Findings of Disciplinary Committee of ICAI related to misconduct by chartered accountants would ordinarily not be disturbed unless found to be unjust, unwarranted or contrary to law. High Court can not re-appreciate evidence on record or assess the findings of the Committee as an Appellate Authority-Gujarat High Court
ABCAUS Case Law Citation:
ABCAUS 2118 (2017) (11) HC
A Reference was made to the Hon’ble High Court under Section 21(5) of the Chartered Accountants Act, 1949 (“The Act”) by the Council of the Institute of Chartered Accountants of India (“Council”) in respect of a disciplinary proceeding held against the Respondent Chartered Accountant (CA).
The Council based on the report of the Disciplinary Committee had found the CA guilty of misconduct and recommended the removal of the name of the CA from the Register of Members for a period of two years.
Brief Facts of the Case:
The firm of the respondent CA was allotted the audit of a Cooperative Bank (‘Bank’) by the Registrar of Societies.
Subsequently, due to a scam unearthed at the bank, the Registrar carried out a re-audit of the Bank for. Based on the re-audit Report, the Registrar found that the respondent CA had neither disclosed nor reported serious irregularities in the accounts of the Bank and that the respondent CA had failed to disclose material mis-statements which were not disclosed also in the financial statement of the Bank though they were known to him.
According to the Report, the respondent CA had shown gross negligence in performing his professional duties and had failed to obtain sufficient information to warrant the expression of opinion. The Registrar was also of the opinion that the respondent CA had failed to invite the attention to material departures from the generally accepted procedure of audit applicable to the Banks.
Nineteen Charges were framed against the respondent CA for misconduct. After exchange of written representations and opportunity of hearing a report was submitted by the Disciplinary Authority of the ICAI. On consideration of the report of the Disciplinary Authority, the Council decided to accept the report of the Disciplinary Committee.
Observations made by the High Court:
In brief, the various charges on which the respondent CA was held guilty and the observation of the Honble High Court were as under:
1. Contravention of Section 60 of the Multi State Cooperative Societies Act,1984
The Hon’ble High Court opined that a finding of fact arrived at, based on the re-audit report, assessed by the Disciplinary Committee and approved by the Council would not warrant re-appreciation as the role of the Court is not that of an appellate authority.
2. Non-compliance of RBI guidelines for Individual and Group Borrowers
It was noted that charge was that while sanctioning loans to individuals, the Chartered Accountant had not adhered to the RBI guidelines. However the applicable RBI circular stated that the exposure ceiling should be fixed in relation to the Bank’s capital funds and it shall not exceed 25% of capital funds in case of individual borrowers and 50% in case of group borrowers.
It was noted that the as per the Statutory Audit Report the Bank had not granted advances in excess of the maximum exposure limits.
Thus the Hon’ble High Court opined in a Reference made to it , though the Court cannot sit in appeal over the decision on the finding of facts arrived at by the Disciplinary Committee and confirmed in the Meeting of the Institute, however on examination of the RBI circular, the findings of the Committee and approved by the Counsel that the respondent had not reported that the working limits were violated was flawed. Looking at the financial status of the Bank and the relevant guidelines of RBI, the Bank did not exceed such limits. Accordingly, charge No. 2 held as not proved.
3. Regarding defects in loan documents for advances against shares aggregating to Rs.46,67,48,615.
The defects pointed out in re-audit were as under:
(a) Market Price Register for advances against shares has not been maintained.
(b) The drawing power was not revised as per market price.
(c) The Bank has also not prepared a list of shares of the companies against which advances were sanctioned.
(d) The Bank had violated the RBI guidelines by making advances more than Rs.10 lakhs against shares.
The Hon’ble High Court noted that that the Committee’s opinion was based on the reasonings not disturbed, the findings of the Committee which were reiterated by the Institute, were the findings are based on the appreciation of facts and record, which was not for Court to substitute.
4. Regarding sanctioning of the Temporary Overdraft (TOD) in contravention of RBI Circular
It was noted that the Disciplinary Committee of the ICAI had observed that it was within the scope of duties of the respondent CA to point out instances where the temporary overdraft was in excess. The respondent ought to have disclosed these facts and in not doing so he was grossly negligent in his professional duties and therefore was guilty of misconduct under the meaning of Clauses (5),(7),(8) and (9) of Part-I of the Second Schedule of.
The Hon’ble High Court opined that this was again is a factual finding of the committee based on the material adduced before it. Even otherwise, it cannot be viewed in isolation of the other charges.
5. Regarding irregularities in advance made against lands and buildings.
The defence of the respondent CA was that re-audit was not carried out by a Chartered Accountant and therefore the complaint based on such an Audit Report of a Registrar of Co-operative Societies could not be the basis of institution of disciplinary proceedings against the Respondent.
The Hon’ble High Court observed that provisions of Section 21 of the Chartered Accountants Act,1949 the High Court can remove any member of the profession for a stipulated period or permanently from the Membership of the Institute. However when an important body particularly a statutory body like the Council, in the present case finds a member of the Institute guilty of the misconduct and forwards the case to the High Court with its recommendations under Section 21(5) of the Chartered Accountants Act,1949, its findings based on material on record would ordinarily not be disturbed unless found to be unjust,unwarranted or contrary to law.
The Hon’ble High Court observed that in the instant case several charges had been levelled against the Respondent CA alleging misconduct enlisted in the Second Schedule of the Act. The Disciplinary Committee of ICAI found the respondent guilty of the relevant clauses in the Second Schedule. The Disciplinary Committee’s findings suggested that it has examined the material based on the re-audit report and the complaint made to it. Due care has been taken by the Committee, during the course of proceedings to consider each and every aspect and perception put forth by the Respondent while explaining his point of view on the charges alleged. The proceedings have been carried out in consonance with the twin principles of fair play and natural justice. The Disciplinary Committee has arrived at findings of fact which in the opinion of this Court, could not be said to be unjust, unwarranted or contrary to law.
The Hon’ble High Court opined that the High Court while deciding a Reference needs to keep in mind the limitations of its role. It does not sit in appeal over the decision making process of the Disciplinary Committee and the recommendations so made by the Council of the Institute. Hence in examining the Report and the recommendation of the Council it cannot re-appreciate the evidence on record or assess the findings of the Committee as an Appellate Authority
The Hon’ble High Court observed that charges against the CA involved serious flaws, in conduct of and in discharge of professional conduct of a Chartered Accountant. The Council has wide powers to regulate the conduct of its Members and take disciplinary action. The Council can make recommendations to the High Court to act on such recommendation. The Council is the custodian of the interests of the profession and its members. Once a Council as a custodian finds that its Member has committed a breach of its code of conduct and has done anything detrimental to the interest and prestige of the profession, he is liable to disciplinary action under section 21 of the Act.
The High Court accepted the recommendation of the Council for removal of the name of the CA from the Register of Members for a period of two years. However, on the request of the advocate for the respondent CA, the execution and implementation of the judgment was suspended for a period of six weeks from the date of the pronouncement of the judgment.