2016 (12) TMI 185 - HC - Indian Laws

Professional misconduct by chartered accountant - gross negligence and professional misconduct by respondent, a Chartered Accountant - Held that - The specific omissions or commission attributed to the respondent are as follows (1) The respondent issued a certificate, being the statutory Auditor of Ritesh Polysters Limited, which formed the basis for issuing a notification inviting the general public to contribute to the share capital, without verifying actual receipt of cash of ₹ 4.50 crores for allotment of 15,00,000 shares to the promoters worth ₹ 2,25,00,000/-, and the cheques issued by the promoters bounced later. (2) Respondent issued a certificate without qualifying that allotment of shares to the promoters was subject to realisation of cheques. (3) The respondent did not verify the individual bank accounts of the promoters to ascertain whether there was sufficient balance in their account to ensure that the cheques would be honoured, by the payee bank, on its presentation. (4) Respondent failed to verify actual receipt of cash while allotting shares. (5) Contribution of ₹ 2,25,00,000/- as promoters contribution by Ritesh Exports was not examined, similarly routing of ₹ 22,00,000/- through M/s Pratha Investments (owned by the wife of the respondent and being managed by the respondent himself) to the promoters Sri Deepak Agarwal and Sri Ritesh Agarwal, who allegedly contributed ₹ 10,50,000/- each was also not examined. Thus, the said investment of Rs . 22,00,000/- by Sri Deepak Agarwal and Sri Ritesh Agarwal was only a book entry without actual receipt of consideration. The companys money was divered and was brought back as contribution by the promoters. The professional misconduct attributed to the respondent is grave and serious in nature which affects public confidence, and their faith in the integrity and impartiality of the Chartered Accountants and the Institute of which they are members. A false certification by the respondent has enabled the promoters of the company to squander public money, on inducing the general public to subscribe to the share capital of the company. Taking a lenient view, or exonerating such professionals, would encourage others to indulge in similar acts, and completely erode the faith of the general public in the impartiality and integrity of the members of the Institute, and bring the Institute itself into disrepute. The Council of the Institute has recommended removal of the name of the respondent from the Register of the Institute for a period of three (3) years i.e. suspending him from practicing as a Chartered Accountant for a period of three (3) years. The recommendation of the Institute, regarding the nature of the punishment, is not binding on this Court and, in exercise of the wide powers conferred on it by the Act, this Court can impose a different punishment. Thus after anxious consideration of the matter, we find it appropriate that the respondent herein should be suspended from practising as a Chartered Accountant for a period of three years from 01.11.2016 to 31.10.2019.

Issues Involved:
1. Scope of High Court's jurisdiction under Section 21(5) and (6) of the Chartered Accountants Act, 1949.
2. Compliance with Regulations 16(2) and (5) of the Chartered Accountants Regulations, 1988.
3. Nature of disciplinary proceedings and standard of proof required.
4. Whether the act of issuing a certificate confirming receipt of promoters' contribution amounts to gross negligence.
5. Whether the act was wilful, deliberate, or amounted to culpable negligence.
6. Sufficiency of the respondent's admission to conclude guilt.
7. Impact of delay in proceedings on the punishment.

Detailed Analysis:

Point No. 1: High Court's Jurisdiction under Section 21(5) and (6)
The High Court's jurisdiction under Section 21(5) and (6) of the Chartered Accountants Act, 1949, is wide and akin to original jurisdiction. The Court can reappraise the entire material on record, come to an independent conclusion, and record its own findings regarding the misconduct attributed to the member. The Court is empowered to impose any punishment or penalty, including a different one from that recommended by the Institute.

Point No. 2: Compliance with Regulations 16(2) and (5)
The Disciplinary Committee complied with Regulation 16(2) by furnishing a copy of its report to the respondent, allowing him to make a representation to the Council. Similarly, Regulation 16(5) was complied with by communicating the Council's findings to the complainant and the respondent. The respondent did not bring any material to show non-compliance with these regulations, and the proceedings were not vitiated.

Point No. 3: Nature of Disciplinary Proceedings and Standard of Proof
Disciplinary proceedings under the Chartered Accountants Act are quasi-judicial and quasi-criminal in nature. The standard of proof required is not beyond reasonable doubt, as in criminal cases, but on the preponderance of probabilities, similar to civil cases. The initial onus lies on the Institute to prove the guilt of the respondent.

Point No. 6: Sufficiency of Admission
The respondent admitted to issuing the certificate without qualifying it as "subject to realisation of the cheques deposited," which he acknowledged as a professional lapse. These admissions were sufficient to conclude that the respondent was grossly negligent in issuing the certificate dated 09.06.1995, certifying that the entire promoters' contribution had been received by the company.

Point Nos. 4, 5, and 7: Gross Negligence and Impact of Delay
The respondent issued a certificate confirming receipt of ?2.25 crores from the promoters, though only ?35 lakhs was actually received, and the cheques for the balance amount were dishonoured. This act amounts to gross negligence as it was done in reckless disregard of his legal duty. The certificate was the basis for inviting public subscription, and the respondent's failure to verify actual receipt of cash constituted gross negligence. The delay in proceedings does not exonerate the respondent, given the gravity of the misconduct.

Conclusion:
The respondent's actions amounted to gross negligence and professional misconduct under Section 22 of the Chartered Accountants Act. The High Court, exercising its wide jurisdiction, directed that the respondent's membership with the Institute of Chartered Accountants of India be suspended from 01.11.2016 to 31.10.2019, during which period he shall not practice or function as a Chartered Accountant.

← Previous Next →