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2023 (10) TMI 716 - HC - Indian LawsReference case under Section 21(5) of the Chartered Accountants Act, 1949 - allegations reportedly arising out of inspection under Section 209(A) of the Companies Act, 1956 - alleged misconduct under Clauses (7), (8) and (9) of Part I of the Second Schedule to the Act, the Disciplinary Committee was constituted under Section 21 of the Act. HELD THAT - The Institute of Chartered Accountants of India is a statutory body created by an Act of Parliament, i.e., The Chartered Accountants Act, 1949. In accordance with Section 9 of the Act, the management of the affairs of the Institute are vested in the Central Council. The Council performs its function through three different standing committees constituted under Section 17 of the Act and various other committees. One of the standing committees of the Institute is the Disciplinary Committee. The function of the Institute is to regulate the provisions of the Act and it is also empowered to take action against its members for any misconduct as contemplated in the Act and relevant regulations framed thereunder. Section 21 of the Act prescribes the procedure to be followed with regard to an inquiry relating to the misconduct of the members of the Institute. As held in D.K. Agrawal vs. Council of the Institute of Chartered Accountants of India 2021 131 taxmann.com 103 Committee ., report of the Disciplinary Committee will only contain a statement of the allegations, the defence entered by the members, the recorded evidence and the conclusions expressed by the Disciplinary The conclusions of the Disciplinary Committee are tentative and the same are not recorded as findings. It is only the Council which is empowered to find out whether the member is guilty of misconduct. The Council has to determine that a member is guilty of misconduct and the task of recording of the findings has been specifically assigned to the Council. After recording a finding that a member is guilty of misconduct, the Act moves forward to the final stage of penalisation. As held in D.K. AGRAWAL VERSUS COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 2021 (10) TMI 526 - SUPREME COURT , report of the Disciplinary Committee will only contain a statement of the allegations, the defence entered by the members, the recorded evidence and the conclusions expressed by the Disciplinary The conclusions of the Disciplinary Committee are tentative and the same are not recorded as findings. It is only the Council which is empowered to find out whether the member is guilty of misconduct. The Council has to determine that a member is guilty of misconduct and the task of recording of the findings has been specifically assigned to the Council. After recording a finding that a member is guilty of misconduct, the Act moves forward to the final stage of penalisation. The Council has failed to give its own independent findings. The recommendations made by the Council is not supported by independent reasons. The recommendations, have been made mechanically by the Council. Recording of reasons is a principle of natural justice and every judicial/quasi judicial order must be supported by reasons to be recorded in writing. It ensures transparency and fairness in the decision making process. The person who is adversely affected wants to know as to why his submissions have not been accepted - An unreasoned decision may be just, but it may not appear to be so to the person affected. A reasoned decision, on the other hand, will have the appearance of fairness and justice. The recommendations of the Council need not agreed with - the proceedings be filed by the Institute - Reference disposed.
Issues Involved:
1. Non-compliance with Section 211 read with Schedule VI, Part II 3(ii)(2) of the Companies Act. 2. Non-disclosure of the interest by the Directors under Section 299 and non-production for approval of the Registers maintained under Section 301 of the Companies Act, 1956. 3. Auditors Remuneration not fixed by the Board of Directors. 4. Non-reporting on the alleged violation of Section 77. 5. Violations of the SEBI Guidelines. 6. Violations of Section 383 A of the Act. 7. Violations of Section 307 of the Act. 8. Non-production of the Minutes Book of Board of Directors and of shareholders meeting prior to the specified dates. 9. Payment of the remuneration to directors without the approval of the Board. Summary: Issue 1: Non-compliance with Section 211 read with Schedule VI, Part II 3(ii)(2) of the Companies Act The Disciplinary Committee did not find the respondent guilty of this charge. The initial complaint from the Ministry of Company Affairs was limited to this issue, and the Committee exceeded its scope by framing additional charges. Issue 2 and 4: Non-disclosure of the interest by the Directors under Section 299 and non-production for approval of the Registers maintained under Section 301 of the Companies Act, 1956 The respondent was found guilty of professional misconduct under Clauses (7) and (8) of Part I of the Second Schedule of the Act. The Committee concluded that the respondent failed to report the non-compliance of Sections 299 and 301. However, the court noted that these charges were not part of the original complaint and appeared to be a difference of opinion between the respondent and the Committee. Issue 3: Auditors Remuneration not fixed by the Board of Directors The Disciplinary Committee did not find the respondent guilty of this charge. Issue 5: Non-reporting on the alleged violation of Section 77 The Disciplinary Committee did not find the respondent guilty of this charge. Issue 6: Violations of the SEBI Guidelines The Disciplinary Committee did not find the respondent guilty of this charge. Issue 7: Violations of Section 383 A of the Act The Disciplinary Committee did not find the respondent guilty of this charge. Issue 8: Violations of Section 307 of the Act The Disciplinary Committee did not find the respondent guilty of this charge. Issue 9: Non-production of the Minutes Book of Board of Directors and of shareholders meeting prior to the specified dates The Disciplinary Committee did not find the respondent guilty of this charge. Issue 10: Payment of the remuneration to directors without the approval of the Board The Disciplinary Committee did not find the respondent guilty of this charge. Court's Analysis: The court observed that the Disciplinary Committee exceeded its brief by framing additional charges beyond the original complaint. The court also noted that the Committee's report did not adequately explain why the respondent was deemed "grossly" negligent and failed to provide sufficient reasons for its conclusions. The Council's recommendations were found to be mechanical and lacked independent reasoning, failing to meet the principles of natural justice. Conclusion: The court disagreed with the Council's recommendations and directed that the proceedings be filed by the Institute. The reference was disposed of with no order as to costs.
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