2023 (10) TMI 1101 - HC - Indian Laws

Professional Misconduct - allegation of assisting various companies in availing credit facilities of huge amounts from various banks by issuing false documents certifying valuation of work undertaken and completed by the accused companies - allegation of also certifying the sales registers and list of supply bills of the accused companies without verifying facts and figures to facilitate loans being sanctioned to the said companies. HELD THAT - The stipulated procedure under Regulation 13, 14 and 15 of Chartered Accountants Regulations, 1964 required the Committee report to contain a statement of allegations, the defense entered by the delinquent Chartered Accountant, the recorded evidence and the conclusions of Committee. The Council is to apply its mind to the report of Committee and is empowered to conclude regarding the guilt of its member or otherwise. It appears from the reports of Committee that the working papers of Respondent revealed nothing of substance pertaining to the basis of material on which the certificates were issued by him. The certificates simply stated that the certificates were issued on the specific request of the firm. On being asked to produce documents regarding statements of expenditure incurred by the accused firms, invoices/vouchers for purchase of plant and machinery for civil work and land development etc., Respondent was unable to produce any document. The Committee has recorded its findings on the basis of the inability of Respondent to provide any material on the basis of which he satisfied himself as to the genuineness of accused firms and the valuation of their properties sufficient enough to justify issuing as many as 11 certificates used by the accused firms to avail credit facilities. The Committee has also recorded its view that Respondent failed to perform due diligence before issuing certificate and he was unable to co-relate any document/papers with the certification/valuation done by him. The Committee thus held Respondent guilty of professional misconduct on the basis of issuance of a large number of certificates at regular intervals, issued as and when asked for by his clients and most importantly in the absence of any papers to indicate due diligence employed by him. It is true that the employees of the banks were not available for cross-examination by Respondent. Respondent had absented himself at the final hearing of the Committee. Respondent has relied on the absence of witnesses for cross-examination and has contested the finding of Committee at the same time admitting omissions committed by him and his failure to comply with the due diligence, which he ought to have done while issuing the certificates. On perusal of the committee report and the deposition of Respondent himself, we have no hesitation in accepting that Respondent has been found guilty of certain degree of negligence amounting to misconduct justifying some action against him - Refusing to accept the recommendation of Council will be deleterious to the maintenance of discipline or the professional conduct on the part of members of a professional institute or association. In this case, Respondent was completely aware that accused companies were seeking specific verification and certification from a chartered accountant to complete the documentation required by Banks to sanction credit facilities to them. Thus he was naturally aware that issuing such certificates in the absence of proper valuation was a fraud on the Banks as such public and financial institutions rely upon certificates of professionals as part of its due diligence. Hence a contrary view would easily defeat the purpose of the Act and the object behind regulatory measures envisaged in Section 21 of the Act. The view of Council is correct - Respondent is thus reprimanded in accordance with Section 21(6)(b) of the Act.

Summary

Issues Involved:
1. Allegations against the Chartered Accountant
2. Defense by the Respondent
3. Findings of the Disciplinary Committee
4. Reconsideration by the Council
5. Final Judgment by the High Court

Summary:

1. Allegations against the Chartered Accountant:
The Institute of Chartered Accountants of India (Petitioner) filed a complaint under Section 21(v) of the Chartered Accountants Act, 1949, against the Respondent, a Chartered Accountant. The complaint, dated 28th July 2006, from the Superintendent of Police, CBI, alleged that the Respondent assisted various companies in availing large credit facilities from banks by issuing false documents certifying the valuation of work completed by these companies. Additionally, the Respondent was accused of certifying sales registers and supply bills without verifying facts and figures.

2. Defense by the Respondent:
The Respondent, in a written statement dated 9th July 2007, termed the complaint as frivolous and premature, citing pending criminal complaints against the main accused. He claimed that the certificates were issued after due checking of relevant records and obtaining necessary explanations and verification.

3. Findings of the Disciplinary Committee:
The Disciplinary Committee held multiple meetings and, after hearing the parties and examining evidence, found the Respondent guilty of professional misconduct under Clauses (7) and (8) of Part-I of the Second Schedule to the Act. The Committee's report, dated 3rd February 2010, highlighted the Respondent's inability to provide substantial material to justify the certificates issued. The Council, in its 297th meeting, referred the matter back to the Committee for further inquiry on specific issues, including the examination of bank employees and the basis of the Respondent's satisfaction regarding the valuation of assets.

4. Reconsideration by the Council:
The Committee reconvened and, despite the Respondent's non-cooperation and absence from hearings, reiterated its findings in a further report dated 10th January 2015. The Council, after considering the report and the Respondent's written representation, held the Respondent guilty of professional misconduct and recommended reprimanding him to the High Court.

5. Final Judgment by the High Court:
The High Court, after reviewing the Committee's reports, the Respondent's deposition, and the Council's recommendation, found no irregularity in the procedure followed. The Court noted the Respondent's admission of guilt and his failure to verify documents and perform due diligence. The Court emphasized the importance of integrity and probity in the profession, agreeing with the Delhi High Court's view in a similar case. Consequently, the High Court accepted the Council's recommendation and reprimanded the Respondent under Section 21(6)(b) of the Act, with no order as to costs.