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2017 (11) TMI 1489 - HC - Indian Laws


Issues Involved:
1. Irregular allotment of shares by M/s. Bhartari Financial Services Ltd. (BFSL).
2. Ante-dating of stock invests.
3. Misconduct of the Chartered Accountant (CA) involved.

Issue-wise Detailed Analysis:

Issue 1: Irregular Allotment of Shares
The genesis of the ICAI Council's recommendations stems from a letter dated 10th June 1999 from SEBI, highlighting irregularities in BFSL’s public issue. SEBI's investigation revealed that 27 applications were accompanied by stock invests issued by Sangli Bank after the issue's closure, resulting in an irregular allotment of 1,17,200 shares. The stock invests, issued for amounts between ?1.00-1.20 lakhs, were used for ?270 lakhs, leading to irregular allotments. Despite requests for cancellation, the shares were forfeited and re-allotted to BFSL’s associates. The ICAI Council found the CA guilty of professional and other misconduct due to his involvement in these irregularities.

Issue 2: Ante-dating of Stock Invests
The CA obtained about 80-90 stock invests of ?10,000/- each from Sangli Bank after the issue's closure, which were then sold at a profit. SEBI's investigation revealed that 2016 stock invests amounting to ?53,69,000/- were not sent for realization on the stipulated dates, with correspondence fabricated by forging signatures and rubber stamps. The ICAI Council concluded that the CA connived with others to arrange finance using ante-dated stock invests, facilitating irregular allotments.

Issue 3: Misconduct of the Chartered Accountant
The ICAI Council treated SEBI's communication as "information" under Sections 21 and 22 of the Act, proceeding against the CA for "other misconduct." The CA admitted to his association with Mr. S.K. Gupta for arranging finance and receiving consideration of 6% on the investment. Despite his claims of innocence, the ICAI Council and the Disciplinary Committee found his defense unconvincing, noting his failure to provide documentary evidence disproving his involvement. The CA's fixed deposits were used as security for the stock invests, indicating his direct involvement.

Analysis and Findings:
The CA's statement before the Disciplinary Committee revealed his evasive answers regarding the arrangement of funds and the issuance of stock invests. The CA admitted to practicing since 1985 under the trading style A.K. Chawla & Associates and earning a commission from investors. His involvement in another case, Manu Finlease, further demonstrated his fraudulent activities. The ICAI Council, agreeing with the Disciplinary Committee's findings, recommended his removal from the register of members for one year.

Conclusion:
The High Court, considering the ICAI Council's recommendation and the long delay since the events, directed the CA's suspension from the ICAI membership for one year. The Court emphasized the importance of maintaining high ethical standards among CAs, noting that the CA's misconduct compromised financial market integrity. The CA was also ordered to pay costs of ?10,000/- to the petitioner within four weeks.

 

 

 

 

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