CA not guilty of misconduct when acting in individual capacity and the dealings were purely commercial not discharging any function as Chartered Accountant – High Court
ABCAUS Case Law Citation:
994 2016 (08) HC
Date/Month of Judgment/Order: August, 2016
Brief Facts of the Case:
Shri Mohit Gupta (The complainant) purchased 100 shares of Aban Lyod Chiles Offshore Ltd. in November 1999 from a Chartered Accountant (CA) but the complainant lodged the transfer deed for transfer of the shares on November 04, 2004 after the gap of 5 years from the date of sale. However, in the intervening period the CA continued to receive dividends and in July 2004 obtained duplicate share certificates in his name by misrepresenting that the original share certificates were lost.
The complainant filed a complaint before the Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI). The CA claimed not to have sold any shares to the complainant but settled the dispute with the complainant by agreeing that the owner of the shares would be the complainant.
The Disciplinary Committee of ICAI found the conduct of the respondent CA to be unworthy of a Chartered Accountant. The case was referred to the High Court under Section 21(5) of the Chartered Accountants Act, 1949. The penalty proposed was removal of CA’s name from the Register of Members for a period of six months.
Observations of the High Court:
Since, it was not the case of the complainant that CA was discharging functions as a Chartered Accountant when he sold the shares to him, the High Court asked the ICAI, whether the conduct of CA attracted disciplinary proceedings against him howsoever deplorable might be his conduct.
According to ICAI, harmonious reading of Section 21 and 22 of the Chartered Accountants Act, 1949 (Act) would make the act of the CA as an actionable misconduct.
The Court noted “other misconduct” contemplated by Sub-Section (1) of Section 21 would have to be looked outside Part I of the First Schedule and such “other misconduct” would be a conduct which any reasonable member of the society would frown upon. But, the Court was concerned whether the “other misconduct” under Section 21(1) includes all kinds of conduct?
The Court noted that in the decision reported as AIR 1958 SC 72 Council of Institute of Chartered Accountants & Anr. vs. B.Mukhreja, a Chartered Accountant who had been appointed as a liquidator was held liable for professional misconduct on the reasoning that Regulation 78 provided for a Chartered Accountant to act as a liquidator and thus while acting as a liquidator Sh.B.Mukhreja would be deemed to be in practice as a Chartered Accountant. The judgment brings out that the acts of omission or commission must relate to the offender acting as a Chartered Accountant and rendering service for remuneration and must be engaged in an activity which a Chartered Accountant would be entitled to be engaged in, wearing the hat of a Chartered Accountant.
The Court illustrated it by the example that a Chartered Accountant may drive rashly and negligently and in the process may kill a human being. This conduct would be an offence, but not a misconduct for the purposes of the Act.
The High Court held the respondent was acting as an individual in his dealings with the complainant which were purely commercial. While selling the shares held by him the respondent was not acting as a Chartered Accountant. He was not discharging any function in relation to his practice as a Chartered Accountant.
Accordingly, the Court dismissed the reference and quashed the removal of CA’s name from the Register of Members.
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