A true account: How law firms are taking the lead in consultancy business

Be it advising the government or tackling bankruptcy cases, they are handling roles traditionally handled by CAs

The assembled chartered accountants (CA) did not see it coming that July 2017 evening. On the Chartered Accountants Day function at a stadium in Delhi, there was excitement as Prime Minister Narendra Modi started speaking.

“I have even heard that the Chartered Accountant fraternity were on Diwali vacations, hotels had been booked, but some cancelled their trips and were promptly back to their workstations which were functional 24×7. Now I am not aware if you all worked righteously or participated in malpractices. Well, was it in the interest of the nation or your clients? But you did burn the midnight oil in those days,” said Modi, referring to demonetisation announced less than a year ago in November 2016.

Almost six years since demonetisation, the Institute of Chartered Accountants and big consultancy firms are still toting up the costs of that indictment by the Prime Minister. A host of law firms have spread their wings and are likely to expand their role after the Bar Council of India last week allowed foreigners to enter India as advisors, albeit in a limited way.

After scandals at IL&FS, ABG Shipyard and DHFL, CA-dominated consultancy firms found themselves out of government policy-making. The big four consultancy firms, Deloitte, EY, KPMG and PwC, were affected and so were smaller ones like Grant Thornton. In their place, legal firms like Trilegal, Cyril Amarchand Mangaldas, Shardul Amarchand Mangaldas & Co, Vidhi Legal and AZB and Partners found government departments more receptive.

“The government departments heard what he was saying and just stopped engaging with us”, said a former top partner at one of the four big firms. No one from any CA firms was willing to comment for this story.

Recognising the challenges, groups representing chartered accountants, cost accountants and company secretaries, moved in. “In any field there shall be errants and we have moved hard to remove (them), but the public perception is still to follow suit”, said Girish Ahuja, an expert on direct tax issues, holding positions in both Shri Ram College of Commerce (Delhi University) and at the Institute of Chartered Accountants of India.

Accountancy groups' fixes for the profession were not enough for the government. The ministry of corporate affairs in 2021 brought in The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, which is now with the standing committee of finance. The Bill has brought in external actors to manage the disciplinary powers for the three. Under the three Acts that the Bill seeks to amend, the governing council running the affairs of the respective institutes shall retain the powers to set up councils as a disciplinary board, but the presiding officer of the board will not be a member of these institutes. The member will instead be nominated by the central government. For the first time there is also a time bar on how long an inquiry can run.

Modi, in his speech in July 2017, criticised the delay in penalising errant members of these institutes. “Why is it that in the last 11 years, only 25 Chartered Accountants have been prosecuted? Did only 25 people make a mess? And I have heard that more than 1400 cases are still pending for many years now,” he said.

As the accountancy business preps for reforms, law firms' visibility in the policy-making circles has shot up. “The trend has brought them into some competition with the CA firms”, acknowledged Arghya Sengupta, Founder and Research Director at Vidhi Centre for Legal Policy. “But”, he adds, “it is not as if working on policy issues will be the most remunerative facet of the working of law firms”.

Those policy issues are expanding. In the latest round of government disinvestments, a turf reserved for CA firms, some law firms have made an independent pitch.

Just as they are already advisors to the ministry of corporate affairs and helped draft The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021, they are also the go-to firms for other ministries.

In the past few years, since Modi’s speech, the finance ministry has not involved the CA firms in any policy work. That is in contrast to the early 2000s, in both the direct and the indirect tax committees headed by Vijay Kelkar and in the subsequent FRBM report in the next decade, senior members of CA firms were quite visible.

It has changed drastically in the past few years. The SriKrishna committee on data protection framework for India, set up within a month of Modi’s speech, had no experts from the CA consultancy firms.

Finance minister Nirmala Sitharaman has promised to carry out a comprehensive review of existing regulations of all financial sector regulators. In her budget speech in February, she said her plan was to: "To simplify, ease and reduce cost of compliance...For this, they (the regulators) will consider suggestions from public and regulated entities. Time limits to decide the applications under various regulations will also be laid down”. The names of the committee members have not been announced so far, but guesses go up only one street.

The impact is most visible among the regulators. This is particularly so in the Insolvency and Bankruptcy Board of India and in the Competition Commission of India and now also in others.

“The way many of these regulators handle cases from the industry mimics a law court,” said Geeta Gouri, former member of the Competition Commission of India, and the author of 'A Commissioner's Primer to Economics of Competition Law in India'.

In the bankruptcy cases, while there was a rush from the CA firms to become resolution professionals, those shepherding the sick firms once they enter the platform are lawyers. In any case, the qualifications did not prefer any particular trade for them to write the exam and qualify as one.

In the electricity regulator and in the petroleum regulatory board, decisions were held up for more than a year, as there was no member law. While one may quibble if it is necessary for a regulator to become more like courts, the industry demands and they function as legal forums, handing down decisions.

“Law firms have a combination of pulse on the industry, together with the ability to exercise their independent judgments on matters,” said Sengupta, of Vidhi Centre.

It is not surprising to see them commenting in the media on even the central bank’s policy rates, a demonstration of how far they have come.