Mere act of dishonor of cheques issued by a chartered accountant would not amount to misconduct – High Court
In a recent judgment, the Hon’ble Delhi High Court held that mere act of dishonor of cheques issued by chartered accountant would not amount to misconduct. Whether dishonour of cheques issued by a Chartered Account would fall within the ambit of the term “other misconduct” would have to be examined on a case to case basis by taking into account the facts and circumstances of each case.
ABCAUS Case Law Citation:
4421 (2025) (02) abcaus.in HC
In the instant case, the assessee had challenged the order passed by the single judge of the High Court in dismissing the writ petition preferred by the appellant CA challenging the order passed by the Appellate Authority of the Institute of Chartered Accountants of India (ICAI) holding him guilty of other misconduct.
The complainant in this case had filed a complaint before the ICAI on account of dishnour of cheques issued by a Chartered Accountant.
The appellant Chartered Accountant was held guilty of other misconduct by Board of Discipline (BoD) of ICAI under Section 21A of the Chartered Accountants Act, 1949 (the Act). His name was removed from members register for a period of three months alongwith a fine of Rs.10,000/-. The Appellate Authority of ICAI directed the petitioner to bring a Demand Draft of the amount of dishonoured cheques so that all the proceedings pending between the parties be compromised and closed. The Appellant Authority before passing the order directed the Registry to forward the D.D to the complainant for his acceptance towards the settlement of the issue. However, even after the receipt of the amount, the complainant did not come forward to withdraw the complaint.
The penalty of removal of name was modified by the Appellate Authority to that of reprimand alongwith the same fine of Rs.10,000/- as imposed by the BoD. The order passed by the Appellate Authority recorded that the appellant had not assailed the findings of the guilt on merits. The appellant soon thereafter, preferred a review petition seeking rehearing of appeal on merits, which request was rejected by the Appellate Authority on the ground of maintainability.
Against the order of the Appellate Authority, the writ petition preferred by the appellant was dismissed by the Single Judge primarily on the ground that the appellant had not assailed the findings of ‘other misconduct’ under the Act arrived at by the BoD. The appellant had then preferred a review petition urging that his appeal ought to have been adjudicated on merits. This review was also rejected holding that once the appellant had given up his challenge to the BoD’s finding of guilt before the Appellate Authority, he could not be now permitted to urge that his challenge to the findings recorded by the BoD holding him guilty of ‘other misconduct’ was not maintainable.
Before the division bench of the High Court, it was contended that the Single Judge came to an erroneous conclusion that the appellant had given up his challenge to the findings of guilt. His plea was that when the appeal came to be disposed of by the Appellate Authority, the appellant was under a bona fide belief that if, as per the advice of the Appellate Authority, he paid the amount, the complainant would not only withdraw the pending criminal complaint against the appellant under Section 138 of the Negotiable Instruments Act, 1881 but also his complaint filed before ICAI under the Act alleging ‘other misconduct’ on the part of the appellant.
It was submitted that after the receipt of a copy of the order passed by the Appellate Authority, the appellant realized that the demand draft for amount offered by him to be paid to the complainant had been forwarded without considering the appellant’s pleas regarding the findings of the BoD regarding his misconduct being unsustainable.
It was submitted that the appellant had no intention to cheat complainant as he had never denied having issued the cheques but had prayed a bona fide defense that the said cheques had been given by way of a collateral security and the amount received from complainant by way of loan had already been returned to him in cash.
It was contended that when the impugned order was passed by the BoD, the complaint preferred by the complainant under Section 138 of the Negotiable Instruments Act, 1881 was still pending adjudication and therefore, it was even otherwise premature for the BoD to hold the appellant guilty of any misconduct. In any event, since the appellant was acquitted in the complaint case under Section 138 of the Negotiable Instruments Act, 1881, it was evident that the findings of misconduct against him are liable to be set aside. It was therefore, prayed that the appeal be allowed and the orders passed by the Single Judge as also by the Appellate Authority and the BoD of ICAI be set aside.
The Hon’ble High Court observed that findings of guilt against him are likely to have cascading effect on his professional career and opined that the appellant deserved to be granted an opportunity to be heard on merits on his challenge to the findings of the BoD holding him guilty of “other misconduct” under the Act. Also, the fact that the appellant already stood acquitted in the proceedings initiated against him under Section 138 of Negotiable Instruments Act can not be ignored.
The ICAI contradicted the appellant’s plea that mere dishonour of cheques would not fall within the ambit of the term ‘other misconduct’ as defined under the Act as. It was submitted that the term ‘misconduct has to be examined in the context of the factual matrix of each case. In the present case, once the cheques issued by the appellant had been dishonoured for want of sufficient funds, it was evident that the appellant was always aware that the cheques would be dishonoured upon presentation. His plea of having refunded the loan amount to complainant in cash, having not been supported by any evidence, the BoD was justified in coming to the conclusion that the appellant had failed to maintain the faith bestowed by the society of Chartered Accountants and, therefore, his conduct being unbecoming of a Chartered Accountant, he was guilty of ‘other misconduct’ under the Act. The ICAI relied upon several decisions in support of pleas that the ambit of the term ‘other misconduct’ as envisaged under the Act cannot be put in a straight jacket formula and would depend upon the facts.
The Hon’ble High Court observed that none of the decisions relied upon by ICAI lay down any such broad proposition that dishonour of cheques issued by a Chartered Accountant would in every case amount to “other misconduct” under the Act. The question, whether dishonour of cheques issued by a Chartered Account would fall within the ambit of the term “other misconduct” as envisaged as under the Act would have to be examined on a case to case basis by taking into account the facts and circumstances of each case.
The Hon’ble High Court noted that BoD failed to accord any reason as to how the mere act of dishonor of cheques issued by the appellant would amount to misconduct. Further, even though the appellant had filed a detailed appeal assailing these findings of the BoD, neither the Appellate Authority nor the Single Judge examined his challenge on merits.
The Hon’ble High Court opined that in the facts of the case, the appellant deserved a chance to press his challenge to the findings of guilt rendered by the BoD.
Accordingly, the Hon’ble High Court allowed the appeal and set aside the impugned orders passed by the Single Judge as also the order passed by the Appellate Authority and remanded the matter back to the Appellate Authority for reconsideration of the appellant’s original appeal alongwith the supplementary appeal.
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