2017 (2) TMI 77 - HC - Indian Laws

Guilty of misconduct as defined under Clauses 5, 6, 7 and 8 of Para I of the 2nd Schedule to the Chartered Accountants Act, 1949 - false audit report - justification of audit report for the year 2001-02 in which the amount deposited by the complainant with the society was certified to be ₹ 3.88 lacs as against ₹ 6.88 lacs certified in the audit reports for the two previous years - Held that - Having perused the reply we find not a word uttered in the reply to counter the conclusions and the reasons given by the Disciplinary Committee. In para 15 of the reply it is pleaded that while conducting the audit for the year 2001-02 it was brought to the notice of the respondent that the complainant had actually paid ₹ 3.88 lacs and not ₹ 6.88 lacs. It is pleaded that the respondent made inquiry and on going through the personal ledger of the members maintained by the society noted that the complainant had actually paid ₹ 3.88 lacs and not ₹ 6.88 lacs. It has not been explained in the reply as to under what circumstances for the previous two years the respondent certified that the complainant had made a deposit totalling ₹ 6.88 lacs. Under the circumstances we accept the finding returned by the Disciplinary Committee as approved by the Council. Keeping in view the gravity of the misconduct the proposed penalty is also accepted. The reference is disposed of levying penalty of removal of name of the respondent from the Institute of Chartered Accountants for a period of one year.

Summary

Issues: Allegations of professional misconduct against a Chartered Accountant in auditing financial accounts of a Cooperative Group Housing Society.

In this judgment, the court addressed the complaint made by a member of a Cooperative Group Housing Society against a Chartered Accountant firm regarding discrepancies in the audit reports for several financial years. The complainant alleged that the Chartered Accountant had colluded with the Society's Managing Committee to arbitrarily reduce the amount deposited by the complainant in the society's ledger account. The matter was referred to the Disciplinary Committee of the Council, which found a prima facie case for inquiry. The Committee observed that the Chartered Accountant had taken contradictory stands regarding the discrepancies in the audit reports, including issues with bounced cheques and incorrect representations in ledger accounts.

The Disciplinary Committee's report highlighted the Chartered Accountant's failure to verify balances accurately and obtain confirmations from members, especially in a situation where a member's balance was significantly reduced. The Committee noted that the Chartered Accountant had not reported changes in deposit balances or drawn attention to important matters in the audit report. The Chartered Accountant failed to provide a satisfactory explanation for certifying different deposit amounts for the complainant in consecutive years, leading to a finding of professional misconduct.

The Council, after considering the Disciplinary Committee's report and the Chartered Accountant's lack of response, concluded that the Chartered Accountant was guilty of misconduct as defined under relevant clauses of the Chartered Accountants Act, 1949. The Council recommended the removal of the Chartered Accountant's name from the Registrar of Members. Despite being served notice, the Chartered Accountant did not adequately counter the conclusions of the Disciplinary Committee, leading the court to accept the findings and the proposed penalty.

Ultimately, the court upheld the decision of the Disciplinary Committee and the Council, imposing a penalty of removing the Chartered Accountant's name from the Institute of Chartered Accountants for a period of one year due to the gravity of the misconduct. The judgment concluded without imposing any costs on the parties involved.