2017 (2) TMI 745 - HC - Indian Laws

Misconduct of Chartered Accountant - director of a company without the permission of the Council - Held that - In the instant case the admitted position is that the respondent is registered with the Council to practice as a Chartered Accountant. He cannot be a director of a company without the permission of the Council. The appellant is the promoter of various companies of which he is a director as per the evidence on record. Being a Chartered Accountant the respondent cannot actively carry on business through companies, trusts and firms. There is evidence that the respondent is doing so. Affirming the verdict of guilt and keeping in view the gravity of the misconduct we answer the reference by imposing the penalty of removal of respondent s name from the Register of Members of the Institute of Chartered Accountants for a period of two years.

Summary

Issues Involved:
1. Professional Misconduct
2. Other Misconduct
3. Validity of Disciplinary Proceedings
4. Role and Permissions of a Chartered Accountant

Issue-wise Detailed Analysis:

1. Professional Misconduct:
The respondent, a practicing Chartered Accountant, was indicted for professional misconduct under Clause 11 of the First Schedule to the Chartered Accountants Act, 1949. The complaint from Punjab National Bank alleged that the respondent incorporated three companies and a trust and opened accounts in their names. He was actively involved in these entities, signing balance sheets and operating bank accounts without obtaining prior permission from the Institute of Chartered Accountants. The Disciplinary Committee found the respondent guilty of professional misconduct, noting his involvement in day-to-day operations and financial transactions of the companies and trust.

2. Other Misconduct:
The respondent was also charged with other misconduct under Section 22 read with Section 21 of the Chartered Accountants Act, 1949. It was alleged that he, in connivance with the Branch Manager, defrauded the bank. The Committee noted that the respondent was involved in fraudulent activities, such as obtaining clean overdrafts without security and misappropriating funds through fictitious entries and demand drafts. Despite the pending criminal suit, the Committee found sufficient evidence of the respondent's involvement in these fraudulent activities, thus holding him guilty of other misconduct.

3. Validity of Disciplinary Proceedings:
The respondent argued that the trial before the CBI Court was not yet over and that the disciplinary proceedings should not proceed. However, the court held that the disciplinary proceedings were independent of the criminal trial. The charges in the disciplinary proceedings pertained to the respondent's professional conduct as a Chartered Accountant, which was distinct from the criminal charges of conspiracy and cheating.

4. Role and Permissions of a Chartered Accountant:
The respondent contended that he was an honorary director and did not require specific permission from the Institute. However, the evidence showed that the respondent was actively involved in the companies' operations, signing balance sheets, operating bank accounts, and engaging in financial transactions. The court emphasized that a practicing Chartered Accountant cannot act as a director of a company without the Council's permission and cannot actively carry on business through companies, trusts, and firms. The respondent's actions were in violation of these professional standards.

Conclusion:
The court affirmed the findings of the Disciplinary Committee and the Council, holding the respondent guilty of professional misconduct and other misconduct. Considering the gravity of the misconduct, the court imposed the penalty of removing the respondent's name from the Register of Members of the Institute of Chartered Accountants for a period of two years. The court emphasized that the respondent's active participation in business activities and fraudulent transactions was incompatible with the ethical standards expected of a Chartered Accountant.