Accountancy for an advocate: Rules and need

 

Vande Matram! In this article, I am discussing, accountancy for an advocate which is in the light of the Bar Council of India rules, and the Advocates Act, 1961. Let’s begin.

Introduction:

The legal profession is ethical, and though it is not a money-making business still various transactions are encountered while dealing with a matter of a client. An advocate must keep a record of all the transactions related to a matter and disclose these transactions to the relevant client at the end of the case. Hence accountancy is necessary for an advocate. Advocates Act is silent on such account keeping but the Bar Council of India rules state the rules for accountancy for an advocate.

Bar Council of India rules for accountancy:

It is the duty of an advocate towards his client that he should maintain an account of his client. The rules of such accounting are dealt with in rules 25 to 32 of the Bar Council of India Rules 1975. The rules are as follows:

Rule 25: An advocate should keep the accounts of the client’s money entrusted to him. The accounts should show the amounts received from the client, the expenses incurred for him and the debits made on the account of Advocate fees with the respective dates and all other necessary particulars.

The account of a client will have entries regarding fees paid by the client, expenses done by the advocate regarding his case, and the date of all such transactions. These entries should be clear.

Rule 26: Where moneys are received from the client, it should be entered whether the amount have been received for the advocates fees or expenses. Amount received for the expenses shall not be diverted towards Advocates fees without the consent of the client in writing.

The client can give money on account of expenses to be done for his case or on account of the fees of the advocate. The money given by the client should be entered in the account book and each entry should have the purpose mentioned for such transaction.

Rule 27: Where any amount is received on behalf of his client the fact of such receipt must be intimated to the client as early as possible.

In any case, if an advocate receives any money on behalf of his client, then the advocate must inform about this transaction to his client as early as possible.

Rule 28: After the completion of the proceeding, the advocate shall be at the liberty to take the settled fee due to him to the unspent money in his hand.

After completion of the proceeding related to a case, if there is some unspent money with advocate given to him for expenses by the client, and also his fees are due with the client then the advocate can settle the account with the client by deducting unspent money from his fees with the consent of the client.

Rule 29: Where the fee has been left unsettled, the advocate shall take the fees which he is legally entitled from the moneys of the client remaining in his hands, after the completion of the proceeding. The balance shall be returned to the client.

After settling the fees with unspent money, the advocate has to return the surplus money given to him by the client on account of expenses at the end of the proceedings of the case.

Rule 30: A copy of the client account shall be furnished to him after getting the necessary copying charges from him.

Copy of account must be given to the client.

Rule 31: An advocate shall not make any agreements whereby client’s funds in his hands are converted into loans to the advocate.

An advocate cannot enter into an agreement by which either client’s funds in his hands become loans to him.

Rule 32: An Advocate shall not lend money to his client for the purpose of conducting the case.

The advocate cannot lend money to his client to conduct a matter which he is looking after.

Purpose of maintaining an account by an advocate:

The basic purpose of accounting is to present a complete financial picture of the Advocates profession. It is necessary to maintain proper accounts to calculate the following

(i) Annual Income: As accounts are maintained by an advocate, his annual income can be seen clearly for any purpose.

(ii) Income Tax: It is necessary for income tax payment and filing the tax record.

(iii) Professional Tax: As legal practice is a profession, professional tax shall be paid by an advocate. For this purpose, the record of his professional income and expenses must be kept.

(iv) Amount due to the client or amount due by the client: To settle the fees due with the client it is necessary to keep the separate account of each client as mentioned in BCI rules.

Client’s account:

Client’s Account: For each and every client separate pages shall be allotted in the ledger and a separate account shall be maintained for them. You ought to maintain a record of your engagements, containing the terms of your settlement with the client, his address, and any other special instructions he may have given.

In a case, in the Madras High Court, the learned Judges made the following observation. ’We think it necessary also to say that this case brings out very clearly the desirability of legal practitioners keeping separate accounts of their own money and their clients’ money and seeing that their clients’ money is deposited in a bank in a separate account. If that is done it will be easy for a pleader to refrain from spending his clients’ money for purposes other than his clients’ and, if his conduct is questioned, to show that he has not transgressed the limits of professional good conduct.’

Other accounts:

(i) Fees Account: In this account, the fees received from each and every client shall be entered separately. From this account, the total amount of fees received from all the clients in a financial year can be ascertained.

(ii) Rent Account: An account for rented office premises if any must be maintained. This can be treated as a professional expense.

(iii) Salary Account: An advocate having staff in his office maintain the salary account and details of salary, bonus, gifts, and hand loans given to staff must be entered. This is also a professional expense.

(iv) Library Account: An advocate has to keep his legal knowledge up to date and for this, he must access various law libraries which may be at court premises or maybe online. An advocate should maintain an account for membership of such libraries. This is treated as a professional expense of an advocate.

(v) Printing and Stationery Account: A lot of paperwork for pleadings and proceedings is to be done which require stationery and printing and Xeroxing – all such expenses are professional expense and such entries must be recorded.

(vi) Postage and Telegram Account: Communication is the backbone of the legal profession. Each transaction done for the communication by way of postage or telegram must be recorded. This is also a professional expense.

(vii) Electricity Charges, Conveyance Charges, Repairing, and Maintenance are other professional expenses done and entries of these transactions must be done in an account book.

Bar Council of India Rules

Note: Part in Red words is part of Bar Council of India Rules.

If you want to know about specific provisions of the Advocates Act, 1961 and the Bar Council Rules then let me know in the comments below.

To know the references and to read more articles related to Professional ethics and professional accounting system please visit this page Legal Profession: Professional Ethics and Professional accounting system.

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