2011 (6) TMI 654 - HC - Indian Laws

Misconduct - Respondent undertook the audit of M/s. Sunbeam Trading Company (P.) Ltd. for the period ended 31-3-1989 with the full knowledge that his partner Shri K.C. Lunawat is a director in the said Company and as per section 226(3)(c) of the Companies Act 1956 he being a partner/of an officer which includes a Director under section 2(30) of said Act was not qualified for appointment as auditor of the said Company - prima facie of the opinion that the respondent was guilty of professional and other misconduct and thus decided to refer the matter to the Disciplinary Committee for enquiry. matter remanded back to the Council for considering the case of punishment after giving the member an opportunity of being heard in the light of the misconduct committed by him

Summary

Issues Involved:
1. Allegation of professional misconduct under the Chartered Accountants Act, 1949.
2. Validity and scope of the Council's recommendation to file proceedings despite finding the respondent guilty.
3. Appropriate legal procedure and penalties for proven professional misconduct.

Issue-wise Detailed Analysis:

1. Allegation of Professional Misconduct:
The Registrar of Companies, West Bengal, lodged a complaint against D.K. De, a partner of M/s. Dey Dutta Lunawat & Co., alleging that he undertook the audit of M/s. Sunbeam Trading Company (P.) Ltd. despite his partner being a director in the company, violating section 226(3)(c) of the Companies Act, 1956. The complaint highlighted that the respondent and his partner held substantial shares in the audited company and failed to disclose this interest, constituting professional misconduct under clause (4) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

2. Validity and Scope of the Council's Recommendation:
The Council, after an enquiry by the Disciplinary Committee, found the respondent guilty of professional misconduct. Despite this, the Council recommended filing the proceedings due to the respondent's serious ailment (cancer). The Court needed to determine if the law permits such leniency after a finding of guilt for misconduct specified in the Second Schedule to the Act.

3. Appropriate Legal Procedure and Penalties:
Sections 21, 22, and 22A of the Chartered Accountants Act, 1949, outline the procedure for handling professional misconduct. The Act distinguishes between lesser misconducts in the First Schedule and graver ones in the Second Schedule. For lesser misconducts, the Council can reprimand or remove the member for up to five years. For graver misconducts, the Council must refer the case to the High Court for appropriate action, which may include reprimand, removal from membership, or further enquiry.

The Court emphasized that once guilt is established for misconduct in the Second Schedule, the Council cannot recommend dropping the proceedings. The Act only allows for dropping proceedings or dismissing complaints if the member is found not guilty. The Court rejected the precedent set by the Kerala High Court in the case of Council of the Institute of Chartered Accountants of India v. Mani S. Abraham, which suggested leniency even when misconduct is proven.

Conclusion:
The Court found the Council's recommendation to file the proceedings, despite a finding of guilt, unjustified. The Court remanded the matter back to the Council to reconsider the appropriate punishment, ensuring the decision is uninfluenced by the respondent's illness. The Council must decide within three months, providing the respondent an opportunity to be heard. The Court appreciated the assistance of Mr. Poddar as Amicus Curie and ordered no costs.

Judgment:
The Court agreed with the findings and remanded the case back to the Council for reconsideration of the punishment, emphasizing adherence to the legal procedures and penalties outlined in the Chartered Accountants Act, 1949.