2019 (8) TMI 117 - HC - Indian Laws

Professional misconduct against CA - conducting both internal audit as well as statutory audit - accepting the assignment without communicating with the previous auditor - Clauses 7 and 9 of Part I of the Second Schedule to ICAI Act - ICAI found some merit in allegation and awarded punishment of being reprimanded - Writ petitioner being aggrieved person was the trustee of the trust and was expelled - HELD THAT - This Court is of the view that there is no flaw in the conclusion of the Disciplinary Committee in rejecting the said allegation. The Disciplinary Committee had noticed that the resolution dated 03.03.2003 was passed at a meeting which was attended by only four trustees. It had noticed that this number was short of the 3/4th majority required as per Rules and Regulations. Mr Jayant Mehta did not produce any material to show that this decision was perverse or unreasonable. Undeniably, a statutory auditor of an entity cannot be its internal auditor. The rationale being that he cannot be called upon to give an independent and objective opinion on the accounts if he has not been a part of the internal audit system. There was no material in the present case to substantiate that respondent no.3 had given any report or was placed in a position where he was called upon to comment on his own work. Respondent no. 3 was simply appointed as an auditor to audit the accounts of the Trust although, the same was termed as a statutory auditor. Mr Mehta was pointedly asked whether there was any material to indicate the scope of audit to be performed by respondent no.3. However, he was unable to show any document to indicate the same. This Court is unable to accept that the decision of the Disciplinary Committee of ICAI is erroneous or warrants any interference by this Court - present petition is dismissed with costs quantified at ₹25,000/- to be deposited with Delhi High Court Legal Services Committee within a period of two weeks from today.

Summary

Issues Involved:
1. Validity of the Disciplinary Committee's decision absolving respondent no.3 of professional misconduct under Clauses 7 and 9 of Part I of the Second Schedule to the ICAI Act.
2. Alleged procedural errors in the appointment of respondent no.3 as auditor.
3. Alleged misconduct by respondent no.3 in conducting both internal and statutory audits.
4. Allegation of respondent no.3 not communicating with the previous auditor before accepting the assignment.

Issue-Wise Detailed Analysis:

1. Validity of the Disciplinary Committee's Decision:
The petitioner challenged the Disciplinary Committee's decision dated 10.02.2014, which found respondent no.3 guilty of professional misconduct under Clause (8) of Part I of the First Schedule to the ICAI Act but absolved him of charges under Clauses 7 and 9 of Part I of the Second Schedule. The petitioner argued that the decision was erroneous and failed the Wednesbury test, as no reasonable person could have arrived at such a conclusion. The Court, however, found no merit in this contention, stating that the Disciplinary Committee's scope was limited to examining whether respondent no.3 had misconducted himself by accepting an appointment based on a resolution passed by the Board of Trustees.

2. Procedural Errors in Appointment:
The petitioner contended that respondent no.3's appointment as an auditor was irregular because it was made at a meeting attended by Sh. Vipin Mahajan, who had been removed as a trustee. The Disciplinary Committee found that the resolution removing Sh. Mahajan was invalid due to a lack of quorum. This conclusion was supported by a civil suit decision, which had not been stayed by any superior court. The Court upheld the Disciplinary Committee's findings, noting that the petitioner did not provide any material to show that the decision was perverse or unreasonable.

3. Misconduct in Conducting Internal and Statutory Audits:
The petitioner alleged that respondent no.3 had conducted both internal and statutory audits, violating the Code of Ethics. The Disciplinary Committee noted that respondent no.3 had signed Form 10B under Section 12A(b) of the Income Tax Act, 1961, but had not conducted a tax audit or statutory audit. The Court found no material to substantiate that respondent no.3 had given any report or was in a position to comment on his own work. The petitioner failed to produce any document indicating the scope of the audit to be performed by respondent no.3.

4. Failure to Communicate with Previous Auditor:
The Disciplinary Committee found merit in the allegation that respondent no.3 had not communicated with the previous auditor before accepting the assignment. Consequently, the Disciplinary Committee imposed a punishment of reprimand on respondent no.3. The Court did not find any flaw in this conclusion and upheld the Disciplinary Committee's decision.

Conclusion:
The Court dismissed the petition, stating that there was no flaw in the Disciplinary Committee's decision. It emphasized that disciplinary proceedings against a member of ICAI are meant to ensure professional standards and are not a private dispute between the complainant and the Chartered Accountant. The Court also noted that the scope of interference under Article 226 of the Constitution of India is limited and found the petitioner's contention that the decision was perverse and unreasonable to be without merit. The petitioner was ordered to pay costs of ?25,000 to the Delhi High Court Legal Services Committee.