CA made co-accused for preparing false projected financials for bank loan, High Court declines to interfere

CA made co-accused for preparing false projected financials for bank loan, High Court declines to interfere in criminal prosecution though CA was absolved by Disciplinary committee of ICAI  

ABCAUS Case Law Citation:
ABCAUS 2058 (2017) (09) HC

The Issue:
Whether the exoneration of the Chartered Accountant (CA) by the Disciplinary Committee of ICAI would render the allegations against him in criminal prosecution groundless so as to justify his discharge?

The Grievance:
The Petitioner CA had filed this Criminal revision Petition against the order passed by the Judge, CBI Special Court rejecting his prayer for discharge from the criminal prosecution wherein he was made a co-accused for preparing false financial projections for availing credit facilities from bank.

Brief Facts of the Case:
CBI had framed the petitioner CA as an accused person along with others in a prosecution on the allegation that as a chartered accountant he had been employed by co-accused to prepare projected financial statements in collusion with Bank manager for obtaining cash-credit facilities, term loans etc. for their firm from the bank branch on the strength of fraudulent and fabricated documents.

It had also been alleged that such loans were advanced to the firm of the accused persons by the bank manager in violation of the procedure laid down by the bank and in much excess of his lending powers, without required margins and permitting diversion of the cash credit limits for various other purposes which caused loss to the tune of Rs. 5.24 crores.

Alleged role of the Chartered Accountant

It had been alleged that in order to camouflage aforesaid dishonest activity, the accused persons utilized the services of the petitioner CA , who in collusion and conspiracy with the accused persons prepared false and bogus projected financial statements and other documents to give an impression of credibility to the grant of cash credit and other facilities to the firms of the accused persons, some of whom were even fictitious.

It had further been alleged that the petitioner CA had not only prepared the projected financial statements in favour of the accused borrowers but had also written with his own hand the applications for enhancing cash credit and other facilities submitted before the principal accused, the bank manager, exposing his deep rooted involvement in the aforesaid fraudulent transaction.

Accordingly police report was filed against the petitioner CA along with other accused persons under various sections of IPC and  PMLA.

By the instant revision, the Petitioner CA had prayed for discharge before the trial Court on the premise that he had merely acted in his professional capacity and had no role to play in the alleged conspiracy between the borrowers and the bank manager. It was his further case that the Disciplinary Committee constituted under the Chartered Accountants Act looking into the allegations of professional misconduct on his part, had given him a clean chit. Accordingly, he ought to be discharged from the criminal prosecution also.

Contention of the appellant:
It was submitted that the petitioner’s role was of a professional who had acted on the basis of information given to him by his clients. He had prepared the financial projections on the basis of materials supplied to him and any incorrect projection reflected therein cannot result in an inference of his involvement in a conspiracy between him and the other accused persons.

It was submitted that the certification of the nature of business of the petitioner which is the core accusation in the impugned prosecution was on the basis of certificates issued by the local Panchayet authorities and that the projected financial statements seeking an enhancement of cash credit limits to the companies were on the basis of reports of the former chartered accountant of the firm and other vouchers and/or documents handed over to him by his clients.

It was further submitted that the findings of the Disciplinary Committee had rendered the substratum of accusation against him groundless and, therefore, he was liable to be discharged.

Contentions of the Respondent Prosecution:
CBI submitted that the findings of the Disciplinary Committee were restricted to the professional conduct of the petitioner. CBI contended that the scope of prosecution vis-à-vis the role of the petitioner was not restricted to mere certification of nature of business of the borrowers alone. On the other hand, the petitioner as co-conspirator was entrusted with the duty of preparing false and bogus estimated projected financial statements for seeking enhancement of cash credit limits and had even written loan applications on behalf of the borrowers for such purpose.

CBI strongly contested the finding of the ICAI committee and contended that the findings of the Enquiry Committee were of no relevance to the allegations of conspiracy against the petitioner which was the subject-matter of prosecution in the instant case.

Observations made by the High Court:

The High Court observed that the issue falling for consideration was whether the exoneration of the petitioner by the Disciplinary Committee of ICAI would render the allegations against him in the impugned prosecution groundless so as to justify his discharge at this stage.

The High Court observed found that the role of the petitioner is not restricted to mere certification as to the nature of business of the accused borrowers as claimed by the ICAI Committee.

It was observed that the CA had been employed by the accused borrowers to prepare projected financial statements of the firms and there was ample materials on record to show that such projected financial statements were based on forged and fabricated documents and had been generated to create a false impression with regard to the financial viability of the firms. Such financial statements were kept on record by the principal accused, (branch manager)  as a facile cover-up to justify his unauthorized extension and/or enhancement of cash credit facilities and other financial benefits to the borrowers in utter disregard to prudent banking procedure and his permissible lending limits thereby causing wrongful loss to the bank.

The High Court further observed that the petitioner VA was acting as an agent of the accused borrowers and not as a bona fide professional. His role was not restricted to mere certification or preparation of projected financial statements but he had even written the loan applications on behalf of the accused borrowers on the strength of which the financial facilities were fraudulently extended.

The High Court observed that the reasoning adopted by the Disciplinary Committee was essentially founded on the premise that the petitioner had not been appointed as a professional tax auditor and, therefore, his failure to report the enhanced volume of business or furnishing of requisite forms under the law could not be treated as breach of professional responsibilities. However, the Committee also found that the petitioner was specifically employed for preparation of projected financial reports for enhancement of the loan facilities to the accused borrowers and had even written the loan applications for the accused borrowers to avail of the illegitimate financial benefits in this case.

The High Court opined that such finding, reinforced that there was a special relationship between the accused borrowers and the petitioner CA and exposes the latter’s incriminating role in the transaction to obtain aforesaid fraudulent loans..  It was clarified that the scope of enquiry before the Committee was a limited one and did not extend to the petitioner’s role as a conspirator to defraud the bank.

The High Court observed that it is trite law settled by the Supreme Court that exoneration in a departmental proceeding would not ipso facto result in an exoneration from a criminal case.

The High Court further clarified that it was nobody’s case that the prosecution was initiated on the finding of the disciplinary committee which had been set aside by a superior authority. On the other hand, the instant prosecution and the proceeding under the Chartered Accountants Act had  completely different scope and arena of enquiry and adjudication. While the former involves a prosecution into allegations of conspiracy with a public servant to misappropriate public funds of a bank, the latter is restricted to professional misconduct alone. The findings of the Disciplinary Committee by no stretch of imagination can be said to be binding on the criminal court where the accusation was to be proved on the basis of evidence adduced before it in accordance with law.  The Committee was not at all concerned with the allegations of criminal conspiracy and/or criminal misconduct which are the material issues in the impugned prosecution.

The High Court opined that no reliance could be placed on the findings of the Committee to negate the substantial materials on record which give rise to a strong suspicion as to the involvement of the petitioner in the alleged offences.

Held:
The prayer for discharge of the petitioner CA was rightly turned down. The Court declined to interfere with the proceeding under under section 3/4 of the Prevention of Money Laundering Act.