CA misconduct-Share application money receipt fake certificate. CA held guilty for consciously omitting date when the cheques were encashed-High Court
ABCAUS Case Law Citation:
ABCAUS 1119 (2017) (02) HC
Brief Facts of the Case:
A company invited applications for allotment of 1,80,00,000 preferential shares for cash at par. Subsequently, these shares were listed for trading at Delhi Stock Exchange (DSE) and with the Bombay Stock Exchange (BSE) on the strength of three certificates issued by the respondent chartered accountant who had issued three certificates.
The first one certifying that the company had received share money in respect of the preferential shares.
The second one a due diligence certificate certifying that the Preferential Allotment of Shares was in conformity with the documents/materials and papers relevant to the Preferential Allotment and all legal requirements connected with said Allotment as also the guidelines and instructions etc. issued by SEBI, the Government and any other competent authority in this behalf had been duly complied with.
The third one certifying the detail of receipt of share application money realised & credited to the account of the company.
In the third certificate the chartered accountant mentioned the name of the allottee, the cheque number issued by the allottee, the date of the cheque, the bank on which the cheque was drawn. However, the date of encashment of the cheque was not recorded in the certificate.
However, there was unusual price movements in the shares of the company which prompted SEBI to conduct an investigation. It was revealed that the company had allotted majority of shares to Delhi and Calcutta based twenty entities. The actual date of encashment of the cheques were after the shares were listed on the Delhi Stock Exchange and some after the shares were listed on the Bombay Stock Exchange.
The respondent CA was asked by SEBI to explain the three certificates issued by him to the company on the strength of which the company had started trading its shares on the two stock exchanges. He stated that the certificate(s) were issued on the basis of the computerized record maintained by the company but failed to offer any explanation as to why did he not cross-check the same with the bank statements of the company. Alternatively he contended that he relied on the return of allotment in Form 2 filed by the company with the Registrar of Companies (ROC).
Taking cognisance of the report submitted by SEBI, the Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) initiated enquiry and formed a prima-facie opinion that the respondent was guilty of professional misconduct.
Accepting the report of the Disciplinary Committee, the Council of ICAI recommended penalty of removal of the name of the respondent from the Register of Members of the Institute for a period of five years.
Observations made by the High Court:
The High Court observed that the respondent CA had consciously omitted to add the column of the date when the cheques were encashed for the reason he knew that no cheque had been encashed by the date he gave the certificates.
The Hon’ble High Court also highlighted that the respondent CA’s defence that he placed reliance upon Form 2 which had been submitted by the Company to the ROC could not have formed the basis on which the respondent had issued the certificates because the date of issue of said form under signatures of the Company Secretary of the Company, was much after the date when the three certificates were issued by the respondent CA.
The Hon’ble Court concurred with the recommendation of the Council of ICAI in removal of the name of the respondent from the Register of Members of the Institute for a period of five years.