with difficult clients.

Build up standard procedures

Ground principles will set desires. Have strategies for missed arrangements without sensible reason, non-instalment of retainer and treatment of staff. A breach of these strategies can be a reason for ending the relationship. Likewise, set up telephone and email expectations.

Understand the client’s inspiration

During the admission, notwithstanding soliciting what the client needs, discover why they need it.

Comprehend why they are troublesome

A client might be troublesome for various reasons. When you have a thought of what makes a client troublesome, you can make an arrangement to manage it.

Educate them

The way to managing most troublesome clients is teaching them. Set aside the opportunity to converse with them and clarify the procedure and requirements, regardless of the possibility that you need to do it over and again. Report consistently as this will enable the client to comprehend their document and lighten worries that nothing is being finished. Instructing a client will construct a positive relationship that keeps going all through the record.

How to deal with clients for nonpayment of fees?

When a client refuses or delays your payment you must not just start threatening them, rather a better way to deal with such clients is to start by reminding them by sending the copy of the invoice with a letter. If even then the client doesn’t do the required or doesn’t contact you, nudge harder, continue to contact them via phone calls, emails or letters.

If the client has an excuse such as financial problems offer them some discount or alternative payment methods such as instalments. Do not forget to follow up. If it still doesn’t work, try to adopt other methods such as threatening. A sudden threat of legal action can persuade your client to pay their debt.

Under what circumstances is a CA liable and he cannot sue.

New auditor is required to take NOC according to Clause 8 of Part 1 of Schedule 1 of Chartered Accountancy Act. This is on account of if the undisputed expenses of the past auditor are not paid to him then no auditor can acknowledge the review of the organization.

In the event that there is no such reason than the new auditor can acknowledge the review even without getting the NOC from the past auditor. Yet, care ought to be taken that the new auditor must speak with the past auditor by Registered Post and should have the receipt with him in light of the fact that rebelliousness of CA Act would come about into unfortunate behavior by the new auditor and even his degree can be at stake. In such a case if the client is being troublesome in the payment of fees to the new auditor, he cannot sue.

Professional negligence: In the case of a negligent performance of an auditor, and nonpayment of fees by the client, the auditor cannot sue the client. In the case of Commissioner of Income-tax v. GM Dandekar, it was held that in the case of a known mistake in the audit report, it is the duty of the auditor to resend the corrected report to the concerned person. In the case of breach of such duty, the auditor is held liable. Damages for negligence are mentioned under section 35 of the companies act,2013.

Criminal liability such as fraud, wrongful gain, wrongful loss are mentioned under the section 447 of the companies act,2013. These are the cases under which an accountant shall be prosecuted.

Contract of engagement between auditor and client

An auditor can be held liable if he held a duty towards his client and failed to perform that duty. This makes it a case of negligence. If a loss has been incurred by the client because of the accountant, then the liability would be determined on the basis of the contract of engagement or a service legal agreement between them.  The agreement contains clauses regarding confidentiality of the information of client, payment, resolution of disputes and jurisdiction, termination of the contract etc.

Prevention is better than cure

It is always better to enter into a contract before taking up a professional job with someone or before hiring a client. Since the contract contains all the necessary clauses it is easier to avoid disputes and if they arise, it is easier to resolve them. However, there are guidelines set up by the institute of chartered accountants of India for the purpose of regulation of its members.

Keep in mind

If the client is denying or not willing to sign the contract, take it as an alarm and avoid such clients. If your client is honest enough to not be troublesome regarding payment, he will be comfortable getting into a contract with you.

Before taking any legal action against the client, one must keep in mind the odds that contentions may be made by him. Maximum professionals who sue their client for payment of dues get blamed for malpractices or misconduct towards the client. Hence, before you sue your client, be prepared to present your case and stay firm on your claim.

Relationship

^[1] RPAD stands for Registered Post with Acknowledgement Due.It is written on any postal article, for which the sender wants a proof or acknowledgement of delivery to confirm that it has been received by the addressee or his representative.

^[2] AIR 2000 SC 3049