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TMI Blog2011 (5) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... eeping in view the convenience of the appellants and affording them adequate opportunity to put forth their case from all spectrums. - 885 AND 886 OF 2010 - - - Dated:- 30-5-2011 - DIPAK MISRA, SANJIV KHANNA, JJ. Shyam Divan, R. Sudhinder, Rahul Ravindran, Ms. Prerna Amitabh and T. Andhyarujina for the Appellant. Ramji Srinivasan, J.S. Bakshi, Amitesh S. Bakshi, Zeyaul Haque, Rakesh Agarwal, Pulkit Agarwal, Jatan Singh and Ashish Kumar for the Respondent. JUDGMENT Dipak Misra, CJ ‑ Keeping in view the similitude pertaining to the legal controversy in both the appeals, despite the fact that there is a slight difference in the factual matrix, these appeals were heard together and are being disposed of by a common order. For the sake of clarity and convenience, the facts from LPA No. 886/2010, which arises from the order passed in WP(C) No. 2205/2010, shall be exposited for the purpose of adjudication. 2. The appellant, a chartered accountant and a member of the Institute of Chartered Accountants of India (ICAI), was a partner of M/s. Price Waterhouse (M/s. PW), a firm of Chartered Accountants registered with ICAI. In the year 2000, the firm was app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the said member/members and he/they be requested to send his/their written statement, if any, in triplicate within 21 days from the receipt of the letter. It was also stipulated in the said letter that the member or members who are answerable should also send a declaration duly signed in the enclosed format and in the event the name(s) of the member(s) answerable was not disclosed, all the members who were partners or employees of the firm on the date of occurrence of the alleged misconduct shall be responsible for answering the allegation or allegations contained in the information. After certain correspondences, on 30th January 2009, M/s. PW replied to the ICAI stating, inter alia, that the key members were Mr. S. Gopalakrishnana, Mr. S. Talluri, Mr. P. Shiva Prasad and Mr. C.H. Ravindranath. M/s. PW informed that Mr. S. Gopalakrishnan and Mr. Srinivas had been arrested by the local police and they were out of reach. As is manifest, on 20th February, 2009, the criminal investigation was transferred to the Central Bureau of Investigation (CBI) and RC No. 4(S)/2009 was registered against Mr. S. Gopalakrishnan, Mr. Srinivas and seven other accused persons for offences punishable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, both the appellants herein were in judicial custody and at that juncture, the CBI filed a supplementary charge sheet. On 4th February, 2010, Srinivas was enlarged on bail by virtue of the order passed by the Apex Court in Criminal Appeal No. 257/2010 on certain conditions. 6. As pleaded, on 26th February, 2010, notices were issued by the ICAI to Srinivas with respect to the disciplinary proceedings pending against him as well as Ravindranath. Srinivas replied to the ICAI stating that Ravindranath had been cited as a witness in the criminal case pending before the Special Court, CBI against Srinivas. It was contended by Srinivas that his appearance as a witness in the disciplinary proceedings against Ravindranath would severely prejudice his position in the criminal case pending trial. As regards the disciplinary proceedings against him, he asseverated that he would be dealing with that separately and thereafter, on 26th March, 2010, he stated that the initiation of the disciplinary proceedings against him should be deferred since the alleged acts of commission or omission on the basis of which the disciplinary proceedings had commenced not only form the basis of a prima facie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disciplinary committee of ICAI and if he does so, an adverse inference would be drawn against him by the disciplinary committee in regard to various charges which formed the subject matter of the criminal case. Similar submissions in a different way were canvassed on behalf of Gopalakrishnan. In addition, it was contended that Gopalakrishnan had not been discharging any function as Chartered Accountant ever since his suspension from ICAI and he did not intend to do so till the conclusion of the trial. 9. The aforesaid submissions were resisted by the ICAI, submitting that there was no justification or warrant to stay the disciplinary proceedings against the Chartered Accountants as the charges are not the same inasmuch as the charges levelled in the criminal case pertained to cheating, criminal conspiracy and fraud, whereas the charge sheet in the disciplinary proceeding pertained to negligence, conduct and functioning under the CA Act. That apart, it was contended that the standard of proof in both the proceedings are different and the scope of enquiry are on different platforms. It was highlighted that there were 433 witnesses in the criminal trial whereas there are very few ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emonstrate this. Whether in fact the charges that are stated to have been framed on 25th October 2010 by the Special Judge involve complicated questions of law and fact cannot be determined unless they are studied in some detail and further after the trial progresses. Also, the mere fact that the number of witnesses is large or that the alleged fraud is of a large sum need not by itself mean that the questions of fact and law are complicated. Thirdly, even if in criminal cases, the facts may be invariably complicated, the question of law need not be. Understandably therefore, the learned senior counsel for the Petitioners did not address the Court on this particular aspect except to repeat the requirement of M Paul Anthony that the criminal case involved complicated questions of law and fact. This however is not sufficient if the court has to be persuaded to stay the disciplinary proceedings. 48. The inescapable conclusion is that the third and important limb of the test evolved in the decisions discussed hereinbefore and succinctly summarised in M Paul Anthony has not been shown by the Petitioners to be satisfied in their cases viz. , that the criminal cases in which they are ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to adduce the evidence refuting the charges as well as depose in his defence in the criminal proceedings. It is required on his part to call the audit managers in the disciplinary proceedings and they may be cited as at the instance of the prosecution. He may be required to call the officers of the bank who supplied the information incorporated in the balance sheet and the prosecution would also call bank officials as witnesses and under these circumstances, it is advisable and desirable to keep the disciplinary proceedings in abeyance. (C) The continuance of the disciplinary enquiry would compel the appellant to disclose his defence and in the event of such disclosure, prejudice shall be caused to the appellant to defend himself in the criminal proceedings and the same would entail an advantage to the prosecution. (D) It is the accepted norm that when there are common facts and evidence in departmental/disciplinary proceedings and criminal prosecution, there is bound to be prejudice to the delinquent, if the disciplinary proceedings are not stayed and as in the present case, the charges in both the disciplinary proceedings as well as in the prosecution are of grav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the appellant would be severely prejudiced if the disciplinary proceedings are allowed to continue until the completion of the trial. (b) In view of the conditions imposed by the Court in its order dated 25-6-2010 granting bail, it would be physically impossible for the appellant to defend himself before the ICAI without consulting his team members who had conducted the audit. It was, inter alia, a condition of bail that the appellant shall not tamper with any evidence and shall not influence the prosecution witnesses. The appellant's team members have been arrayed as prosecution witnesses. The allegations are regarding alleged fudging of accounts over seven years. The appellant is required to understand the records for which he would be required to consult the papers alongwith the persons who had conducted the audit. In view of the bail order, the appellant would be constrained to even discuss the matter with his team member which will again seriously prejudice his case. (c) The appellant has already retired as a partner of PW. In effect, the appellant is suspended from practice. There can be no prejudice to the ICAI if the proceedings are stayed until the crimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges and documents, the Practical difficulties is not being able to consult the required persons to formulate any explanation etc. Therefore, it is physically impossible for me to defend myself in the disciplinary proceedings as the trial is proceeding on a daily basis pursuant to the directions issued by the Hon'ble Supreme Court. 17. Mr. Ramji Srinivasan, learned senior counsel appearing for the respondent ICAI, in oppugnation, has raised the following submissions: (i) The nature and scope of the criminal proceedings and charges therein are vastly different and wider in scope as compared to the disciplinary proceedings which are narrower and limited in nature, mostly relating to the Accounting Standards. (ii) In the disciplinary proceedings, the charges have been framed against the appellant and the co-delinquent and now the matter is listed for evidence on 26-2-2010 when only two witness from the SEBI and CBI are to be examined on the said date. They are witnesses of record. (iii) There is no provision for suspension of a delinquent member pending the disciplinary proceedings and an action can be taken only after conclusion of the proceedings under section 21B(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... linary proceeding. (vii) In the criminal proceedings close to 500 witnesses shall be examined and in the disciplinary proceedings may be 5 to 10 witnesses will be examined in all and hence, there is no justifiability to await the verdict of the criminal case. (viii)The office bearers of the ICAI who are PWs in the criminal proceedings are not the PWs in the disciplinary proceedings. The present is a matter based on documentary evidence and not ocular evidence and there is no question of any prejudice being caused to the appellant if the disciplinary proceedings are continued. In any event, the appellant has not spelt out as to how and what prejudice is going to be caused to him. The plea of Article 20(3) of the Constitution is not available to the appellants. (ix) The proceedings in the criminal case and departmental proceedings operate in distinct and different jurisdictional areas. In the departmental proceedings, the factors operating in the mind of disciplinary authority may be many, such as enforcement of discipline, etc. The standard of proof required is also different from the criminal trial. In the former, it is preponderance of probabilities while the latter charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial facts known to you as the statutory auditors of the company which were not disclosed in the financial statement of the company. ( vi ) You have failed to report material mis-statement known to you as the statutory auditors of the company, which appeared in the financial statements of the company. ( vii ) You did not exercise due diligence and were grossly negligent in the conduct of your professional duties as the statutory auditors of the company for all these years. ( viii ) You have failed to obtain sufficient information, which were necessary for expression of an opinion. ( ix ) You have failed to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances. ( x ) Failed to invite attention to any material departure from the general accepted procedures of audit applicable to the circumstances. ( xi ) On account of the manipulations/ falsification of the accounts by the Company for all these years, it is apparent that the same was not possible without your knowing about the same as the Statutory auditor of the company. ( i ) Accused S. Gopalakrishnan (A-4) and Srinivas Talluri (A-5) have intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. These amounts were separately in the accounts though mandated as per the reporting norms. ( v ) Specific role of the two petitioners has been again narrated as follows: Shri S. Gopalakrishnan (A-4) He affixed his signature on the financial statements as a partner of M/s. Price Water House the statutory auditors for M/s. SCSL since the financial year 2001 till 2007. As per the records maintained by 'The Institute of Chartered Accountants of India, Sri S. Gopalakrishnan (A-4), was a partner in the firm M/s. Price Water House, Bangalore and not in M/s. Price Waterhouse. By affixing his signature on the Audit Reports for and on behalf of Price Waterhouse' he deliberately with the knowledge of its implications and consequences violated the requirements of the Auditing Assurance Standards. In the Agreement entered between M/s. SCSL and M/s. Price Waterhouse, instead of affixing his signature, he has signed as 'Price Waterhouse' contrary to the established procedure and practice whereby it is incumbent on an individual partner of the firm to affix his signature as a representative of the Auditor firm authenticating the contents of the report. He having been aware of the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icity in the commission of the above said offences and he is liable as a co-conspirator. Letters generated on the letter pads of M/s. Price Waterhouse were recovered from the computer systems of M/s. SCSL. These letters were supposed to be written by the auditors addressed to the banks seeking confirmations about the balances. Sri S. Gopalakrishnan as part of the conspiracy got these letters generated in the computer systems of M/s. SCSL for the purpose of creation of the records which depicts his privy and involvement in the conspiracy. He also made M/s. SCSL to generate certain letters addressed to the banks directing the banks to directly inform the auditors. However these letters were generated merely for the purpose of record which shows the role of Sri Gopalakrishnan in the conspiracy this was proved by the GEQD opinion. But for his active cooperation and disregarding the crucial evidence available with him, this fraud would not have taken place for so many years. He affixed his signature on the financial statements as partner of M/s. Price Water House the Statutory Auditors for M/s. SCSL since the financial year 2001 till 2007. Information Technology General Check was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contents of the report. Sri Talluri Srinivas (A-5) having been aware of the fact that he never represents 'M/s. Price Waterhouse' designated Statutory Auditors for M/s. SCSL has signed as "Price Water House" and thereby cheated the investors in furtherance of the conspiracy with Sri V. Srinivas (A-3), Sri B. Ramalinga Raju (A-1) and Sri B. Ramaraju (A-2). By virtue of Sri Talluri Srinivas (A-6) status as a Statutory Auditor, it is incumbent on his part to verify the bank balances and FDRs claimed to be held by M/s. SCSL besides other investments, liabilities and sales of the company before certifying the statutory Audit Report which forms the basis of Annual Financial Statement of the company. Sri Talluri Srinivas (A-6) has intentionally certified the inflated and forged balance sheets prepared basing on the forged FDRs and other data furnished to him with regard to the banks and also the status of the sales without making any mandatory independent verifications. The auditors are required to write directly to the banks and obtain confirmation of balances. After obtaining the confirmations should compare those figures with the figures as appearing in the books of account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinued the trend and deliberately did not bring these control deficiencies to the notice of the Audit Committee and thereby facilitated the continuance of the fraudulent practices unabated. He did not comment on these control deficiencies in his Audit Report even though they are material in nature, thereby his privy and active role in the conspiracy is established. Sri Talluri Srinivas also did not take remedial action and continued the same practices to continue which establishes his role in perpetuating the fraud by the other accused. Sri Talluri Srinivas has consciously overlooked the accounting irregularities committed by M/s. SCSL since 2007 showing his complicity in the commission of the above said offences and he is liable as a co-conspirator. There is a discrepancy with regard to the existence of the Price Waterhouse, Hyderabad as Auditors in the registration with the ICAI, a statutory body. The ICAI has confirmed that Sri Talluri Srinivas is a member 'Price Waterhouse, Bangalore' and not 'Price Waterhouse'. As such the certification of Statutory Audit Reports by such non-member Audit Firms consequently invalidates the Annual Financial Statement of the Company which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 471, 477A and 201 of the Indian Penal Code and substantive offences thereof. 19. In the course of hearing, Mr. Ramji Srinivasan has also filed the list of witnesses who would be examined in the disciplinary proceedings against the appellants. The said list reads as under: "LIST OF WITNESSES IN THE MATTER OF SHRI S. GOPALAKRISHNAN AND SHRI S. TALLURI BY THE DISCIPLINARY COMMITTEE 1. Concerned official from ICAI 2. Shri A.V.Y. Krishna, CBI, Hyderabad 3. The then Investigating Officer of SEBI 4. Concerned official from Citi Bank, HDFC Bank, ICICI Bank, HSBC Bank, BNP Paribas and Bank of Baroda. 5. The concerned official (Finance Department) of Satyam Computer Services Ltd. 6. The concerned official (Sales Department) of Satyam Computer Services Ltd. 7. Main Partners of Price Waterhouse (FRN) 8. Main Partners of Lovelock Lewes (FRN) 9. Shri Pulavarthi Siva Prasad, Part of Audit Team 10. Shri Chintapatla Ravindernath, Part of Audit Team 11. Shri Srikant Pola, Part of Audit Team." 20. Keeping in view the aforesaid factual scenario, we may refer with profit to certain authorities in the field which relate to the role o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 'desirable', 'advisable or 'appropriate' to proceed with the disciplinary enquiry when a criminal case is pending on identical charges. The staying of disciplinary proceedings, it is emphasised, is a matter to be determined having regard to the facts and circumstances of a given case and that no hard and fast rules can be enunciated in that behalf. The only ground suggested in the above decisions as constituting a valid ground for staying the disciplinary proceedings is that "the defence of the employee in the criminal case may not be prejudiced". This ground has, however, been hedged in by providing further that this may be done in cases of grave nature involving questions of fact and law. In our respectful opinion, it means that not only the charges must be grave but that the case must involve complicated questions of law and fact. Moreover, 'advisability', 'desirability' or 'propriety', as the case may be, has to be determined in each case taking into consideration all the facts and circumstances of the case. The ground indicated in D.C.M. and Tata Oil Mills is also not an invariable rule. It is only a factor which will go into the scales while judging the advisability or desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved thus: "20. This decision has gone two steps further to the earlier decisions by providing (1) The 'advisability', 'desirability' or 'propriety' of staying the departmental proceedings "go into the scales while judging the advisability or desirability of staying the disciplinary proceedings" merely as one of the factors which cannot be considered in isolation of other circumstances of the case. But the charges in the criminal case must, in any case, be of a grave and serious nature involving complicated questions of fact and law. (2) One of the contending considerations would be that the disciplinary enquiry cannot - and should not be - delayed unduly. If the criminal case is unduly delayed, that may itself be a good ground for going ahead with the disciplinary enquiry even though the disciplinary proceedings were held over at an earlier stage. It would not be in the interests of administration that persons accused of serious misdemeanour should be continued in office indefinitely awaiting the result of criminal proceedings." 24. After discussing all the decisions in the field, the principles that have been culled out in Capt. M. Paul Anthony's case (supra) read as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the binding precedents of the Court failed to apply the law in its proper perspective. The High Court was not correct in its view in concluding that the stay of the departmental proceedings should be granted in the peculiar facts and circumstances of the case without analyzing and applying the principle of law evolved in the aforementioned decisions. It, therefore, misdirected itself in law. What was necessary to be noticed by the High Court was not only existence of identical facts and the evidence in the matter, it was also required to take into consideration the question as to whether the charges levelled against the delinquent officers, both in the criminal case as also the disciplinary proceedings, were same. Furthermore it was obligatory on the part of the High Court to arrive at a finding that the non-stay of the disciplinary proceedings shall not only prejudice the delinquent officers but the matter also involves a complicated question of law. 24. The standard of proof in a disciplinary proceedings and that in a criminal trial is different. It there are additional charges against the delinquent officers including the charges of damaging the property belonging to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Insurance Co. Ltd. v. Sunil Kumar decided on 29th March, 2011, this Court, after referring to the aforesaid authorities, has stated as follows: "15. From the aforesaid enunciation of law, it can be stated with certitude that the scope, effect and consequence of a criminal trial and a departmental proceedings are distinct and different. Once the employer has reasonable basis regard being had to the sanctity, stability and the propriety of the administration and to avoid any kind of anarchy or chaos, it may be under an obligation to initiate departmental proceeding and simultaneously a criminal prosecution may be launched against the same delinquent employee. The circumstances should be such that there would be a warrant for directing stay of the disciplinary proceedings. It needs no special emphasis to state, the onus is on the delinquent employee that serious prejudice would be caused, if the parallel proceedings are allowed to continue. It is well settled in law that the burden of proof in a criminal trial is quite stringent, as an accused is entitled to benefit of doubt and the consequent acquittal, but the test of preponderance of possibilities in departmental proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inary enquiry. Keeping the aforesaid in view, it is obligatory on the part of the court to see whether such a proceeding should be interdicted. The submission of learned senior counsel for the appellant which we have reproduced in extenso basically conveys that there is similarity of charges; that there are same witnesses; that the element of prejudice is involved; that if the simultaneous proceedings are continued the appellants accused in criminal trial would be compelled to disclose their defence; that the standard of proof is not the only test; that the impact of verdict in criminal proceeding on the disciplinary authority in case of acquittal would be of great magnitude; and that the direction given by the Supreme Court to conclude the trial by end of July 2011 becomes an additional reason on the part of the institute not to proceed with the enquiry. The submissions, in oppugnation, by the learned senior counsel for the respondents as we have noted hereinbefore are that the charges are absolutely different; that the question of fraud and cheating are not involved in the departmental enquiry; that the witnesses are few in number in the departmental proceeding; that there is a v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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