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 (2) of Part II of the Second Schedule makes it professional misconduct for a member who is an employee of any company, firm or person to disclose confidential information acquired in the course of his employment, except as required by law or as permitted by the employer.
The clause
Clause (2): "being an employee of any company, firm or person, discloses confidential information acquired in the course of his employment except as and when required by any law for the time being in force or except as permitted by the employer"
Note the two exceptions built into the clause itself:
- disclosure as and when required by any law for the time being in force; and
- disclosure as permitted by the employer.
The principle
The Code describes the clause as "an adaptation of the well-accepted principle of the law of agency". An agent may not use or disclose information obtained in the principal's service for any purpose other than that service. The Code applies the same logic to a member in employment.
Its reasoning is that, as an employee, a member may have access to confidential information, and for maintaining the status and dignity of the profession in general he should treat that information as having been provided to him only to facilitate the performance of his duties as an employee. In order to keep the confidence of the people, chartered accountants should take special care not to divulge such information.
The Code says a member would be guilty of misconduct "regardless of the fact that he was in whole time or part-time employment or that he was carrying on practice of accountancy along with his employment". So the duty attaches to every employment relationship a member has — a part-time consultancy role, a directorship carrying employment, or employment held alongside a practice. There is no threshold of seniority or hours below which it does not apply.
How it differs from the client confidentiality clause
| Clause (1), Part I, Second Schedule | Clause (2), Part II, Second Schedule | |
|---|---|---|
| Who | A chartered accountant in practice | A member who is an employee, whether in practice or not |
| Whose information | The client's, acquired in a professional engagement | The employer's, acquired in the course of employment |
| Consent from | The client, given by a person competent to consent | The employer |
| Legal compulsion exception | "otherwise than as required by any law for the time being in force" | "as and when required by any law for the time being in force" |
| Duration | Continues after completion of the assignment | The clause does not limit itself to the currency of the employment |
A member who moves from practice to industry, or holds both, is subject to both clauses in respect of the respective bodies of information.
Where employed members most often run into this
- Moving to a competitor. Information about pricing, customers, margins or strategy acquired in the previous employment remains confidential. Employer permission does not travel with the member.
- Speaking or writing publicly. A case study, a conference example or a social media post drawn from the employer's affairs requires the employer's permission.
- Responding to an external request. A request from a lender, a regulator, an auditor of another entity or a journalist should be routed through the employer unless a law requires the disclosure.
- Assisting a personal practice. Where a member holds employment alongside a practice, information from the employment cannot be used in the practice.
- Whistleblowing. Disclosure "as and when required by any law" is protected; a disclosure that is not legally required is not, however well motivated. Where the question arises, it is a legal question and should be treated as one.
The clause's second exception is disclosure "as permitted by the employer". In a disciplinary proceeding the member must be able to show that permission existed. A verbal clearance from a line manager is weak evidence; a written approval identifying what may be disclosed and to whom is what answers the charge. Obtain it before disclosing, not afterwards.
Worked example
| Situation | Position |
|---|---|
| Member, employed as a finance controller, gives the company's segment margins to a prospective employer during an interview | Misconduct — no legal requirement, no employer permission |
| Member responds to a statutory notice requiring production of information | Permitted — required by law |
| Member presents an anonymised process case study at a seminar with written company approval | Permitted — permitted by the employer |
| Member in part-time employment shares a supplier list with his own practice's client | Misconduct — part-time employment is within the clause, and holding a practice alongside is no defence |
| Member, having resigned, uses the former employer's costing model in a new role | Misconduct — the information was acquired in the course of the employment |
Practical checklist for members in employment
- Treat everything acquired in employment as confidential unless law requires disclosure or the employer permits it.
- Obtain employer permission in writing, specifying what and to whom.
- Route external requests — lenders, other auditors, regulators, media — through the employer.
- Where a legal requirement is asserted, verify it rather than assuming it; take advice where the position is unclear.
- Keep employment information out of a concurrent practice.
- Do not treat resignation as ending the duty.
- Remember Chapter II of the Guidelines on Ethical Issues, 2026 separately requires an employed member to exercise due diligence and not be grossly negligent in his duties.
Common mistakes
- Assuming the Schedules apply only to practising members.
- Relying on verbal permission from a manager.
- Treating part-time or consulting employment as outside the clause.
- Using former-employer information in a new role or a practice.
- Characterising a voluntary disclosure as legally required without checking.