In cases of professional misconduct, the degree of proof beyond reasonable doubt do not apply – High Court held CA guilty of negligence in issuing two utilisation certificates.
In a recent judgment, Hon’ble Delhi High Court upholding the Chartered Accountant guilty of professional misconduct held that in cases of professional misconduct, the degree of proof may be higher than the balance of probabilities, yet the same would not reach the criminal standard of proof beyond reasonable doubt.
ABCAUS Case Law Citation:
4328 (2024) (11) abcaus.in HC Delhi
In the instant case a reference had been made under the Chartered Accountants Act 1949 (the Act) to the Hon’ble High Court subsequent to respondent Chartered Accountant (CA) was found guilty of professional misconduct falling within the meaning of clause (7) of Part-1 of Second Schedule to the Act, and Council of ICAI had recommended removal of his name from the Register of Members of the ICAI for a period of one year.
A Government Department had filed a complaint against the CA alleging that he had submitted an undated Utilisation Certificate of the society funded by the said Department. On the Department officer finding overstatement of expenditure on purchase of machineries in the said certificate, the Society submitted another Utilisation Certificate issued by the said CA reducing the amount of machineries purchased. Upon enquiry, the CA by way of letter informed that the second Utilisation Certificate superseded the other certificates signed by him earlier; however, no reasons for such supersession were furnished.
Therefore, a compliant was forwarded by the said Govt. Department to the ICAI on the downward revision in the expenditure by way of another utilisation certificate being inappropriate.
Before the Disciplinary Committee (DC) of ICAI, the CA contended that machineries already bought by the society for which payment was made through demand draft to the concerned party had been returned thereafter and another set of machineries of lesser amount were purchased by the Society.
The DC held the said CA guilty of professional misconduct. Subsequently, the Council of ICAI also concluded that the CA was guilty of professional misconduct and recommended that his name be removed from the Register of Members for a period of one year.
However, the Hon’ble High Court quashed the Council’s decision and directed the Council to reconsider the Disciplinary Committee’s report after giving an opportunity of hearing to both the sides. However, the Council after fresh proceedings, stick to its previous decision and again made reference to Hon’ble High Court for an appropriate order under Section 21(6).
Before the Hon’ble High Court, the CA contended that the Council’s adverse finding rested solely on assumptions, including that the second Utilization Certificate, after an inspection report indicated unsatisfactory operations. However, the delay and decision to procure or return machinery were entirely the Society’s responsibility.
It was also contended that it is a settled position of law that the disciplinary enquiries relating to professional misconduct are quasi criminal in nature inasmuch as such proceedings may affect the professional’s right to practice the profession. In other words, being quasi criminal cases, such cases ought to be proved beyond reasonable doubt and the onus to prove lies on the complainant. The evidence should be of a character which should leave no reasonable doubt about the guilt of the professional.
The Hon’ble High Court observed that in view of the Second Schedule to the Act, a chartered accountant can be held guilty of professional misconduct if he is “grossly negligent‟ in conduct of his professional duties.
The Hon’ble High Court noted that the Coordinate Bench of the Court had the occasion to explain the scope of clause (7) and the meaning of “gross negligence” and it was held that whether the professional was grossly negligent or not would depend on the fact whether he had applied his mind diligently to the job entrusted to him, and whether due care and caution, as is required to be adopted, was taken. Additionally, it should also be seen whether there was failure to act honestly or reasonably. It was also observed that “when a Chartered Accountant signs certificates, minimum that is expected to do is to verify the accuracy of the figures certified.”
The Hon’ble High Court further found that the duties and responsibilities of an auditor were also emphasized by the Hon‟ble Supreme Court observing that auditor must exercise such reasonable care as would satisfy a man that the accounts are genuine, assuming that there is nothing to arouse his suspicion of honesty and if he does that he fulfils his duty; if his suspicion is aroused, his duty is to probe the thing to the bottom and tell the directors of it and get what information he can.
The Hon’ble High Court further observed that as per findings of the DC, the CA was unable to bring on record any evidence to corroborate his contention regarding return of machinery purchased by the society. Further, beside copy of the bank statement showing the demand draft and the photocopy of the certificate obtained from another CA firm, the respondent CA could not adduce any other document to support his defence. Further, the DC also noted that the Respondent while issuing the 1st Utilization Certificate did not mention that he had relied on the certificate of another CA and bank statement produced by the society showing the payment made by way of demand draft for purchase of machineries. The Committee also noted that the Complainant Department has filed a complaint against the another CA firm alleged to have issued a certificate to the respondent CA, However, it categorically denied their involvement in any certification work and stated it to be a case of forgery. The DC sought handwriting expert opinion as well wherein the said certificate purportedly issued by another CA firm had been established as a clear case of forgery.
The Hon’ble High Court observed that insofar as the first Utilisation Certificate issued by the respondent CA was is concerned, even if it is accepted that the respondent could not have physically verified the machinery by visiting the State, and he had to rely on the certificate issued by a local CA, which he claimed is an ethical practice adopted by all CAs, the fact remained that the respondent only mentioned in the Utilisation Certificate that he had verified “Books of Account, Vouchers, Wage Registers and other relevant records” but did not mention or clarify that he had primarily relied on the certificate issued by another CA firm. Eventually, the said certificate was also found to be forged
Further, the Hon’ble High Court observed that as quoted by the Hon’ble Supreme Court, in cases of professional misconduct, the degree of proof may be higher than the balance of probabilities, yet the same would not reach the criminal standard of proof beyond reasonable doubt.
The Hon’ble High Court observed that a Division Bench of High Court of Andhra Pradesh held that the act of the respondent therein, issuing a certificate without verifying the actual receipts of cash, amounted to gross negligence under the Act. The Bench framed an issue as to whether “these disciplinary proceedings are quasi-judicial and quasi criminal in nature and, if so, what is the standard of proof applicable to such disciplinary proceedings against a professional?”. The Bench held that in view of the law laid down by the Constitution Bench of the Apex Court, the standard of proof required to establish a charge, in a disciplinary proceedings, is on a preponderance of probabilities, and cannot be equated with the standard of proof in a criminal prosecution, wherein a charge is required to be proved beyond reasonable doubt.
Further, the respondent CA relied on the decision of the Hon’ble Supreme Court wherein it was held that the charge of professional misconduct under the Advocates Act, 1961 must be proved beyond reasonable doubt, and had contended that the same standard should be followed in cases of chartered accountants too.
The Hon’ble High Court rejected the above contention and held that though both an Advocate and a Chartered Accountant are professionals, their duties and responsibilities are distinct. Advocates have the primary responsibility of representing clients in legal proceedings and providing legal advice. Their duties are also closely intertwined with the ethical standards of courtroom conduct, where they serve as Officers of the court. This requires them to maintain a high degree of accountability toward the Court, clients, and the legal system as a whole. In contrast, Chartered Accountants operate in the areas of finance and accounting, and are tasked with delivering accurate financial information, advising on taxation, auditing financial statements, and ensuring compliance with accounting.
The Hon’ble High Court further observed that even otherwise, the three-judge Bench of Hon’ble Supreme Court in respect of disciplinary proceedings and charges of professional misconduct under the Advocates Act, 1961, also held that the findings in disciplinary proceedings have to be sustained by a higher degree of proof than that required in civil cases, but not the standard of proof as required in criminal cases, and that there should be convincing preponderance of evidence.
Therefore, the Hon’ble High Court opined that the Council had not erred in holding the respondent CA, guilty of professional misconduct under clause (7) of Part-I of Second Schedule to the Act.
However, with respect of the recommendation for removing the name of the respondent CA, the Hon’ble High Court opined that considering the fact that the respondent CA had been a member of ICAI for approximately three decades, with no history of any other complaint or allegation of misconduct and the present complaint against him had remained pending for about 19 years, ends of justice would be served by severely reprimanding the CA, under Section 21(6)(b) of the Act, for his professional misconduct.
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