2013 (10) TMI 502 - HC - Companies Law

Disciplinary proceedings against the member of ICAI - irregularities in audit report - MAOCARO, 1988 - Temporary cancellation of membership - Professional misconduct - Held that - A perusal of the record shows that the Company, whose Audit Report is stated to have been prepared by respondent No.1 contrary to the prescribed norms, has not made any complaint against respondent No.1. One of the Directors of the Company, namely, Vipan Gupta, appeared before the Disciplinary Committee as a witness but he did not state a word about the aforesaid Audit Report. He also did not say what damage or prejudice has been caused to the Company on account of that report. Amarjit Kamboj, the complainant, in our opinion had no locus standi to make a complaint in this respect - The Disciplinary Committee while returning the aforesaid finding of guilt against respondent No.1, has not referred to particular portions of the report, which according to the findings, were not in conformity with the prescribed norms. It has not pointed out, what matters were not commented upon and what was the effect of this omission. Similarly, it is not pointed out what matters were not applicable, which were omitted by respondent No.1 and how and to what extent has it harmed the interests of the Company. It has also not been pointed out by whom and in what manner the Audit Report was proved. Witnesses examined during the course of inquiry are found to have been cross-examined by the members of the Disciplinary Committee and by the complainant. Such a procedure is unknown to Indian jurisprudence and it in our opinion vitiates the entire proceedings of the Disciplinary Committee, being contrary to the settled principles of natural justice that one cannot be a judge and a prosecutor at the same time - proceedings of the Disciplinary Committee are found to be based on no evidence and are even otherwise vitiated. The Council did not apply its mind to the facts and circumstance of the case, accepted the report of the Disciplinary Committee in a mechanical manner and has made this reference to this Court - Disciplinary Committee is found to have observed that the proceedings could not continue in the absence of Registrar of Companies. However, the Registrar of Companies never participated in the proceedings - Another circumstance that needs to be highlighted is that the Company went before the Companies Law Board and entered into a compromise with the auditors company. Complaint as regards the charge under reference, did not survive but the Disciplinary Committee for reasons best known to it, proceeded with the inquiry and avoided a reference to the settlement, referred to above. This renders approach of the Disciplinary Committee biased and, therefore, unacceptable - Decided against petitioner.

Summary

Issues:
1. Confirmation of proposed punishment of removal of name of respondent from the register of members for three months.
2. Allegations of professional misconduct against respondent.
3. Procedural fairness and evidence in disciplinary proceedings.

Analysis:

Issue 1:
The Institute sought confirmation of the proposed punishment of removing the respondent's name from the register of members for three months. The Council found the respondent guilty of professional misconduct and decided to afford him a hearing under Section 21(4) of the Act. The Council also recommended the removal of the respondent's name for three months, leading to the reference to the Court under Section 21(5) of the Act.

Issue 2:
The allegations of professional misconduct against the respondent included discrepancies in the auditors' reports for two consecutive years, non-compliance with the prescribed norms of the Companies Act, and negligence in duty as an auditor. The Disciplinary Committee found the respondent guilty on certain charges, while the Council accepted some findings and proposed the removal of the respondent's name based on the established misconduct.

Issue 3:
The Court analyzed the procedural fairness and evidence in the disciplinary proceedings. It highlighted various deficiencies, including lack of evidence substantiating the misconduct, absence of complaints from the affected company, biased complaint originator, prolonged duration of the proceedings, procedural irregularities like lack of notice to the respondent, and the absence of independent corroboration. The Court criticized the Disciplinary Committee for not applying its mind, conducting proceedings without evidence, and failing to consider a settlement between the company and the auditors that rendered the complaint irrelevant.

In conclusion, the Court rejected the reference, emphasizing the lack of evidence, procedural flaws, bias, and the existence of a settlement that nullified the complaint. The Court directed the proceedings to be filed, highlighting the importance of establishing misconduct with certainty and ensuring procedural fairness in disciplinary actions.