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 (11) of Part I of the First Schedule makes it professional misconduct for a chartered accountant in practice to engage in any business or occupation other than the profession unless permitted by the Council — with an express saving for being a director who is not a managing or whole time director.
The clause and its proviso
Clause (11): "engages in any business or occupation other than the profession of chartered accountants unless permitted by the Council so to engage:
Provided that nothing contained herein shall disentitle a chartered accountant from being a director of a Company, (not being a managing director or a whole time director), unless he or any of his partners is interested in such company as an auditor."
Why the restriction exists
The Code gives two reasons:
- To restrain members from carrying on any other business in conjunction with the profession of accountancy, and from combining professional work with business not in keeping with the dignity of the profession.
- Because a chartered accountant permitted to enter all kinds of business would be able to advertise for his other business and thereby secure an unfair advantage in his professional practice.
The second reason is the more interesting one: the rule is partly an anti-advertising rule wearing different clothes.
Regulations 190A and 191
| Regulation | Effect |
|---|---|
| 190A | A chartered accountant in practice shall not engage in any business or occupation other than the profession of accountancy, except with permission granted in accordance with a resolution of the Council. The permitted activities are in Appendix (9) of the Chartered Accountants Regulations, 1988. |
| 191 | Notwithstanding Regulation 190A but subject to the control of the Council, a member in practice may act as liquidator, trustee, executor, administrator, arbitrator, receiver, adviser or representative for costing, financial or taxation matters; may take an appointment made by the Central or a State Government, a court of law or any other legal authority; or may act as a Secretary in his professional capacity — provided the employment is not on a salary-cum-full-time basis. |
Every permission in Regulation 191 is subject to the employment not being on a salary-cum-full-time basis. The nature of the role is not the only test; the terms on which it is held matter equally. A full-time salaried secretaryship is outside the permission even though "Secretary in his professional capacity" appears in the list.
Director Simplicitor
The Code defines it precisely:
"The expression 'Director Simplicitor' means an ordinary/simple Director who is not a Managing Director or Whole time Director and is required only in the Board Meetings of the company and not paid any remuneration except for attending such meetings."
Three elements: not MD or WTD; required only at Board Meetings; and no remuneration except for attending those meetings.
A member in practice is permitted generally to be a Director Simplicitor in any company including a board-managed company, and no specific Council permission is required — unless he or any of his partners is interested in that company as an auditor. This applies irrespective of whether he or his relatives hold substantial interest in the company.
The disqualifying condition is not shareholding, not the company's line of business, and not the size of the board. It is that he or any of his partners is interested in the company as an auditor. Before accepting a directorship, the check to run is against the firm's entire audit client list, not the member's own engagements.
Promoter and subscriber
The position is permissive:
- No bar on a member being a promoter or signatory to the Memorandum and Articles of Association of any company.
- No bar on such a promoter or signatory being a Director Simplicitor of that company — irrespective of whether the objects of the company include areas within the scope of the profession.
- No specific Council permission is required in such cases.
The Code adds the necessary clarification: under section 25 of the Chartered Accountants Act, no company can practise as a chartered accountant.
Interest in a family business
Item No. 6 of the Council's specific resolution under Appendix (9) applies equally to a member carrying out the activities as a representative, provided he is not actively engaged in carrying them on. A member may acquire an interest in a family business:
- as a proprietary firm;
- as a partnership firm; or
- in the name and style of a Hindu Undivided Family, as its Karta or a member.
Two things must be shown:
- Evidence that the interest devolved on him by inheritance, succession or partition of the family business; and
- that he was not actively engaged in carrying on the business, and that the family business concern was not created by himself.
The member must furnish a declaration in the prescribed format to establish his case.
The Karta position
- A member in practice engaged as Karta of an HUF doing family business is permitted to make investments from funds belonging to or arranged by the HUF, provided he is not actively engaged in the conduct or management of the business.
- A member in practice engaged as Karta of an HUF not doing business, making investments from HUF funds, is not impacted by this Clause at all.
A member who starts a business and later characterises it as a family concern does not come within this permission. The requirements are cumulative and evidential: devolution by inheritance, succession or partition, no active engagement, and not created by the member — supported by a declaration in the prescribed format. Assemble that evidence when the interest arises, not when a question is asked.
Worked example
| Situation | Position |
|---|---|
| Member is a non-executive director of a company, paid only sitting fees; his firm does not audit it | Permitted — Director Simplicitor, no specific permission needed |
| Same, but a partner of his firm is the statutory auditor of that company | Not permitted — the proviso is disapplied |
| Member is a Whole time Director drawing a salary | Not permitted without Council permission — outside the proviso |
| Member promotes a startup and signs the Memorandum | Permitted, no permission needed |
| Member inherits a share in the family trading firm on his father's death, takes no part in running it, files the declaration | Permitted under Item No. 6 |
| Member sets up a trading firm in his HUF's name and manages it | Not permitted — created by himself and actively engaged |
| Member acts as an arbitrator, not on a salary-cum-full-time basis | Permitted under Regulation 191 |
Checklist before taking on an outside role
- Ask whether the role is in the Regulation 191 list, and whether it is not salary-cum-full-time.
- For a directorship, confirm it is a genuine Director Simplicitor role — not MD or WTD, Board meetings only, no remuneration beyond sitting fees.
- Run the auditor-interest check across the whole firm, including all partners.
- For a family business interest, assemble evidence of devolution and the prescribed declaration.
- For anything else, obtain Council permission under Regulation 190A before starting.
- Remember section 25 — a company cannot practise as a chartered accountant.
Common mistakes
- Taking a directorship in a firm audit client because the member personally does not sign the audit.
- Drawing remuneration beyond sitting fees and still calling it a Director Simplicitor role.
- Treating a self-created business as a family business.
- Accepting a full-time salaried secretaryship under Regulation 191.
- Assuming a promoter role needs permission. It does not.