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Fiduciary Relationship Between Chartered Accountants And SEBI: A Critical Study

Written by Siddhant Nanda

Advocate, Supreme Court of India




Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.


In July 2018 based on the recommendations of the Kotak Committee Report dated October 5, 2017[1]SEBI published a Consultative Paper on proposed SEBI (Fiduciaries in the Securities Market) Regulations which gave rise to questions about whether Chartered Accountants functioning as independent professionals can be considered to have fiduciary duties to SEBI and in turn be regulated by subordinate regulations.

What is a Fiduciary Relationship under the law?

  1. The term “fiduciary” refers to an individual holding a duty to act for the benefit of another, in good faith, where such other person reposes trust and a high degree of confidence in the individual owing or discharging such duty[2]. As observed by the Hon’ble Supreme Court in the case of CBSE and Anr. v. Adiya Bandopadhyay and Ors.[3], the collective term “fiduciary relationship” is used to describe a situation or transaction wherein one individual (beneficiary) places complete confidence in another individual (fiduciary) with regards to his affairs, business or transaction(s).

  2. Further, the Advanced Law Lexicon 3rd Edition, 2005[4], refers to a fiduciary relationship as “A relationship in which one person is under a duty to act for the benefit of the other on the matters within the scope of the fiduciary relationship. A Fiduciary relationship mostly arises in one of the four circumstances: (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act or give advice to another on matter falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client, or a stockbroker and a customer.”[5] To determine whether a relationship is based on trust or confidence, it is relevant to ascertain whether parties stand in a fiduciary capacity. As per the judgement of the Hon'ble Supreme Court of India in the case of Sri Marcel Martins vs M. Printer & Ors[6], the Courts in such a situation shall have to take into consideration the factual context in which such a question arises as it is only in the factual backdrop that the existence or otherwise of a fiduciary relationship can be determined in a specific case.

Fiduciary Duties of a Chartered Accountant w.r.t SEBI

  1. Under existing laws, a Chartered Accountant has been entrusted with the roles of an auditor, expert, legal representative, issuer of certificates, administrator[7] and a member of the ICAI. Under all such roles that a Chartered accountant assumes, the law provided under the Companies Act, 2013 and ICAI Act, 1949 already provides for precautions and the minimum degree of care that a Chartered Accountant must ensure in the discharge of his duties under every role. The Act not only prescribes the minimum degree of care but also clearly outlines the liabilities that a Chartered Accountant[8] will be subject to if they act in contravention to the measures contained in these Acts.

  2. However, a bare perusal of the roles that a Chartered Accountants assume with respect to the Companies (listed and unlisted) shows that the Chartered Accountant owes a fiduciary duty only to the company[9] and the institute[10] for the functions discharged.

  3. In the SEBI Regulations, the Chartered Accountants as signatories of financial results[11], annual reports[12] and certificates[13] provide for a well-regulated and trustworthy apparatus to SEBI which helps it double-check and ascertain the veracity of documents and results provided to it by the companies. The Institute of Chartered Accountants of India through the Peer Review Committee itself plays a vital role in certifying the financial results of all the companies.

  4. The Chartered Accountant owes a duty to act and give advice to only the company it is working for and its beneficiaries[14]. All the actions under the SEBI act are in continuation of and ancillary to the functions a Chartered Accountant performs for the specific listed company[15].

  5. Such actions by the Chartered Accountants cannot be misinterpreted to be having a fiduciary relationship/ duty to SEBI for its actions. Such an interdependent relationship between members of one statutory authority serving another statutory authority does not qualify under the essentials of a fiduciary relationship as the said relationship does not fall within the essentials laid down by the Hon’ble Supreme Court of India in the case of Reserve Bank of India and Ors. v. Jayantilal N. Mistry and Ors[16] and the contrary reasoning are as follows:

(1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first,

The SEBI regulations do invest trust in the faithful integrity of a CA/ICAI by mandating them as a signatory of documents, however, there is no assumption of superiority or influence of CA/ICAI over SEBI.

(2) when one person assumes control and responsibility over another,

There is no assumption of control or responsibility over the other as the CA’s are independently controlled and governed by ICAI.

(3) when one person has a duty to act or give advice to another on matters falling within the scope of the relationship, or

The CA owes a duty to act and give advice to only the company it is working for and its beneficiaries[17]. All the actions under the SEBI act are in continuation of and ancillary to the functions a CA performs for the specific listed company.

(4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client, or a stockbroker and a customer

The Hon’ble Supreme Court of India in the case of Institute of Chartered Accountants v. P.K Mukherjee[18] has recognised a CA’s fiduciary relationship to the company and its beneficiaries such as shareholders and subscribers and ICAI but there is no recognition of a fiduciary relationship between CA and SEBI.


[1] CNBC, The significance of Sebi’s proposal to regulating chartered accountants and other professionals explained https://www.cnbctv18.com/views/the-significance-of-sebis-proposal-to-regulating-chartered-accountants-and-other-professionals-explained-329611.htm [2] Sri Marcel Martins vs M. Printer & Ors (2012) 5 SCC 342 [3] (2011) 8 SCC 497 [4] Aiyar, Pinayur Ramanatha, Advanced Law Lexicon 3rd Edition, Nagpur : Wadhwa, 2005 [5]Reserve Bank of India and Ors. v. Jayantilal N. Mistry and Ors (2016) 3 SCC 525 [6] Supra No. 2 [7] Section 139, 2(38), 432, 232 & 259, Companies Act 2013 [8] Chapter V, The Chartered Accountants Act, 1949 [9] FIRST SCHEDULE, The Chartered Accountants Act, 1949 [10] SECOND SCHEDULE, The Chartered Accountants Act, 1949 [11] Regulation 33, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [12] Regulation 53, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [13] Regulation 45, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [14] Institute of Chartered Accountants v. P.K Mukherjee 1992 AIR 118 [15] Section 15V, The Securities and Exchange Board of India Act, 1992 [16] Supra No. 3 [17] Supra No. 13 [18] Supra No. 13 BIBLIOGRAPHY

Case Laws:

  1. CBSE and Anr. v. Adiya Bandopadhyay and Ors. (2011) 8 SCC 497

  2. Reserve Bank of India and Ors. v. Jayantilal N. Mistry and Ors (2016) 3 SCC 525

  3. Sri Marcel Martins vs M. Printer & Ors (2012) 5 SCC 342

  4. Institute of Chartered Accountants v. P.K Mukherjee 1992 AIR 118

Laws and Regulations:

1. Companies Act, 2013

2. The Chartered Accountants Act, 1949

3. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

4. Advanced Law Lexicon 3rd Edition, 2005

News Articles:

1. CNBC, The significance of SEBI's proposal to regulating chartered accountants and other professionals explained https://www.cnbctv18.com/views/the-significance-of-sebis-proposal-to-regulating-chartered-accountants-and-other-professionals-explained-329611.htm


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