Clause explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause (10) of Part I of the First Schedule makes it professional misconduct to charge or accept fees based on a percentage of profits or contingent on the findings or results of the employment, except as permitted under Regulation 192 of the Chartered Accountants Regulations, 1988.
The principle behind the prohibition
The Code states the reasoning directly: what distinguishes a profession from a business is that professional service is not rendered with the sole purpose of a profit motive. Personal gain is one objective but not the main or only one.
The specific risk identified is that a person who is to receive payment in direct proportion to the benefit received by his client may be tempted to exaggerate the advantage of his service, or may adopt means which are not ethical. The effect is to undermine his integrity and impair his independence.
The Code gives the classic example of a prohibited arrangement: remuneration contingent on the successful outcome of an appeal in revenue proceedings.
The Code says services "should not be offered or rendered under an arrangement whereby no fee will be charged unless a specified finding or result is obtained". A success-only fee is caught even if no percentage is involved. But a fee fixed by a Court or other public authority is not regarded as contingent, whatever its basis.
Regulation 192 — the permitted exceptions
Regulation 192 restates the prohibition and then lists the cases where a percentage or contingent basis is allowed:
| Clause | Service | Permitted basis |
|---|---|---|
| (a) | Receiver or liquidator | Percentage of the realisation or disbursement of the assets |
| (b) | Auditor of a co-operative society | Percentage of the paid up capital, working capital, gross or net income or profits |
| (c) | Valuer for direct taxes and duties | Percentage of the value of the property valued |
| (d) | Certain management consultancy services as decided by Council resolution | Percentage basis, which may be contingent on findings or results |
| (e) | Certain fund raising services | Percentage of the fund raised |
| (f) | Debt recovery services | Percentage of the debt recovered |
| (g) | Services related to cost optimisation | Percentage of the benefit derived |
| (h) | Any other service or audit as decided by the Council | As decided |
Clauses (d) to (h) were inserted by Notification No. 1-CA(7)/145/2012, published in Part III, Section 4 of the Gazette of India, Extraordinary, dated 1 August 2012.
What the Council has decided under clause (h)
- Insolvency Professional — fees may be based on a percentage of recovery or assets for services rendered under the Insolvency and Bankruptcy Code, 2016 and the rules framed under it.
- Non-assurance services to non-audit clients — fees may be charged on a contingent basis.
"Non-assurance services to non-audit clients" carries two limits, both of which must hold. The service must be non-assurance, and the client must be a non-audit client. A contingent fee for advisory work given to an entity the firm also audits is outside the permission — as is a contingent fee for any assurance engagement, however unrelated the client.
Reading the exceptions correctly
Three points follow from the structure of Regulation 192:
- The prohibition is the rule; the list is exhaustive. An arrangement that does not fall within (a) to (h) is prohibited, however commercially reasonable it appears.
- Each exception specifies its own base. A receiver's percentage is of realisation or disbursement; a valuer's is of the value of the property; a fund-raising fee is of the fund raised. Applying a different base — say, a receiver charging a percentage of a court-approved settlement — is not within the clause as written.
- Clause (h) is a live list. It operates through Council decisions, so it must be checked rather than assumed. Two items have been decided so far.
Worked example
| Proposed arrangement | Permitted? | Basis |
|---|---|---|
| Fee of 15% of the tax refund obtained on an appeal | No | Contingent on the outcome of revenue proceedings — the Code's own example |
| Liquidator's fee of 2% of asset realisations | Yes | Regulation 192(a) |
| Co-operative society audit fee at 0.5% of working capital | Yes | Regulation 192(b) |
| 1% of debt recovered, for a recovery mandate | Yes | Regulation 192(f) |
| 20% of cost savings identified, for a cost optimisation study | Yes | Regulation 192(g) |
| Contingent fee for a due diligence for a company the firm audits | No | The clause (h) decision covers non-audit clients only |
| Insolvency resolution fee as a percentage of assets under the IBC | Yes | Council decision under Regulation 192(h) |
| Fee fixed by a court as a percentage | Yes | Not regarded as contingent |
Engagement checklist
- Test every success fee, percentage fee or "no result, no fee" arrangement against Regulation 192 before signing.
- Confirm the base matches the one the exception permits.
- For a contingent non-assurance fee, confirm the client is a non-audit client and the service is non-assurance.
- Check the current Council decisions under clause (h) rather than relying on the printed list alone.
- Record in the engagement letter which exception the fee basis relies on.
- Remember a court-fixed fee is outside the prohibition.
Common mistakes
- Charging a percentage of a tax refund or a litigation outcome.
- Offering "no fee unless we succeed" on a matter outside Regulation 192.
- Extending the non-assurance permission to an audit client.
- Using a different base from the one the exception specifies.
- Assuming any consultancy fee may be contingent — clause (d) is limited to services decided by Council resolution.