2024 (6) TMI 120 - HC - Indian Laws

Professional misconduct under Clause (7) of Part I of the Second Schedule of the Chartered Accountants Act - award of punishment of removal of the name of Respondent No. 1 from the Register of Members for a period of six months - Validity of the Appellate Authority's decision to overturn the Disciplinary Committee's findings - HELD THAT - At the outset it is pertinent to mention that this Court while exercising its jurisdiction under Article 226 of the Constitution of India does not sit as an Appellate Authority. A writ court exercising its jurisdiction under Article 226 of the Constitution of India does not substitute its own conclusion to the one arrived at by any authority unless the decision is so perverse that no authority can come to such a conclusion or that the order is completely in contravention of any provision of any law be it an Act or the Regulation framed under the Act. Applying the said law laid by the Apex Court in Ayurvedic Sciences Anr. v. Bikartan Das Ors. 2023 (8) TMI 1425 - SUPREME COURT to the facts of the present case, the learned Counsel for the Petitioner has not been able to point out any specific Regulation or accounting standards which Respondent No. 1 has violated. Whether the omission to mention that the net worth certificate was based on a provisional balance sheet constitutes professional misconduct? - HELD THAT - The Chartered Accountant should indicate in his report or certificate on the basis of duly audited general purpose financial statements and he should take the precaution of clearly stating in his report or certificate the figures from the audited general purpose financial statements have been used and relied upon and a statement showing reconciliation between the figures in the general purpose financial statements and the figures appearing in his report or certificate - The Appellate Authority has come to an opinion that no guidelines have been violated. The Appellate Authority is of the opinion that the guidance note will not have a statutory aberration in following the guideline note is only a technical omission and will definitely not amount to misconduct. The Appellate Authority has held that mere omission to mention that the net worth certificate is issued on the basis of provisional balance sheet does not attract any misconduct or otherwise as such omission is technical in nature. This Court is not inclined to interfere with the opinion of the Appellate Authority which consists of a retired Judge of a High Court and three expert members who have opined that the actions of Respondent No. 1 are not such that it would attract a penalty of removal of his name from the Register of Members for a period of six months. This Court is not inclined to interfere with the order of the Appellate Authority which cannot be said to be perverse calling for interference under Article 226 of the Constitution of India. However, the Respondent No. 1 is directed to be more careful in future - Petition dismissed.

Summary

Issues Involved:
1. Validity of the net worth certificate issued by Respondent No. 1.
2. Allegation of professional misconduct by Respondent No. 1.
3. Jurisdiction and scope of review under Article 226 of the Constitution of India.
4. Interpretation and application of accounting standards and guidelines.

Issue-wise Detailed Analysis:

1. Validity of the Net Worth Certificate Issued by Respondent No. 1:
The Petitioner, Institute of Chartered Accountants of India (ICAI), challenged the Appellate Authority's decision that allowed an appeal by Respondent No. 1 against the Disciplinary Committee's finding of professional misconduct. Respondent No. 1, a Chartered Accountant, issued a net worth certificate to Lotus Refineries Private Limited (LRPL) stating a net worth of Rs. 268.27 lakhs as on 30.09.2012. The certificate was later contested by Respondent No. 2, National Spot Exchange Limited (NSEL), alleging inaccuracies. The Appellate Authority accepted that the net worth certificate was based on a provisional balance sheet and not the final audited financials, deeming the omission to mention this as a "technical" error, not amounting to professional misconduct.

2. Allegation of Professional Misconduct by Respondent No. 1:
Respondent No. 2 filed a complaint against Respondent No. 1, alleging professional misconduct under Clauses (5), (6), (7), (8), and (9) of Part I of the Second Schedule to the Chartered Accountants Act. The Disciplinary Committee found Respondent No. 1 guilty under Clause (7) and imposed a penalty of removal from the Register of Members for six months and a fine of Rs. 1,00,000/-. The Appellate Authority, however, overturned this decision, stating that the omission to mention reliance on a provisional balance sheet was only technical and did not constitute misconduct.

3. Jurisdiction and Scope of Review under Article 226 of the Constitution of India:
The Court emphasized that its jurisdiction under Article 226 does not extend to acting as an appellate authority. It cannot substitute its conclusions for those of the lower authority unless the decision is perverse or contravenes any law. The Court cited the Supreme Court's rulings in Central Council for Research in Ayurvedic Sciences & Anr. v. Bikartan Das & Ors. and T.C. Basappa v. T. Nagappa, stating that certiorari jurisdiction is supervisory, not appellate. Errors of fact cannot be corrected unless they amount to errors of law apparent on the face of the record.

4. Interpretation and Application of Accounting Standards and Guidelines:
The Court reviewed Paragraph 9.3.1 of the Disciplinary Committee's order, which indicated that Respondent No. 1 relied on unaudited figures and failed to mention this reliance in the net worth certificate. The Appellate Authority, however, found that no specific regulations or accounting standards were violated. The guidance note mentioned in the Disciplinary Committee's order was deemed non-statutory, and its non-compliance was considered a technical omission, not misconduct. The Appellate Authority, consisting of a retired High Court Judge and three expert members, concluded that such actions did not warrant the severe penalty imposed by the Disciplinary Committee.

Conclusion:
The Court dismissed the petition, agreeing with the Appellate Authority that the omission by Respondent No. 1 was technical and did not constitute professional misconduct. The Court declined to interfere with the Appellate Authority's decision, which was not found to be perverse. However, it directed Respondent No. 1 to exercise greater care in the future. The petition and any pending applications were dismissed.