14. Under the Chartered Accountants Ordinance, 1961 (the "CA Ordinance") the preamble reads as follows: "To make provision for the regulation of the professional accountants. Whereas it is expedient to make provision for the regulation of the profession of accountants: and for that purpose to establish an Institute of Chartered Accountants."
15. The stand taken by the Appellant is that an association of undertakings would, for instance, be a voluntary association of professionals, manufacturers, distributors or others, whereas the Appellant is a statutory regulatory body. However, on behalf of the Appellant, while it was not denied that even a regulatory body could at times act as an association, it was emphasised that the Appellant is by no means an association.
16. In Wouters v Algemene Raad van de Nederlands Orde van Advocaten (C309/99) (ECJ) European Court of Justice 19 February, 2002, relied upon by the Appellant on a different point, we note some interesting observations in this regard: "registered members of the bar in Netherlands carry an economic activity and are therefore undertakings...it appears that a professional organisation such as the Bar of the Netherlands must be regarded as an association of undertakings within the meaning of Article 85(1) of the Treaty..."
17. Regarding the question, in Wouters, whether the regulation that was passed (concerning the regulation of the profession) was exempt from competition law, because the Bar also had a public policy role, the court specifically stated that when adopting such a regulation, a professional body is "neither fulfilling a social function based on the principle of solidarity...it acts as a regulatory body of a profession, the practice of which constitutes an economic activity."
18. In The Architects Association Eu Commissions Decision Of 24 June, 2004: "[T]he fact that under the Act of 26 June 1963 establishing an Architects Association the Association has the task of drawing up a code of ethics and ensuring that it is complied with cannot take this professional organisation outside the scope of Article 81 of the Treaty.
The public-law status of a national body such as the Association does not preclude the application of Article 81 of the Treaty. According to the Court, the legal framework within which agreements are made and decisions are taken and the classification given to that framework by the various national legal systems are irrelevant as far as the applicability of the community rules on competition is concerned." (Emphasis added).
19. Similarly, there is no dispute that the Appellant acts as a regulatory body of a profession, the practice of which constitutes an economic activity. As per Appellants own website, it is a body of Chartered Accountants in Pakistan and represents accountants employed in public practice, business and industry, and the public and private sectors.
Its objective inter alia, is to maintain professional standards and to promote professional values and ethics. Even "a public law status of a national body" such as enjoyed by the Appellant does not, in our view, precludes the application of Section 4 of the Ordinance. As manifest from the quoted definitions and the cited case law, the voluntary aspect or the regulatory status is not material, in regarding an entity as an association.
While the above may suffice to conclude that the Appellant qualifies both to be an undertaking (as discussed in paragraph-12 above) and an association of undertakings, we feel it would, nonetheless, be helpful to trace the history and antecedents of the Appellant in order to appreciate the true nature of the organisation, its objectives and role vis-à-vis the accountancy profession.
20. From the information available in the public domain, we note that the accountancy profession, as we know it today, began to take shape alongside the introduction of the concept of limited liability in the Sub-continent. Statutory audits were introduced with the promulgation of the Companies Acts in 1850 and 1857. During 1882 to 1913, it was not necessary for an auditor to be a qualified accountant and companies used to employ lawyers as their auditors.
The profession started becoming distinct in the early part of the 20th century. The Government of India formed, the Indian Accountancy Board to advise the government on the conduct and development of this profession. To this end, Auditors Certificate Rules were prescribed in 1932, seeking to regulate the accountancy profession.
After the establishment of Pakistan, these rules were adopted in the interim and in 1950 a new set of Auditors Rules (primarily based on the earlier Rules) was published for regulating the profession in Pakistan. The concept of the Registered Accountant was in place, whereby a person had to meet an eligibility criteria (practical training and theoretical knowledge) in order to place his name in the register maintained by the Ministry of Commerce and to use the designation of a Registered Accountant.
It was the Companies Act that allowed only Registered Accountants to act as auditors of public companies. 21. In 1952, Registered Accountants formed a private body known as the Pakistan Institute of Accountants to look after their own interests and to take up, with the Ministry of Commerce, matters affecting the profession.
Its growing importance is reflected in the fact that in June 1959, the Department of Accountancy was set-up in the Ministry of Commerce with the office of Controller of Accountancy instituted to deal with the profession. Around this time, an advisory body called the Council of Accountancy was also setup (under the Auditors Certificate Rules, 1950), which recommended the establishment of the Institute of Chartered Accountants in Pakistan.
The Department of Accountancy, assisted by the Pakistan Institute of Accountants and its members, prepared the draft CA Ordinance which was promulgated on 3rd March, 1961. 22. The historical background of the Appellant (as also a perusal of relevant provisions of the CA Ordinance) shows that the Appellant essentially continues to retain the ethos of its origins as a voluntary association that engages in self-regulation and can take action against its members alone.
As noted above, the Pakistan Institute of Accountants, the precursor of ICAP, was established as a private body to look after the interests of the profession and to take up with the Ministry of Commerce, matters affecting the profession.
While its form, constitution of council, or mode of operation may have changed; its inherent voluntary nature remains intact (in terms of the CA Ordinance) and its core purpose (ie furtherance of the interest of the accountancy profession) remains the same.
23. Also, the mere fact that out of 16 Members of the Council, four (4) are nominees of the Federal Government (including the Chairman SECP, Chairman FBR and Secretary Finance) would not, in our view, change the character of the organisation. Moreover, out of 16 members, only four fall in this category, whereas the Councils decisions are by majority. Therefore, technically speaking, this cannot have any impact even if all such Members vote against the decision.
In this regard, reference may also be made to Bureau National Interprofessionel du Cognac (BNIC) v Clair (123/83) (ECJ) European Court of Justice (1985). In this case the French government chose to extend the agreement which fixed the minimum price, but even then the Court found this practice to be a violation of Article 85. (Art. 85 is now Art. 81 and corresponds to Section 4 of the Ordinance).
It was held that restrictive agreements made between traders in the framework of a semi-public or public law body does not affect the application of Article 85 of the Treaty of Rome, 1957, nor does the fact that the persons signing the agreement were appointed by a Minister.
The fact that a Ministerial decree makes the agreement obligatory on all persons operating in that economic sector, whether or not they are parties to the agreement, does not prevent the application of Article 85(1) Treaty of Rome 1957.
24. The Appellant also emphasised the fact that its Councils decision is final and that the general body has no powers to override such decisions. In our considered view, it is for an association to decide as to how it establishes itself and how its affairs are to be run and what mandate it gives to the governing body; structural forms do not have any bearing on the issue at hand.
Also, with regard to the submission that the Council has never taken a decision upon the recommendation of the general body, it was inquired by the bench whether any such recommendations were even made to the Council in the past and the Appellants response was in the negative. Therefore, no inference can be drawn on this premise that the council has never taken a decision upon recommendation of the general body when no such recommendation has ever been made in the past.
25. Insofar as membership of the Appellant is concerned, we note that this continues to and remain protected through the Companies Law, previously under the Companies Act and now under the Companies Ordinance, 1984 whereunder (eg under Section 254), a person is disqualified to be appointed as an auditor in the case of a public company or a private company which is a subsidiary of a public company unless he is a Chartered Accountant within the meaning of the CA Ordinance. Under the CA Ordinance, Chartered Accountant means a person who is member of the Institute, ie the Appellant.
26. In view of the foregoing, we do not have any doubt that the Appellant must be regarded as an association of undertaking within the meaning of Section 4(1) of the Ordinance, and the fact that an association itself falls within the purview of the definition of an undertaking, the Appellant would also qualify to be termed as an undertaking. The contentions of the Appellant in this connection are obviously untenable.
27. WE NOW PROCEED TO ADDRESS THE SECOND ISSUE: Whether ATR-14 is a decision, or an agreement for the purposes of subsection (1) of Section 4 of the Ordinance.(To be continued)