2021 (3) TMI 274 - HC - Indian Laws

Professional Misconduct - Disciplinary Committee of ICAI has observed that the petitioner is guilty of professional gross negligence and held him guilty for expressing opinion on financial status of company in which he was having substantial interest - complaint was made against the petitioner to the effect that complainant wife is Director, therefore, she cannot sign balance-sheet - principles of natural justice - HELD THAT - From perusal of the record it is seen that some undisputed facts are that initially the complaint made against the petitioner was on the basis of which the cognizance was taken by the disciplinary authority was prayed to be withdrawn by filing the affidavit by the complainant itself. Even after filling of withdrawal application the Committee has continued the proceedings. The order impugned reflects that same is being based on mere considering the possibility of collusion of the respondent with the Director of the Company. There is no substantial material available on record which have been considered by the disciplinary committee who arrived at conclusion that the wife of the respondent was having substantial interest in the company. In para 7 of the impugned order it is held by the disciplinary committee that Although, the Respondent wife's holding does not fall within the clear cut definition of substantial interest, yet looking into the supporting documents which shows that she has been authenticating the Financial Statements of the Company for the Financial Year 2009-2010, signing annual return, holding more than 20% shares in the Company seem to suggest that she had substantial interest in the Company. In para 8 the disciplinary committee has arrived at the conclusion that there is some possible collusion of the Respondent with the Director of the Company. He is being guilty by the disciplinary committee on the basis of material available on record. Further in para 11 of the impugned order shows that despite an application for withdrawal of the complaint which was received on 31.10.2014 the disciplinary committee has continued with the proceedings. This clearly goes to show that the impugned order has been passed merely on the basis of possibilities. In the present case the disciplinary committee has passed the order only on the basis of preponderance of probability and the petitioner was held guilty, despite of the fact that the charges levelled against the petitioner are required to be proved beyond reasonable doubt. Once the complainant has itself submitted an affidavit for withdrawal of his complaint there was no occasion for the disciplinary committee to continue the proceedings as the proceedings is not in the nature of suo motu proceedings. The arguments advanced by the respondents that the authorities are having powers to take up the matter on its suo motu, but these proceedings are taken up by the authorties on the basis of complaint made against the petitioner and not under the suo motu proceedings. Thus, the aforesaid arguments has no limbs to stand. The order impugned is unsustainable as the same is violative of principle of natural justice and fair play and has been passed without following the procedure as contemplated under the Act of 1949 - Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Territorial Jurisdiction
2. Alternative Remedy
3. Merits of the Case (Professional Misconduct and Principles of Natural Justice)

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction:
The respondents raised a preliminary objection regarding the maintainability of the writ petition before the High Court of Madhya Pradesh, Bench at Gwalior, arguing that the order was passed in New Delhi and all proceedings occurred there. However, the petitioner, a resident of Gwalior with a registered firm in Gwalior, argued that the cause of action arose in Gwalior. The court referenced the Supreme Court's rulings in ONGC Vs. Utpal Kumar Basu and Shanti Devi alias Shanti Mishra Vs. Union of India, which clarified that a High Court can exercise jurisdiction if the cause of action, wholly or in part, arose within its territory. The court concluded that it had territorial jurisdiction under Article 226 of the Constitution of India since the complaint and subsequent actions originated in Gwalior.

2. Alternative Remedy:
The respondents contended that the petition was not maintainable due to the availability of an alternative remedy under Section 22G of the Chartered Accountants Act, 1949. However, the court cited the Supreme Court's judgment in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai, which established that alternative remedies do not bar writ petitions in cases involving violations of fundamental rights, principles of natural justice, or jurisdictional errors. The petitioner argued that the disciplinary committee violated procedural norms and principles of natural justice by not providing an opportunity to lead evidence or cross-examine witnesses. The court found that the petition fell within the exceptions allowing direct writ petitions and thus was maintainable.

3. Merits of the Case (Professional Misconduct and Principles of Natural Justice):
The petitioner was accused of professional gross negligence and misconduct, including expressing an opinion on the financial status of a company where he had a substantial interest. The disciplinary committee found him guilty under specific clauses of the Chartered Accountants Act, 1949. The petitioner argued that the disciplinary proceedings were flawed as they continued despite the complainant's withdrawal affidavit and did not allow cross-examination of witnesses or submission of defense evidence. The court noted that the disciplinary committee's findings were based on possibilities and preponderance of probability rather than proof beyond a reasonable doubt, as required for quasi-criminal charges. The court cited the Supreme Court's ruling in H.V. Panchaksharappa Vs. K.G. Eshwar, emphasizing that charges of professional misconduct must be proved beyond reasonable doubt. The court concluded that the disciplinary committee's actions violated principles of natural justice and fair play, rendering the impugned order unsustainable.

Conclusion:
The High Court allowed the writ petition, quashing the impugned order dated 7th August 2020, and held that the proceedings were not conducted in accordance with the principles of natural justice and the prescribed procedure under the Chartered Accountants Act, 1949. No costs were awarded.