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2017 (11) TMI 1489 - HC - Indian LawsMisconduct by CA - Irregular allotment of shares of BFSL involving irregular subscription - Held that - The most glaring fact that completely belies the case of the respondent is that the fixed deposits which were given as security for issuance of the stock invests belonged to the respondent. This is clear from both SEBI s investigation as also the statement recorded by the DC of the ICAI. The respondent admitted that the fixed deposits that were given as security for the issuance of stock invests. Thus there can be no doubt that the respondent was guilty of the misconduct and has failed in his professional duty of maintaining a distance between him and the promoter. His conduct leading upto the irregular allotment of shares is blameworthy and at fault.The conduct clearly constitutes misconduct . Allotment of 7,000 shares against applications accompanied by ante-dated stock invests issued by Sangli Bank - Held that - It was none else but the respondent who was conducting all the dealings leading up to the issuance of the stock invests and allotment of the shares - though the applications for allotment of shares were allegedly withdrawn subsequently. Thus, it can be seen that both SEBI and ICAI have found him guilty after following due process. Statement of the respondent has been recorded before both the authorities. He has candidly admitted in his statement that he was to be paid 6% commission on these transactions and that he did not appeal against the order of SEBI, debarring him for 5 years after holding him guilty. Even the DC held him guilty and the ICAI Council of ICAI, in it its meeting on 2nd June, 2013, directed his removal from the register of members of ICAI for a period of one year. This recommendation of the ICAI having been made on 2nd June, 2013, this Court notes that events which relate to the case date back to 1995. More than 22 years have passed since the events have transpired. Though this Court may have been inclined to increase the nature of punishment to the respondent, owing to the long delay, it is directed that the respondent shall be debarred for a period of one year as recommended by the DC. This Court would like to observe that CAs ought to maintain the highest level of ethics and integrity, not only in the interest of their clients but also to ensure that probity and sanctity are not compromised in any manner as CAs are not merely professionals engaged by their clients, but are protectors and guardians of financial markets on which a nation depends. The respondent was well aware of the misconduct in which he had indulged and was praying for sympathy from the ICAI Council. The reference is accordingly accepted and in exercise of powers under Section 21(6) of the Act, it is directed that the respondent shall be suspended from the membership of the ICAI for a period of one year. During this period, the respondent is restrained from rendering any services as a CA as recognized by the Chartered Accountants Act, 1949.
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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