2012 (6) TMI 140 - HC - Indian Laws

Professional misconduct - respondent, while holding position of auditor of a company, agreed to act as an arbitrator/mediator in transaction of shares of said company - Held that - In order to attract the aforesaid clause, the act or omission must be in connection with the duties cast upon a chartered accountant in such capacity which no person other than a chartered accountant can perform. breaches alleged did not come within the purview of the expression professional misconduct . The council had found the respondent guilty only on the aforesaid charge and no other. respondent was not at all guilty of any professional misconduct as charged under clause 7 of part 1 of the Second Schedule and, consequently, no action was called for against the respondent.

Summary

Issues Involved:
1. Whether the respondent was guilty of professional misconduct under Clause 7 of Part 1 of the Second Schedule to the Chartered Accountants Act, 1949.
2. Whether the acts performed by the respondent as an arbitrator/mediator could be considered professional misconduct.

Issue-wise Detailed Analysis:

Issue 1: Professional Misconduct under Clause 7 of Part 1 of the Second Schedule to the Chartered Accountants Act, 1949

The Council of the Institute of Chartered Accountants of India found the respondent guilty of professional misconduct under Clause 7 of Part 1 of the Second Schedule. This clause pertains to gross negligence in the conduct of professional duties. The Council's findings were based on three specific charges:

Charge 3:
The respondent, acting as a mediator/arbitrator, handed over share certificates to Subhash Singh without the complainant's consent and without fulfilling the financial conditions stipulated in the agreement. The Council noted that the respondent did not perform his duties as a mediator/arbitrator professionally and adopted a biased approach towards the complainant.

Charge 4:
The respondent allegedly misrepresented the date of handing over the share certificates, claiming he did so on 6-1-2005, while in fact, it was done on 1-2-2004. This misrepresentation was seen as an attempt to conceal wrongful actions.

Charge 5:
The respondent wrongfully alleged that the complainant failed to establish objections, justifying the handover of share certificates to Subhash Singh. The Council found that the respondent failed to comply with the terms and conditions of the Memorandum of Understanding (MOU).

Issue 2: Acts as Arbitrator/Mediator and Professional Misconduct

The respondent's defense argued that the acts of holding and delivering share certificates were performed in the capacity of an arbitrator/mediator, not as a Chartered Accountant. The defense contended that these acts could be performed by any person, not necessarily a Chartered Accountant, and thus should not be considered professional misconduct under the Chartered Accountants Act.

The court examined sections 21 and 22 of the Chartered Accountants Act and the relevant schedules to determine the scope of "professional misconduct." It concluded that for an act to be considered professional misconduct, it must relate to the duties that only a Chartered Accountant can perform.

Court's Conclusion:

The court held that the duties performed by the respondent as an arbitrator/mediator did not fall within the purview of professional misconduct under Clause 7 of the Second Schedule. The court reasoned that the alleged breaches did not pertain to the professional duties of a Chartered Accountant but were related to the role of an arbitrator, which could be performed by any individual.

Therefore, the court concluded that the respondent was not guilty of professional misconduct as charged. The reference was answered by holding that no action was called for against the respondent, and the proceedings were dropped.

Final Judgment:

The court ruled that the respondent was not guilty of any professional misconduct under Clause 7 of the Second Schedule to the Chartered Accountants Act, 1949. Consequently, no action was warranted against the respondent. The judgment was agreed upon by both judges, and no order as to costs was made.