2018 (8) TMI 1480 - Other - Companies Law

Guilty of professional or other misconduct for not exercising due diligence - Member of ICSI - basic controversy regarding filing of Form-32 - Disciplinary proceedings against company secretary (CS) - Held that - None of the parties filed the original minute books or the resolution passed which are the subject matter relevant to the filing of two forms i.e. Form-32 filed for the appointment of Shri Bishender Singh as an Additional / Promoter Director and secondly, the form regarding cession of Pramod Khosla and his wife as the Directors of the Company under Section 283(1) (g) of the Companies Act, 1956. In this case, it has been clearly held that the Appellant was negligent in filing Form-32 on both the occasions and failed to exercise diligence required on his part. Also gone through the Written Arguments, filed on behalf of both the parties. We are of the considered view that it is not a case where the professional i.e. the Appellant was expected to act as an investigator. What was required for him was to only see the contents of the resolution passed and relied upon in support of Form-32 himself and in case, it was shown to him in minute books, than he should have been very categorical as to who was in possession of minute books shown to him containing the resolutions in question. However, in this regard, no assistance has been provided to us. The Disciplinary Committee after the remand of the matter has gone through the entire controversy in detail, given cogent reasons in holding that the Appellant was Guilty of Professional Misconduct under item (7) of Part-I of the Second Schedule of the Act in as much as he did not exercise due diligence while certifying the two Forms-32 on both the occasions and as such he was grossly negligent in the conduct of his professional duties. We accordingly dismiss the appeal while maintaining the order of sentence as awarded by the Disciplinary Committee in this case, which according to us is not excessive in any manner. We, however, make it clear that since there is a dispute of management by the two sides of Khosla family and parties are already before various forums, observations made by us against the Appellant who is a professional will not be used against him in other litigations.

Summary

Issues Involved:
1. Professional misconduct in certifying Form-32 for the appointment of a director.
2. Professional misconduct in certifying Form-32 for the cessation of directors under Section 283(1)(g) of the Companies Act, 1956.
3. Due diligence and negligence by the Appellant in the conduct of professional duties.

Detailed Analysis:

1. Professional Misconduct in Certifying Form-32 for the Appointment of a Director:
The Appellant was alleged to have committed professional misconduct by certifying Form-32, showing the appointment of Mr. Bishender Singh as a "Promoter Director" instead of an "Additional Director" as approved by the Board of Directors. The complaint highlighted that Mr. Bishender Singh was appointed as an Additional Director on 10th August 2011, and his appointment was to be valid only until the next Annual General Meeting (AGM). However, Form-32 incorrectly categorized him as a Promoter Director. The Disciplinary Committee found that the Appellant failed to exercise due diligence by not verifying proper documents, such as the certified copy of the resolution, which was necessary to substantiate the appointment. The Committee concluded that the Appellant tampered with public records, showing negligence in his professional duties.

2. Professional Misconduct in Certifying Form-32 for the Cessation of Directors under Section 283(1)(g) of the Companies Act, 1956:
The Appellant was also accused of certifying Form-32 for the cessation of Mr. Pramod Khosla and Ms. Sarita Khosla as Directors under Section 283(1)(g) of the Companies Act, 1956. The complaint alleged that the Appellant did not consider the Board meeting held on 20th December 2011, which the complainant and his wife attended. The cessation was based on their absence from three consecutive Board meetings, which was not accurate. The Disciplinary Committee noted that the Appellant should have verified the notices, agenda, proof of dispatch, minutes, and attendance sheets of the Board meetings. The Committee held that the Appellant was negligent and failed to exercise due diligence in certifying the Form-32.

3. Due Diligence and Negligence by the Appellant in the Conduct of Professional Duties:
The Disciplinary Committee observed that the Appellant, as a Practicing Company Secretary (PCS), was required to act with due diligence while certifying forms. The Committee emphasized that the Appellant should have verified the authenticity of the documents and resolutions before certifying them. The Appellant's reliance on incomplete or incorrect documents demonstrated gross negligence in his professional duties. The Committee reiterated its decision to reprimand the Appellant and impose a fine of ?5,000 for professional misconduct.

Conclusion:
The Appellate Authority upheld the Disciplinary Committee's findings, concluding that the Appellant was guilty of professional misconduct for not exercising due diligence in certifying Form-32 on both occasions. The appeal was dismissed, and the order of reprimand and fine was maintained. The Authority clarified that the observations made against the Appellant would not be used in other litigations involving the management dispute within the Khosla family.