2022 (12) TMI 821 - HC - Indian Laws

Jurisdiction - suo moto power of Institute of Chartered Accountants of India (Institute) to initiate disciplinary proceedings against its members - scope of the word information as occurring in Section 21 of the Chartered Accountants Act, 1949 (Act) - HELD THAT - Section 21 of the Act empowers the Institute to proceed either on the basis of a complaint or on information that may be received. The Court has on due consideration of the relevant provisions, the scheme of the Act and the nature of the duty cast upon the Institute, found that it could also proceed on the basis of cogent information that may be either gathered or may come to light from an external source. The usage of the word information in Section 21 thus clearly places the extent of the power vested on the Institute on a clearly distinct pedestal. It appears to be guided by the intent of the Legislature to enable and empower the Institute to proceed on any material or fact that may either come to its attention or be brought to its notice. Section 21 thus clearly appears to be distinguishable from the various statutory provisions and the scheme of the respective statutes which formed the basis for the various decisions rendered on the subject and which were noticed hereinabove. None of them empowered the authorities to initiate action on the basis of information . Viewed in the aforesaid backdrop, this Court is of the considered opinion that Section 21 does empower the Institute to proceed suo moto and unhindered by the absence of a written complaint or allegation that may be submitted. A written complaint or allegation in writing cannot, in any manner, be understood to be a pre-requisite or a sine qua non for the initiation of action under Section 21. The Court also bears in mind the significant observations which were made by the Division Bench of this Court in P. Ramakrishna 2013 (3) TMI 367 - HIGH COURT OF DELHI where while recognizing the intrinsic distinction between a complaint and information, the Court had aptly observed that information would include material that may be made available by a third person or even that which may come to the knowledge of the Institute. The Division Bench clearly held that in case of information, action may be initiated either suo moto or even on the basis of material that may be provided by a third party who may for a variety of reasons be not desirous of filing a formal complaint. The answer to the question whether a particular power stands conferred under statute must necessarily be answered on a reading of the statute and on discernment of its scope. The meaning to be conferred upon a statute cannot rest merely on the fact that the power though being found to exist was never invoked earlier. In any case, the respondents disclose and provide details in paragraph 49 of their counter affidavit of a suo moto power having been exercised even in the past. The averments made in the counter affidavit establishes that the Institute had exercised its suo moto powers similarly in relation to the Satyam Computers scam - The report with respect to MNAF s and the contemporaneous material which was noticed by the Supreme Court in its order would clearly constitute material relating to facts of which cognizance was taken by the Institute. The Court notes that it would be wholly incorrect to accept the contention that the initiation of the enquiry was based simply on news reports. As has been averred on behalf of the respondents, the news report only brought certain facts relating to a financial scam which had occurred in PNB to the notice of the respondents. They appear to have consequently elicited preliminary comments from the petitioners in that respect. The matter thereafter appears to have been scrutinised in further detail with appropriate information being gathered from PNB and the LRR also being carefully examined. It also becomes pertinent to note the fact that the huge financial fraud had been duly taken cognisance of and details thereof also provided to SEBI prior to the submission of the LRR, was an admitted position insofar as the petitioners are concerned. This would be evident from their reply to the initial show cause notice itself. The recordal of facts would clearly establish that the action which was initiated and the material which was treated as information for the purposes of Section 21 was not based on mere newspaper reports. In fact, those reports could not have possibly and on their own constituted material at all since they did not carry any allegation against the petitioners here. What appears to have transpired is of the news reports merely acting as a catalyst for the Institute to delve deeper into the massive fraud which had occurred and to examine whether any member had failed to abide by the SAs which applied. It was the material recorded and encompassed in the letter of 13 March 2018 which would constitute the foundation for testing the argument of the petitioner whether there was information which merited further enquiry - the Court is of the firm opinion that the Institute did have the requisite information as contemplated by Section 21 and which justified the initiation of the enquiry against the petitioners in the facts of the present case. While the Court is not called upon at this stage to return any definitive or final conclusions with respect to the alleged violation of the various SAs as well as SRE 2410, the material placed on the record would clearly belie the contention of the petitioners that the entire initiation of proceedings was based merely on news reports. This Court is of the considered opinion that the conclusions which stand recorded in Manubhai are clearly based on an extremely restrictive interpretation of Section 21 of the Act and in any case would amount to recognising Rule 7 as an essay on the scope and ambit of Section 21 of the Act itself. It would essentially amount to according pre-eminence to a subordinate rule and recognise the same as trammelling the scope of Section 21 of the Act. This Court has for reasons aforenoted come to the definitive conclusion that in the absence of the Act and the Rules having specifically defined the words information and complaint , it is the principles of purposive interpretation which must be adopted bearing in mind the fundamental objectives of the disciplinary procedure as constructed under the Act and the role and duties which the Institute is ordained to discharge. For all the aforesaid reasons, the Court finds itself unable to adopt the line of reasoning which weighed with the learned Judge in Manubhai. The writ petitions shall stand dismissed. The Institute shall consequently be entitled to proceed further in accordance with law. It shall therefore be open to the Institute to give effect to the final orders which have been kept in a sealed cover. The rights of the petitioners to question any final decision that may have been taken is kept open.

Summary

Issues Involved:
1. Whether the Institute of Chartered Accountants of India (ICAI) has the suo moto power to initiate disciplinary proceedings.
2. The validity of the disciplinary proceedings initiated by ICAI against the petitioners based on news reports.
3. The interpretation of the terms "information" and "complaint" under Section 21 of the Chartered Accountants Act, 1949.
4. The impact of the Chartered Accountants (Amendment) Act, 2022 on the existing powers of ICAI.

Detailed Analysis:

1. Suo Moto Power of ICAI:
The court examined whether ICAI could initiate disciplinary proceedings on its own motion. The judgment clarified that Section 21 of the Chartered Accountants Act, 1949, empowers ICAI to make investigations in respect of "any information" or "complaint" received by it. The term "information" was interpreted broadly to include any material or fact that comes to the notice of ICAI, not just written complaints. The court held that the word "any" before "information" in Section 21 indicates a wide ambit, allowing ICAI to act suo moto.

2. Validity of Disciplinary Proceedings Based on News Reports:
The petitioners contended that disciplinary proceedings were initiated solely based on news reports, which should not constitute valid "information." The court found that the news reports acted as a trigger for ICAI to delve deeper into the matter. The subsequent investigation by ICAI, which included examining the Limited Review Report (LRR) and other relevant documents, provided sufficient "information" to justify the initiation of disciplinary proceedings. The court emphasized that mere news reports could not constitute evidence but could act as external sources prompting further investigation.

3. Interpretation of "Information" and "Complaint":
The court distinguished between "information" and "complaint" under the Act and the Rules. A "complaint" must comply with Form-I and be accompanied by a fee, while "information" can be any material received in writing, even if not in the prescribed format. The court held that "information" includes knowledge derived from external sources and does not necessarily have to be a written complaint. The interpretation aimed to ensure that ICAI could fulfill its regulatory and disciplinary functions effectively.

4. Impact of the Chartered Accountants (Amendment) Act, 2022:
The petitioners argued that the 2022 Amendment Act, which explicitly confers suo moto powers on ICAI, indicated that such powers did not exist previously. The court disagreed, stating that the existing Section 21 already empowered ICAI to act on "any information," which implicitly included suo moto actions. The proposed amendments were seen as clarificatory rather than conferring new powers.

Conclusion:
The court concluded that ICAI has the authority to initiate disciplinary proceedings suo moto based on "any information" that comes to its notice. The disciplinary proceedings against the petitioners were valid as they were based on a thorough investigation prompted by news reports but substantiated by further evidence. The terms "information" and "complaint" were interpreted distinctively to ensure ICAI could effectively regulate the profession. The 2022 Amendment Act was viewed as clarificatory, affirming the existing powers of ICAI. The writ petitions were dismissed, allowing ICAI to proceed with the disciplinary actions.