ICAI bans Delhi based CA for 6 months for certifying share premium amount to bank based on Board Resolution only

ICAI bans delhi based CA for 6 months for certifying non-existent share premium amount of the company to the bank based on Board Resolution only

The Institute of Chartered Accountants of India (ICAI) has removed the name of a Delhi based chartered accountant (CA) from the Register of Members for a period of six (6) months and also imposed a fine of Rs. 50,000/- (Rupees Fifty Thousand only).

The said CA had been held guilty of Professional Misconduct within the meaning of Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949 (CA Act). The said clause 7 provides that a chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.

ICAI bans delhi based CA for 6 months for issuing wrong certificate

The decision of the Disciplinary Committee of the ICAI which ordered for removal of the name of aforesaid CA,  was challenged before the the Appellate Authority (Constituted Under Section 22A of CA Act) which recently, vide its order dated 6th January, 2018 upheld the punishment.

ABCAUS Citation: 2223 (2018) (2) CA

Brief Facts of the Case:
In 2009, the manager of a bank had sent a letter to the ICAI against the CA alleging that the he had issued a false certificate to a Pvt. Ltd. company (the company). On the basis of the said certificate, the Bank had extended credit facilities to the Company. As per said certificate, the paid up capital of the Company was Rs.45 Lakhs and share premium amounted to Rs. 105 lakhs, but subsequently, on the receipt of Audited Financial Statements of the Company, it was found that the paid up capital of the Company was Rs.45 lakhs only, and no share premium was present. Therefore, the information disclosed by the CA in said certificate was not correct.

The matter was examined by the Director (Discipline) of ICAI and he found the CA, ‘Not Guilty’. The ‘Prima Facie Opinion’ of ‘Not Guilty’ as formed by the Director (Discipline) was placed before the Board of Discipline. The Board of Discipline considered the information, Written Statement and the ‘Prima Facie Opinion’ of the Director (Discipline). The Board observed that the certificate issued by the CA was based on the Resolution passed by the Board of Directors of the Companies and not based on the Books of Accounts as stated in the said certificate, therefore, the Board did not agree with the ‘Prima Facie Opinion’ formed by the Director (Discipline) and further opined that the CA was guilty within the meaning of clause (7) of Part-I of Second Schedule to the Act and decided to refer the matter to the Disciplinary Committee (DC) to proceed further .

The Disciplinary Committee found that the CA had issued the certificate as per the Board’s Resolution but the certificate stated that it was as per books of accounts produced before the CA. However, it was noted that subsequent to the issue of the certificate the board of the company while approving the minutes resolved that shares may be issued at par.

According to the DC of ICAI,  the CA as the statutory auditor was required to disclose about this partial acceptance of the resolution of the Company which had an impact on the state of affairs of the Company whereby the value of the shares so allotted has been modified more so when he himself had issued the certificate certifying the share premium account. This was how the DC made the view that the CA had not exercised due diligence and was negligence while auditing and certifying the accounts of the Company.

The CA submitted a letter written by a unit of the company to the Bank , requesting therein to arrange to return the CA certificate submitted in this regard. However, the DC noted that the letter was not properly acknowledged by the bank, there was no signature of any bank official and there was no date put by the bankers on the letter. Further, the DC opined that for such exercise of taking back his certificate from the bank, the CA ought to have written a letter to the Company for withdrawing his certificate when he became aware of only the partial acceptance of the Resolution when the certificate so issued by him has been based on the said Resolution only

Before the Appellate Authority, the CA could not satisfactorily reply as to whether the act of company in not utilising of the share premium account for which Section 78 of the Companies Act, 1956, should be followed? Also, not satisfactory reply was given as to  why the CA failed to examine the important evidence of filing Form No. 2 for allotment before issuing the Certificate. Again, no reply was given by the CA as to whether any disclosure, qualification was given in the auditor’s report to the financial statements?

The CA relied on the notes of accounts to the balance sheet which disclosed about the modification made in the allotment and share premium. However the ICAI opposed to it as this evidence was not furnished by the CA before the Disciplinary Committee. However when asked if the same notes have been filed before the Registrar of the Companies along with balance sheet, no evidence of the same was furnished by the CA except that the ICAI can obtain the same. In view of the above this did not find merit with the Appellate Authority.

The Appellate Authority found no merit in the appeal of the CA and rejected the same. It also rejected the submissions about reducing the punishment.

Download order of Appellate Authority Click Here >>

Now the ICAI has issued a notification removing the name of said CA. from the Register of Members for a period of six (6) months with effect from 23rd February, 2018.. Download ICAI Notification  Click Here >>

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