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TMI Blog1993 (8) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... ond respondent was sufficient. However, learned counsel for the petitioner has given up respondents Nos. 2 and 3 so that the writ petition could be disposed of early and in view of the fact that respondents Nos. 2 and 3 are not necessary parties now. The third respondent-company received the special notice of a resolution under section 225 of the Companies Act ("the Act" for short) read with section 190 thereof, proposing to remove the original second respondent and appoint the firm of which the petitioner was a partner as the auditor of the company. The resolution was passed. According to the original second respondent, the petitioner accepted the appointment as the auditor in place of the second respondent without ascertaining that the requirements of section 225 were duly complied with by the third respondent-company. The petitioner had filed his explanation before the first respondent and relied on several papers including the correspondence. According to him and the third respondent-company, the requisite notices were sent under certificate of posting and further the second respondent himself had indicated the knowledge of the proposal. It is further contended that under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any to be prima facie of opinion that there was a misconduct on the part of the petitioner and, therefore, this court should restrain the first respondent from proceeding with the matter. Section 21(1) of the Chartered Accountants Act, 1949, provides for the Council of the Institute to refer the case to the Disciplinary Committee, where the Council is "prima facie of opinion" that any member has been guilty of any professional or other misconduct and, thereafter, the Disciplinary Committee shall hold an inquiry and report the result to the Council. As per section 21(3), when the Council finds the member guilty of misconduct on receipt of such report, a finding is to be recorded and then proceed in the prescribed manner, which requires as per section 21(4) affording of an opportunity to the member of being heard, etc., in the case of misconduct specified in the First Schedule and in other cases, forwarding of the case to the High Court as per section 21(5). The First Schedule has three parts ; the Second Schedule has two parts. In the instant case, the complaint against the petitioner is stated to be one falling under item 9 of Part I of the First Schedule according to the state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m saying that the facts as revealed establish that the company has, in fact, complied with the said requirement. There is a difference between an investigation to be held before accepting the appointment and the inquiry that may be held subsequent thereto, though in both the cases the facts may lead to the same result of proof that requirement of section 225 was in fact complied with. Acceptance without a proper ascertainment is the essence of the misconduct, though the vice of that misconduct may get diluted and may become negligible ultimately by proof of the fact that in fact the company had complied with the requirement of section 225, as revealed by the subsequent revelation. Under section 225 of the Companies Act, the following are the requirements to be complied with, by the company, for appointing an auditor: ( i )notice of the resolution at the annual general meeting. ( ii )Copy of the notice of the resolution shall be sent to the retiring auditor, by the company. ( iii )any representation is received from the retiring auditor, the same shall be notified to the members, if possible, in terms of section 225(3). The mode of serving the above notice is not prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the letter after putting proper address of the person concerned. ( ii )If the member or the person concerned has given specific direction to the company that the notice should be sent to him under certificate of posting or by registered post, with or without acknowledgment due, and has deposited with the company the sum sufficient to defray the expenses for this purpose, the notice should be sent in such specified manner. ( iii )When there are joint holders of shares in a company, the notice is to be sent to the joint holder whose name appears first in the register of members. ( b ) If it is not practicable to send the notice of the resolution to the members by post, such notice can be given either by advertisement in a newspaper having an appropriate circulation or in any other mode allowed by the articles of association of the company. ( c ) In order to ascertain whether notice of the resolution has been sent to the members, the incoming auditor should ascertain whether there is sufficient evidence with the company to indicate that the notice has been sent by any of the modes stated in ( a ) or ( b ) above. The dispatch register, postage register, postal certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nowhere prescribes that the incoming auditor shall not accept the appointment unless notices under section 225 of the Companies Act were sent by the company by registered post. The nature of misconduct stated in clause (9) of the First Schedule to the Chartered Accountants Act cannot be enlarged by the Institute, in the guise of issuing guidelines. The misconduct referred to in the said clause (9) is a statutory concept, to be understood and enforced only to the extent stated in the Act. Therefore, it is not possible to hold that failure on the part of the incoming auditor to get the notices under section 225 of the Companies Act issued only by registered post would be a misconduct falling within the First Schedule to the Chartered Accountants Act. But, this does not mean that the petitioner is entitled to succeed in this writ petition. The basic question is whether he had "ascertained" from the company that the latter had complied with the requirements of section 225; this "ascertainment" is not just making a casual inquiry or sending a query to the company and being satisfied with the answer of the company ; the auditor has to inquire into the matter in such a way that reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be extended to examine the correctness of the existence of the "reason to believe" ; at page 380, the Supreme Court held (at page 207 of 41 ITR) : "The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from nondisclosure he shall have jurisdiction to start proceedings for reassessment within a period of 8 years ; and where he has reason to believe that an underassessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within 4 years. Both the conditions, ( i ) the Income-tax Officer having reason to believe that there has been underassessment and ( ii ) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must coexist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. The argument that the court ought not to investigate the existence of one of these conditions, viz. , that the Income-tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts, cannot, therefore, be accepted. Mr. Sastri next pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be on the Disciplinary Committee to have the ingredients of the misconduct established before it sends its report to the Council to take any action against the member. The "first impression" of the Council which persuaded the Council to refer the case to the Disciplinary Committee cannot be considered as shifting the burden of proof on the member against whom proceedings are initiated. A detailed reference to the material on record by me and expression of any opinion would necessarily affect the proceedings before the Disciplinary Committee and the Council. I am of the view that the matter should be left to the judicial conscience of the Disciplinary Committee to consider the case objectively and fairly for the present. Before concluding, I am constrained to observe that the profession of chartered accountants is a profession of the learned ; there should not be any feeling of professional rivalry or trade competitiveness amongst the members. The hurt feelings of an outgoing auditor shall not normally influence him to complain against an "incoming auditor", only because the company thought it necessary to change its auditor ; the charge of professional misconduct is a seri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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