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 Second Schedule requires a chartered accountant to keep client money — other than fees, remuneration or money meant to be expended — in a separate banking account, and to use it for the intended purpose within a reasonable time.
The clause
Clause (10): "fails to keep moneys of his client other than fees or remuneration or money meant to be expended in a separate banking account or to use such moneys for purposes for which they are intended within a reasonable time."
Two distinct failures are covered, and either is enough:
- failing to keep the money in a separate banking account; and
- failing to use the money for its intended purpose within a reasonable time.
A member who banks the money correctly but sits on it has still breached the clause.
The Council's four practical rules
The Code records that the Council considered members' practical difficulties and made these suggestions:
| Money received | Treatment | |
|---|---|---|
| (a) | An advance against services to be rendered | Does not fall under Clause (10) at all |
| (b) | Money for expenses to be incurred — for example payment of prescribed statutory fees, purchase of stamp paper — intended to be spent within a reasonably short time | Need not be put in a separate bank account |
| (c) | Money for expenses not intended to be spent within a reasonably short time | Should be put in a separate bank account immediately |
| (d) | Money received in the capacity of trustee, executor, liquidator, etc. | Must be put in a separate bank account immediately |
On what a "reasonably short time" means, the Code says only that it "would depend upon the circumstances of each case" — which is a genuine standard rather than an evasion, but it means the member carries the judgement.
Rules (b) and (c) turn on how soon the money will be spent. Rule (d) does not. Money held as trustee, executor, liquidator or in a similar fiduciary capacity goes into a separate account immediately, regardless of how quickly it will be disbursed. That is because the member holds it in a representative capacity, not as an agent spending on the client's behalf.
How to apply the clause in practice
The workable test is a short sequence of questions:
- Is it fees or remuneration? If yes, Clause (10) does not apply.
- Is it an advance against services to be rendered? If yes, it is outside the clause — rule (a).
- Is it held in a fiduciary capacity — trustee, executor, liquidator? If yes, separate account immediately — rule (d).
- Is it money to be spent on the client's behalf? Then ask when:
- Reasonably short time — no separate account needed, but spend it and account for it.
- Longer — separate account immediately.
- In every case within the clause, use the money for its intended purpose within a reasonable time.
Worked example
| Receipt | Treatment | Rule |
|---|---|---|
| Rs 50,000 retainer advance for the year's compliance work | Outside Clause (10) | (a) — advance against services |
| Rs 12,000 for ROC filing fees, to be paid next week | No separate account required; pay promptly | (b) |
| Rs 6,00,000 for stamp duty on a transaction expected to complete in about eight months | Separate bank account immediately | (c) |
| Rs 40,00,000 realised as liquidator of a company | Separate bank account immediately | (d) |
| Rs 12,000 for ROC fees, still unspent and unreturned after five months | Breach — not used for the intended purpose within a reasonable time | Second limb of the clause |
The last row is worth dwelling on. Nothing was misappropriated and the amount is small, but the second limb of Clause (10) is engaged because the money was neither spent for its purpose nor returned.
Controls worth putting in place
- Maintain a designated client account so that rule (c) and rule (d) receipts can be moved on the day they arrive.
- Record, at the point of receipt, what the money is for and when it is expected to be spent — that single field decides rule (b) against rule (c).
- Run a monthly ageing of unspent client money. The second limb of the clause is breached by delay alone.
- Never set off unspent client money against fees without instruction; fees and client money are distinct in the clause itself.
- For any trustee, executor or liquidator appointment, open the separate account before receiving funds.
- Return unspent balances promptly and document the return.
- Note that the practice's own books must in any event include a cash book, ledger and bill register under Chapter III of the Guidelines on Ethical Issues, 2026.
Common mistakes
- Holding fiduciary money in the firm's current account because it will be disbursed soon.
- Treating all client receipts as advances against fees.
- Letting small expense floats sit unspent for months.
- Adjusting unspent client money against an outstanding bill without instruction.
- Opening the separate account only once funds have already been received.