RTI revealed ICAI Council had no record of oral discussions in forming prima facie opinion. However, CA’s Petition rejected on legal ground

ICAI Council had no record of oral discussions in forming prima facie opinion of misconduct against CA. However, Petition of CAs rejected on legal ground of res judicata.

prima facie opinion CA Misconduct 

ABCAUS Case Law Citation:
ABCAUS 2094 (2017) (10) HC

Brief Facts of the Case:

The petitioners were chartered accountants (CAs) and were at the material time working with Price Waterhouse & Co. (PwC) as Partner and Senior Manager.

PwC was the statutory auditor of Global Trust Bank Limited (the Bank). For the year ended 31.03.2003. The petitioners conducted the statutory audit and signed a qualified audit report on 30.09.2003 in respect of the affairs of the said Bank. The said audit report estimated the gross non performing assets (NPAs) as Rs. 915.8 crores and accounts were qualified to the extent of Rs. 311.61 crores.

Prior to the audit of the Bank for the financial year ended 31.03.2003, The Reserve Bank of India (RBI) had appointed a special auditor to conduct an independent review of the account of certain major borrowers – thirty six in number – of the Bank for the year ended 31.03.2002. The special audit report was submitted on 09.05.2003. The RBI had recommended additional provisioning upto Rs. 596.30 crores while the report prepared by the special auditor recommended provisioning upto Rs. 373.43 crores, for the year ended 31.03.2002.

Thereafter, RBI conducted an Annual Financial Inspection (AFI) of the Bank for the Financial Year ended 31.03.2003. The AFI report, 2003 (AFI 2003) recommended provisioning requirements much in excess of those contained in the report made by the special auditor as well as those contained in the accounts for the year ended 31.03.2003, audited by the petitioners.

ICAI, on the basis of various articles appeared in the newspapers and the extracts of AFI 2003 issued a show cause notice to PwC  treating them as “information” for the purposes of Section 21 of the Chartered Accountants Act, 1949 (the Act). In terms of Regulation 12(6) of the Chartered Accountants Regulations, 1988, (Regulations). PwC was called upon to disclose the names of the members answerable to the charge of alleged misconduct.

Thereafter, ICAI issued a Show Cause Notice dated 23-10-2017 to the petitioners informing that in light of the written statements (WS) the Council (ICAI) was prima facie of the opinion that the petitioners were guilty of professional misconduct. The petitioners were notified of the date and venue fixed for the hearing and were called upon to appear along with evidence. The said letter also indicated the procedure to be followed by the Disciplinary Committee (ICAI).

However, no substantial progress could be made in the disciplinary proceedings as the petitioners were unable to submit the relevant documents because the RBI had instructed that confidentiality of the borrowers accounts be maintained. The documents were finally submitted on 31.07.2008. Thereafter, there was a change in the constitution of the Disciplinary Committee (ICAI) and the proceedings were required to be held de novo

Thereafter, the petitioners successively filed three writ petitions in the Hon’ble High Court raising various grounds including  non-adherence to the prescribed procedure, forming of prima facie opinion without any substantial evidence, retraining ICAI to proceed further etc.

However, the Hon’ble High Court directed ICAI not to proceed until 17.12.2013.

The petitioners, in the next two three hearings again raised objections on the prima facie opinion formed and on the jurisdiction of the Disciplinary Committee.

On 23.06.2016, the petitioners filed an application under the Right to Information Act, 2005 (RTI) with the ICAI requesting for certain information including the minutes recorded by the Council for reaching the prima facie opinion and the views expressed by the Members/Nominated Members of the Council who were present at the time when the “prima facie” opinion was formed by the Council.

ICAI disclosed certain documents including the extract of the minutes of the Council meeting. It was further disclosed that no record of the oral discussions of the proceedings of the Council at the time of formation of the prima facie opinion was maintained.

In this backdrop, the petitioners had filed the present writ petition, inter alia, contending that the proceedings before the Disciplinary Committee are without jurisdiction as there was no valid prima facie opinion formed by the Council of ICAI for referring the matter to the Disciplinary Committee. The petitioners claimed that in terms of Section 21(1) of the Act (as applicable at the material time), the requirement of the Council forming a prima facie opinion that a member is guilty of professional misconduct was a jurisdictional condition. And, in absence of a valid prima facie opinion, further disciplinary proceedings would be wholly invalid and without jurisdiction.

The petitioners also averred that they became recently aware – on receipt of information pursuant to their request under the RTI – that apart from a bald statement in the minutes of the Council’s meeting regarding formation of a prima facie opinion, there was no record whatsoever as to how the prima facie opinion was formed and what was the material considered for such opinion. The petitioners submit that the record only showed that there were oral discussions and there was no record as to who were the members of the Council participating in the discussion; whether the prima facie opinion was unanimous or by majority; and how was the opinion ascertained (whether by way of show of hands, voice vote etc.). According to the petitioners, such prima facie opinion is invalid and further proceedings pursuant thereto are without jurisdiction.

Observations made by the High Court:

It was observed that the show cause notice dated 23.10.2007 informing the petitioners that the Council had formed a prima facie opinion that the petitioners were guilty of professional or other misconduct, was specifically challenged by them before the Hon’ble High Court. Thus, indisputably, the subject matter of the present petition (which also seeks to impugn the Show Cause Notice dated 06.12.2006 as well as the prima facie opinion formed by the Council) was also the subject matter of the dispute in the petition filed before the High Court. Merely because the petitioners had now acquired further information pursuant to their request under the RTI – which, at best, provides them with additional pleas in support of their earlier challenge – does not mean that the subject matter of the present petition was not included in the matter before the Bombay High Court.

The Hon’ble High Court opined that The contention that the petitioners were unaware as to the manner in which the Council had formed a prima facie opinion at the time of filing the writ petition before the High Court and are thus, not precluded from challenging the formation of the prima facie opinion yet again, is unmerited. The knowledge as to how the Council had formed the prima facie opinion was always within the reach of the petitioners. The petitioners had recourse to the RTI. Further, the petitioners had also approached the High Court, inter alia, seeking that directions be issued to the respondents to furnish certain information and it was well within their rights to also request for information as to the formation of the prima facie opinion. However, the petitioners chose to challenge the validity of the Council’s prima facie opinion, without seeking any further information. Having exhausted their remedies, they are now attempting to resuscitate their challenge, which cannot be permitted.

The Hon’ble High Court referred to the Hon’ble Supreme Court judgment where their Lordship’s had referred to the rule of constructive res judicata and observed that

“This rule postulates that if a plea could have been taken by a party in a proceeding between him and his opponent, he would not be permitted to take that plea against the same party in a subsequent proceeding which is based on the same cause of action; but basically, even this view is founded on the same considerations of public policy, because if the doctrine of constructive res judicata is not applied to writ proceedings, it would be open to the party to take one proceeding after another an urge new grounds every time; and that plainly is inconsistent with considerations of public policy to which we have just referred.”

The Hon’ble High Court also observed that the Apex Court had expressed dissent with the the judgment of Allahabad High Court which was of the view that the suit filed subsequently was not barred by the principles of res judicata or constructive res judicata. The Supreme Court held that the subsequent action was clearly barred by the principle of constructive res judicata and the High Court had erred in taking a contrary view.

The Hon’ble High Court held that in the present case, the petitioners had challenged the formation, inter alia, challenging that the prima facie opinion was not valid. The petition sought to re-agitate the same issue albeit on the basis of additional information claimed to be had been received subsequently. Plainly, the petitioners cannot be permitted to do so.

The Hon’ble High Court opined that the petitioners’ contention that they had recently acquired the information as to how the prima facie opinion was formed is a mere ruse intended to delay and obstruct the disciplinary proceedings, which cannot be permitted.


The petition and the pending applications were dismissed.

prima facie opinion

Download Full Judgment

----------- Similar Posts: -----------

Leave a Reply