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TMI Blog2017 (11) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the shares - though the applications for allotment of shares were allegedly withdrawn subsequently. Thus, it can be seen that both SEBI and ICAI have found him guilty after following due process. Statement of the respondent has been recorded before both the authorities. He has candidly admitted in his statement that he was to be paid 6% commission on these transactions and that he did not appeal against the order of SEBI, debarring him for 5 years after holding him guilty. Even the DC held him guilty and the ICAI Council of ICAI, in it its meeting on 2nd June, 2013, directed his removal from the register of members of ICAI for a period of one year. This recommendation of the ICAI having been made on 2nd June, 2013, this Court notes that events which relate to the case date back to 1995. More than 22 years have passed since the events have transpired. Though this Court may have been inclined to increase the nature of punishment to the respondent, owing to the long delay, it is directed that the respondent shall be debarred for a period of one year as recommended by the DC. This Court would like to observe that CAs ought to maintain the highest level of ethics and integ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vests were got issued by Shri Ashok Chawla from the bank on 23.11.95 whereas the issue of BFSL closed on 5.10.95. Though these stock invest were issued for amounts ranging between ₹ 1.00-1.20 lacs each, they were used at a multiple of ₹ 10 in the applications i.e. stock invest actually issued for ₹ 27 lacs was used for ₹ 270 lacs, resulting in an irregular allotment of 1,17,200 shares. These allotments were made despite the bank having received a request from Shri Ashok Chawla for cancellation of the stock invests and withdrawal of the applications. The shares so allotted were subsequently forfeited and re-allotted to associate concerns of BFSL. It was admitted by both that the finance was arranged by Shri S. K. Gupta and the share application forms along with the stock invests were handed over by Shri Ashok Chawla to Shri S. K. Gupta. However, neither Shri Ashok Chawla nor Shri S. K. Gupta could explain how the applications were made at higher amounts. Shri Ashok Chawla also obtained about 80-90 stock invests of ₹ 10,000/- each from Sangli Bank, Karol Bagh after the close of the issue of the BFSL. The allotments against these applications were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -CA-S34B/2005] The Council considered the Information letter and the written statement submitted by the Respondent. The Council on consideration of the aforesaid documents/submissions observed that the Respondent was failed to produce any documentary evidence to prove that he has not connived with other persons to defraud the public. The Council, therefore, was prima facie of the opinion that the Respondent was guilty of professional and/or other misconduct. It was, therefore, decided to refer the case to the Disciplinary Committee for inquiry. (emphasis supplied) 6. Accordingly, the matter was sent to the Disciplinary Committee ( DC ) for an enquiry. The DC held several hearings. On 10th January, 2012, the DC recorded the statement of the respondent on oath. Documents requested by the respondent were provided. After hearing arguments, the DC in its report dated 26th December, 2012 came to the conclusion that the respondent was guilty of other misconduct as per the provisions of the Act. 7. On 2nd June, 2013 the respondent made a representation to the ICAI Council explaining his stand and requested that he should be absolved from all charges. The I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Respondent be removed from the Register of Members for a period of one year......................... (emphasis supplied) 8. Pursuant to the said decision of the ICAI Council, the present reference was received by this Court on 4th August, 2014. Upon receipt of the reference, notice was issued to the respondent and to the Central Government. Notice to the Central Government stands served. The respondent has appeared through counsel. Arguments have been addressed on behalf of the petitioner by Mr. Rakesh Agarwal and on behalf of the respondent by Ms. Reena Jain Malhotra. Relevant provisions of the Chartered Accountants Act, 1949: 9. The relevant provisions of the Act are set out herein below for ready reference: Section 21 (1) to (4) .. (5) Where the misconduct in respect of which the Council has found any member of the Institute guilty is misconduct other than any such misconduct as is referred to in sub-section (4), it shall forward the case to the High Court with its recommendations thereon. (6) On receipt of any case under sub-section (4) or sub-section (5), the High Court shall fix a date for the hearing of the case and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Council from the Central Government. In regard to this class of cases, the Council is not required, - and indeed has no jurisdiction to apply the prima facie test - before holding an inquiry. The Council is required to cause an inquiry to be held on such complaint straightaway. In both the cases when the inquiry is concluded, the findings of the Council are to be forwarded to the High Court. Section 22 purports to define the expression conduct which, if proved, will render a person unfit to be a member of the Institute . It is an inclusive definition; it includes any act or omission specified in the schedule but the latter portion of s. 22 clearly lays down that nothing contained in this section shall be construed to limit or abridge in any way the power conferred on the Council under sub-s. (1) of s. 21. The position thus appears to be that though the definition of the material expression used in 21, sub-s. (1), refers to the acts and omissions specified in the schedule, the list of the said acts and omissions is not exhaustive; and, in any event, the said list does not purport to limit the powers of the Council under s. 21, sub-s. (1), which may otherwise flow from the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alt with. In this view of the matter we must reverse the conclusion of the learned Judges of the Calcutta High Court that the conduct proved against the respondent does not fall within Sections 21 and 22 because it is not conduct connected with the exercise of his profession as a chartered accountant in the narrow sense of that term. Thus, professional misconduct includes any misconduct as enumerated in the Schedules to the Act as well as any other misconduct. Submissions of the Petitioner: 11. The counsel for the petitioner has taken us through the various documents on record to submit that the findings against the respondent, both by SEBI as also the findings of the DC, clearly establish that he has indulged in misconduct. He specifically relies upon the order of Chairman, SEBI dated 12th December, 2002 passed against the respondent under Section 11B of the SEBI Act, 1992 read with Regulation 12 of the SEBI (Prohibition of Fraudulent Unfair Trade Practices relating to Securities Market) Regulations, 1995. The specific allegations of SEBI relate to the following two broad issues: (i) Irregular allotment of 1,17,200 shares of BFSL involving irregular subscrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparison with the copies which were available with the respondent. Thus, on both counts, it is the submission of the respondent, that he is not liable. 17. It is further submitted by Ms. Malhotra that the respondent s conduct does not constitute misconduct as stipulated in Schedule-I and Schedule-II of the Act and hence the punishment meted out to him is extremely harsh. Ms. Malhotra, on the merits of the allegations submits that, in any event, letters for withdrawal of the allotment were submitted even prior to the allotment of the shares and hence no benefits were derived from the irregularities in the forms or the so called ante-dating. She further submits that the respondent is not guilty of any professional misconduct and hence his conduct deserves to be viewed sympathetically. Analysis and Findings: 18. Stock invests are monetary instruments that are deposited in banks in order to enable a person to subscribe to shares in a public issue. The amount of the stock invest is held in trust with the bank to pay the amount required for the shares allotted. These stock invests are issued by the bank as a counter guarantee in respect of payment for proposed shares to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not have any finding to the effect that the money was received on November and we are sure the money was remitted long long before. It was very much within 5th October and stock invest is valid for three months. So the stock invests has peculiarity, it is a paper just like a pay order or draft, however, its validity has speciality where the drawees name is not filled, it is quite possible that the Bank must have made some mistake in their record or after three years when they informed the SEBI there must be some around part but if it is said that the stock invests were issued on 5th October without corroborating the evidences that the money received against this issue, I think, it would be very prematurity to take that into account number one I have to submit about the antedated point. The respondent denied knowledge as to how the stock invests came to be dated 23rd November, 1995 when the public issue closed on 5th October, 1995. Again on a specific query as to who gave the money as security to the bank before investing in the stock invest, the reply was completely bereft of any facts which reads as under: Shri Anil Kumar Agarwal, Member: What is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that in 1997, he had accepted before SEBI that he had ante-dated stock invests and why he was resiling from the same before the DC, the respondent states as under: Vice President: In 1997 he had agreed antedated and later on he denied that, do you have the date when he denied? Counsel for the Respondent: In 2001. in 1997, when they started inquiry naturally they had their version and once he got opportunity to oppose it, he is relying upon the stock invests themselves by that the stock invests have come back and then he said that look, these are carrying 5.10.1995 date, how you are saying that the banker is saying something else? So there is nothing more to do on this. I would like to draw Your Honours attention to page No. 11 of this booklet. I would read the second paragraph. The investigations revealed that BFSL acting through its Chairman Mr. S.K. Gupta in connivance with Ashok Chawla made irregular allotments in the public Issue of BFSL involving irregular subscription for shares by way of application accompanied by stock invests issued after closure of the issue. The next sentence is more important that these stock invests issued for ₹ 1 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inbelow. 22. As recorded above, there are two main allegations against the respondent. Issue No. 1: Irregular allotment of 1,17,200 shares of BFSL involving irregular subscription for 27,00,000 shares with an application money of ₹ 2.7 crores by way of stock invests issued by Sangli Bank, Karol Bagh, New Delhi. 23. On this issue, the investigation of SEBI had revealed that there were 27 applications for 1 lakh to 1.2 lakh shares each, involving the application money of ₹ 10 to 12 lakh each. These applications were accompanied by stock invests issued by Sangli Bank, Karol Bagh, New Delhi and were allotted 4,000-4,800 shares each. The public issue of BFSL had closed on 5th October, 1995, but the stock invests were issued on 23rd November, 1995. The stock invests were 10 times more than what they were issued for namely, they were meant for 10,000 to 12,000 shares each involving share application money of 1 lakh to 1.20 lakh but were irregularly converted into higher stock invests i.e. 10 times more, resulting in allotment of 4000 to 4800 shares each. The findings of SEBI are contained in the investigation report and the conclusions therein. SEBI's rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the fixed deposits which were given as security for issuance of the stock invests belonged to the respondent. This is clear from both SEBI's investigation as also the statement recorded by the DC of the ICAI. The respondent admitted that the fixed deposits that were given as security for the issuance of stock invests. Thus there can be no doubt that the respondent was guilty of the misconduct and has failed in his professional duty of maintaining a distance between him and the promoter. His conduct leading upto the irregular allotment of shares is blameworthy and at fault. The conduct clearly constitutes `misconduct'. Issue No. 2: Allotment of 7,000 shares against applications accompanied by ante-dated stock invests issued by Sangli Bank. 27. On this issue there was a clear finding of SEBI that 80-90 stock invests of ₹ 10,000/- each were issued to Mr. Ashok Chawla by Sangli Bank, Karol Bagh after the closing of public issue by BFSL. The respondent had also admitted before SEBI that 7000 shares allotted against these applicants were sold through Mr. Gautam Rohatagi, member of Delhi Stock Exchange. The respondent, in his statement recorded on 5th Septem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred for a period of one year as recommended by the DC. 31. This Court would like to observe that CAs ought to maintain the highest level of ethics and integrity, not only in the interest of their clients but also to ensure that probity and sanctity are not compromised in any manner as CAs are not merely professionals engaged by their clients, but are protectors and guardians of financial markets on which a nation depends. In the present case, after the report of the DC, the respondent made a representation to the ICAI Council to the following effect: In view of the above it is submitted that the order of the DC suffers from serious errors on facts and consequently on judgment. The only role that I played in BFSL public issue was a finance facilitator and it cannot be treated as an act of misconduct, because it was just for my survival. Kindly absolve me from all charges and oblige. (emphasis supplied) This clearly proves that the respondent was well aware of the misconduct in which he had indulged and was praying for sympathy from the ICAI Council. 32. The reference is accordingly accepted and in exercise of powers under Section 21(6) of the Act, it is direc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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