2017 (8) TMI 1080 - HC - Companies Law

Other-Misconduct by chartered accountant - name lending to the prospectus to public issue though resigned as director - Held that - The Chartered Accountant Satish Kumar Gupta had resigned as Director of BLF before opening of the public issue of BLF irrespective of the fact that his resignation was allegedly accepted on 9.9.1997, in respect whereof no material was brought on record. Having resigned before the commencement of the public issue, his name could not have appeared in the prospectus which in fact was there. This was nothing but lenting his name to the prospectus to the aforesaid public issue and misleading the investors. It is immaterial whether any investor was actually mislead. However, the Act of mis-conduct gets completed. In view of the above, we find that the disciplinary Committee has rightly held him guilty for other mis-conduct under Section 22 read with 21 of the Act. We do not even find that the recommendation made for removing the name of the Chartered Accountant from the register of the members for a period of three months is in any way illegal or is otherwise disproportionate to the charge he has been found guilty by the disciplinary Committee. We therefore, answer the reference in affirmative confirming the recommendation that the Chartered Accountant Satish Kumar Gupta is guilty of other mis-conduct and his name be removed from the register of members of the Chartered Accountants for a period of three months.

Summary

Issues:
Reference under Section 21(5) of the Chartered Accountants Act, 1949 regarding a Chartered Accountant held guilty of "other misconduct" by the disciplinary Committee for various charges including misleading investors and providing a forged certificate. The main issue is whether the Chartered Accountant was still a Director of the company during the public issue, justifying the charges of "other misconduct."

Analysis:
The Chartered Accountant was accused of misleading investors by claiming control of the company in a prospectus despite resigning as Director before the public issue. The disciplinary Committee found him guilty of "other misconduct" for lending his name to the prospectus, even though he denied misleading anyone or providing a forged certificate to SEBI. The Council recommended his removal from the register for three months based on this finding.

The primary argument was whether the resignation of the Director was effective before the public issue, as the Chartered Accountant claimed. The key question was whether he was still a Director during the public issue, justifying the charges. The Chartered Accountant argued that his resignation was accepted after the issue closed, but the disciplinary Committee concluded he was guilty of "other misconduct" for signing the prospectus despite his alleged resignation.

The Court analyzed the timing of the resignation, applying principles of Service Jurisprudence and common law. It was established that resignation becomes effective when tendered, and there is no requirement for formal acceptance by the company's Board. Precedents from various High Courts supported this view, emphasizing that resignation takes effect upon submission, not acceptance.

Based on these legal principles and the timeline of events, the Court determined that the Chartered Accountant had resigned before the public issue, making his appearance in the prospectus misleading and constituting "other misconduct." The Court upheld the disciplinary Committee's decision, finding the recommendation for removal from the register proportionate to the offense.

In conclusion, the Court affirmed the Chartered Accountant's guilt of "other misconduct" and upheld the recommendation for his removal from the register for three months. The decision was based on the timing of resignation and the misleading nature of his actions in the prospectus. The Institute of Chartered Accountants of India was instructed to take necessary action based on the Court's order.