2017 (2) TMI 414 - HC - Indian Laws

Professional misconduct - default under Chartered Accountants Act - non explanations of three certificates issued to the company on the strength of which the company started trading its shares on the two stock exchanges - Held that - SEBI has noted that the respondent was confronted with the bank statement of account issued by the banker of the company. Indeed respondent had no answer. Interestingly the order passed by SEBI brings out that in his stand before SEBI the respondent had inter-alia taken an alternative defence of relying on return of allotment in Form 2 submitted by the company to the Registrar of Companies. The said form was signed by the Company Secretary of the Company on December 01, 1999. Rightly it has been held by SEBI that the respondent could not have acted on the strength of the form because the dates on which he issued the certificates preceded the date of Form No.2. Proceeding to take cognizance of a report submitted by SEBI the Council of the Institute of Chartered Accountants constituted a Disciplinary Committee, forming a prima-facie opinion that the respondent was guilty of professional misconduct. Proceedings were initiated by the Disciplinary Committee. The respondent was served. His reply was taken on record. He was heard on various dates. The report of the Committee dated November 02, 2009 is a reflection of the order passed by SEBI. In the interregnum CBI had stepped in. Record of the company had been seized by CBI. No assistance from the respondent who has chosen not to appear today and would therefore highlight that in the certificate dated November 13, 1999 the respondent has consciously omitted to add the column of the date when the cheques were encashed for the reason he knew that no cheque had been encashed by the date he gave the certificate. We would also highlight that before the Disciplinary Committee that the respondent relied upon Form 2 which had been submitted by the Company to the Registrar of Companies, and suffice it to record that said form could not form the basis on which the respondent issued the certificates because the date of issue of said form under signatures of the Company Secretary of the Company, is much after the date when the three certificates were issued by the respondent. Accepting the report of the Disciplinary Committee, the Council at its meeting recommended penalty of removal of the name of the respondent from the Register of Members of the Institute for a period of five years.

Summary

Issues Involved:
1. Misrepresentation in Certificates Issued by the Respondent
2. Unusual Price Movement of Shares
3. SEBI Investigation and Findings
4. Respondent's Defense and Conduct
5. Disciplinary Proceedings and Penalty

Detailed Analysis:

1. Misrepresentation in Certificates Issued by the Respondent:
The company, initially named Padmini Packaging Pvt. Ltd., changed its name twice, ultimately becoming Padmini Technologies Ltd. On June 20, 1999, while named Padmini Polymers Pvt. Ltd., the company invited applications for 1,80,00,000 preferential shares, which were listed on the Delhi Stock Exchange and the Bombay Stock Exchange. The respondent issued three critical certificates. The first, dated June 30, 1999, certified receipt of ?8,52,50,000/- as share money. The second was a due diligence certificate, and the third, dated November 13, 1999, detailed the receipt of share application money. Notably, the third certificate omitted the date of cheque encashment, which was crucial.

2. Unusual Price Movement of Shares:
SEBI noted an unusual increase in the company's share price from ?60.95 on December 13, 1999, to ?266/- by March 09, 2000, followed by a sharp decline to ?47/- by May 15, 2000. This prompted SEBI to investigate the matter, revealing that 2,00,00,000 equity shares were allotted, with 1,80,00,000 shares allotted to various entities on June 20, 1999.

3. SEBI Investigation and Findings:
SEBI's investigation revealed discrepancies in the allotment and payment for the shares. For Kolkata-based entities, it was found that cheques issued were only cleared after the shares were listed and sold. For instance, a cheque dated May 21, 1999, issued by Contessa Commercial for ?90 lacs, was cleared only on January 05, 2000. Similar patterns were observed for other entities. SEBI noted that the respondent's certificates falsely stated that the company had received the share application money by June 30, 1999, or November 30, 1999, while the actual realization of funds occurred much later.

4. Respondent's Defense and Conduct:
The respondent claimed to have issued the certificates based on the company's computerized records and the return of allotment in Form 2 submitted to the Registrar of Companies. However, SEBI found that the respondent failed to cross-check with the bank statements, which would have revealed the discrepancies. The respondent's obstructive attitude during SEBI proceedings and reliance on Form 2, dated after the certificates' issuance, further undermined his defense.

5. Disciplinary Proceedings and Penalty:
Following SEBI's findings, the Council of the Institute of Chartered Accountants initiated disciplinary proceedings against the respondent. The Disciplinary Committee's report, reflecting SEBI's order, found the respondent guilty of professional misconduct. The respondent did not challenge SEBI's order and was absent from the proceedings. The Committee recommended removing the respondent's name from the Register of Members for five years, a penalty concurred by the court.

Conclusion:
The court accepted the Disciplinary Committee's report and ordered the removal of the respondent's name from the Register of Members of the Institute of Chartered Accountants for five years, concluding the reference without costs.