CA guilty of misconduct-director of companies without permission, operating bank accounts actively involved in the day to day operations.
ABCAUS Case Law Citation:
ABCAUS 1130 (2017) (02) HC
Brief Facts of the Case:
The instant Reference under Section 21(5) of the Chartered Accountants Act, 1949 was made by the Institute of Chartered Accountants (ICAI) in respect of the misconduct other than those covered in sub-Section (4) of Section 21.
A complaint was received from the Punjab National Bank alleging that the respondent practicing Chartered Accountant, had incorporated many companies and a trust, with he being the founder director/president and had opened accounts in the name of the companies and the trust. It was alleged that in connivance with the Branch Manager, funds were diverted to companies and firms in which the respondent was associated directly as a director or as a partner.
The Disciplinary Committee (DC) in its findings reported that;
The CA was signing the Balance Sheet of various companies in the capacity of as a Director of the said Companies. Further, the respondent was also operating the bank account of the Companies.
The respondent CA was Director in several companies. However, the respondent have taken permission from the ICAI to be a Director only in one Company.
The respondent CA’s contention that he was honorary Director in all the companies and that no specific permission was required for that does not hold good as the respondent CA was actively involved in the day to day operation of the Companies being was involved in signing the balance Sheets of the various Companies in the capacity of a Director, operating the Bank accounts. In the Memorandum & Article of Association of various Companies the respondent CA was shown as a promoter. Further, he was actively involved in the company‟s activities relating to banking transaction and he had signed the documents for over draft facility as well.
Thus, the respondent was guilty of professional misconduct falling with the meaning of Clause (11) of Par 1 of First Schedule to the Chartered Accountants Act, 1949
The second charges was that the respondent CA in connivance with the Branch Manager of the bank had defrauded the Bank as the cheatings were committed by the companies in which the Respondent was the Director and the branch manager was actively involved in the fraud by allowing the clean overdraft to the respondent’s companies.
Though the criminal suit was still pending in the Court and the charges had not been framed despite the lapse of more than 9 years, as per the charge sheet filed by the CBI, the Respondent was one of the accused.
Considering the report of the Disciplinary Committee the Council held that the respondent was :
(a) guilty of professional misconduct falling within the meaning of Clause (11) of the Part 1 of the 1st Schedule to the Chartered Accountants Act, 1949;
(b) guilty of other misconduct under Section 22 read with Section 21 of the Chartered Accountants Act, 1949.
The respondent CA being held guilty of other misconduct the case was recommended to the High Court for removal of the name of the respondent from the Register of Members for a period of two years.
Observations made by the High Court:
The Hon’ble High Court observed that there was evidence on record that the respondent was operating the bank accounts of the three companies. There was evidence on record that the respondent was signing the balance sheet of various companies in the capacity as a director and was also operating the bank accounts and signing various applications submitted to the bank. Memorandum and article of associations of various companies show the respondent to be the promoter of the companies. There was also evidence that the respondent had signed as the introducer when accounts of other companies were opened and significantly the address of these other companies was the same from where the respondent carried on his profession as a Chartered Accountant.
The High Court noted that the trust was not enjoying any credit or loan or an overdraft facility and there was no money in its account. However, the bank manager debited a sum of Rs. 85,12,750/- in the account treating the same as having an overdraft facility and out of this fund, eleven demand drafts were issued favouring various companies. Applications to issue all the eleven demand drafts were submitted by the respondent CA.
Also, fictitious interest was credit into fixed deposit account of the company of which the respondent was acting as a director and subsequently the money was withdrawn from the Fixed Deposit Accounts on various dates without actual receipt of funds.
According to the Hon’ble Court, in view of the conduct of the respondent CA, It was not a case where the he had established his involvement with the companies in an honorary capacity.
Regarding the contention that trial before the CBI Court was not get over, the Court opined that the charge in the criminal proceedings was one of conspiracy and cheating whereas the Instant proceedings was related to the charge of the respondent being a Chartered Accountant and without permission from the Institute of Chartered Accountant acting as a director in various companies.
Regarding the contention that in view of the judgment of the Division Bench of the Court, a Chartered Accountant would not be amenable to any disciplinary proceedings while acting as an individual and dealing with a complainant in a commercial matter. The Court opined that the respondent CA was registered with the ICAI to practice as a Chartered Accountant. He could not be a director of a company without the permission of the Council of ICAI. Being a Chartered Accountant the respondent could not actively carry on business through companies, trusts and firms.
The reference was answered by imposing the penalty of removal of respondent CA’s name from the Register of Members of the Institute of Chartered Accountants for a period of two years.
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