It is common knowledge that Chartered Accountants, Company Secretaries, Cost Accountants and Valuers play quite a vital role in authentication and substantiation of legal and financial records of companies as well as alerting and exposing any fraudulent acts or mismanagement of funds therein.

The reports (covering, inter alia, legal and financial aspects of any company) issued by such Professionals are sometimes among the key considerations that aid investors in deciding with respect to making investments in that company.

However, so many high profile corporate scams in the recent past have highlighted the negligent or incompetent conduct of some of the Professionals involved in discharging their duties and functions as such professionals either failed to detect the frauds during the audit and verification or abetted the fraudsters by hiding their fraudulent acts.

Therefore, it is the need of the hour to not closely monitor the functionality of these Professionals and modify the policies applicable to these Professionals, but also to make them more responsible, liable and accountable for their acts and omissions.

In this backdrop, the Securities Exchange Board of India (SEBI) is deliberating a proposal to mandate that such Professionals may have to forfeit their professional fees and face penalties for negligent/improper/unprofessional conduct while dealing with the corporate matters related to listed firms.

The basic notion behind such proposal is to enhance the scrutiny on the conduct of the Professionals to ensure they are not indulging in any unlawful transactions or conferring unlawful favors on companies or do not perform duties negligently.

The new norms will impose additional disclosure requirements on the Professionals and ensure great scrutiny of the legal and financial records of the companies. Such norms will further impose responsibility on the Professionals to ensure the companies are complying with all the legal and regulatory requirements.

If companies fail to comply with the legal and regulatory requirements, the Professionals responsible for such failure will be penalized by way of disgorgement of professional fee and wrongful gains along with the interest rate of 12% per annum from the date of default.

SEBI may issue directives to Professionals with unprofessional conduct not to issue any certificate or report substantiating the records of the companies and refer the case to the concerned authority for resolution along with initiating prosecution proceedings.

The underlying intent behind the proposed norms is to protect the trust of the investors in the capital and securities markets which is fundamental prospect for the successful functionality of capital markets as in most of the cases the investors rely on the reports churned out by the engaged Professionals in deciding to proceed further with or cancel any transaction.

It is hoped that following the implementation of the proposed norms:

(i)                the functionality of the Professionals will come under the scanner of the SEBI more stringently;

(ii)             Professionals will discharge their duties more diligently leaving no scope for any bias or unlawful favors to companies as they are accountable, responsible and liable for their acts or omissions and are exposed to criminal proceedings like never before;

(iii)           enhance the transparency in the corporate reporting system;

(iv)            repose the lost trust of the investors in the capital markets; and

(v)              ultimately protect the integrity of and bring stability to the capital markets.