ICAI jurisdiction in disciplinary proceedings is confined to Show-Cause Notice. It can not ask response on applicability of Income Tax Act, FEMA, Benami Act, Prevention of Money Laundering Act, etc.
ABCAUS Case Law Citation:
ABCAUS 2254 (2018) (03) HC
The Serious Fraud Investigation Office (SFIO) lodged a complaint with the Institute of Chartered Accountants of India (ICAI) regarding money laundering operations by the petitioner and four other Chartered Accountants.
The complaint was treated as information within the meaning of Rule 7 of the Chartered Accountants (Procedure of Investigation of Professional and other Misconduct and Conduct of Cases) Rules, 2007 and a Show-Cause Notice was issued to the petitioner by the ICAI requiring response regarding petitioner being allegedly engaged in money laundering operations with two persons (Jain Brothers) and other professionals; inflation of Balance-Sheet by rotational transfer of funds amongst the entities controlled by Jain Brothers and thereby abetting defrauding the National Exchequer to the tune of Rs. 73 crores. The petitioner was also charged with allegation of acting as a mediator in providing accommodation entries in connivance with Jain Brothers and placing, layering and integration of unaccounted funds and abetting in arrangement of false Valuation Reports.
The Petitioner admitted that he was in touch with Jain Bros in professional capacity, but denied his involvement in the alleged transactions asserting that the allegations are vague and baseless.
However the Director (Discipline) of the Institute formed a ‘prima facie opinion’ against the Petitioner.
Aggrived by the prima facie opinion, the CA had filed this writ petition before the High Court invoking its jurisdiction under Article 226 of the Constitution of India.
Before the Hon’ble High Court it was contended that there was not even a single piece of credible evidence or document to establish petitioner’s complicity in the transactions in question. It was submitted that the ‘prima facie opinion’ disclosed utter non-application of mind as it simply reproduced the contents of the SFIO report and no subjective satisfaction had been recorded by the Disciplinary Authority in the impugned ‘prima facie opinion’, which rendered it illegal. Thus, it was submitted that no case for initiation of disciplinary proceedings on the basis of impugned ‘prima facie opinion’ was made out.
The respondent ICAI submitted that in view of the bald denial by petitioner, an opportunity ought to be granted to respondents to lead evidence to show the complicity of petitioner in respect of the transactions in question. Placing reliance on the decision of the Hon’ble Supreme Court, it was submitted that the Court should be circumspect in interfering with the ‘prima facie opinion’ as efficacious remedy is available to petitioner to show that no case is made out against petitioner and this can only be done after the evidence is led by the parties.
On the other hand the Petitioner also placing reliance on the judgment of the Hon’ble Supreme Court submitted that before petitioner is departmentally tried, the material on record should ex facie disclose the complicity of petitioner and in the absence of any tangible evidence, the initiation of disciplinary proceedings against petitioner was wholly unjustified.
It is further pointed out that there was no independent application of mind by the respondent ICAI and the Disciplinary Authority had proceeded under the assumption that it had to necessarily make out a disciplinary case against petitioner in view of SFIO’s report and such opinion cannot be sustained in view of the dictum of Supreme Court.
The Petitioner also drew the attention of the High Court to the communication of IVAI to the petitioner calling upon the petitioner to examine whether provisions of Income Tax Act, FEMA, Benami Act, Prevention of Money Laundering Act could be made applicable to the period of misconduct in question. It was submitted that the petitioner cannot be asked to file a written statement in respect of his involvement under the aforesaid provisions as it was beyond the purview of the Show-Cause Notice.
The Hon’ble High Court observed that the ‘prima facie opinion’ meticulously refered to the allegations against petitioner in detail and took note of petitioner’s Reply to Show-Cause Notice and so, it could not be said that there was non-application of mind by Disciplinary Authority in rendering the ‘prima facie opinion’.
The Hon’ble High Court opined that the stand taken by petitioner in Reply to the Show-Cause Notice justifies initiation of disciplinary proceedings against him. It could not be said that impugned ‘prima facie opinion’ was vitiated by any extraneous consideration nor can it be said that there is no independent application of mind by Disciplinary Authority. By no stretch of imagination it could be said that respondent was under compulsion to initiate disciplinary proceedings against petitioner due to Reminder by SFIO. Supreme Court in Satyawati Tandon (supra) has reiterated that in cases having serious financial impact, the courts ought to be extremely
The Hon’ble High Court opined that Considering the nature of the allegations levelled against petitioner and his Reply to it, initiation of disciplinary proceedings against petitioner was well justified. Impugned ‘prima facie opinion’ though holds petitioner guilty cannot be said to be stigmatic as it is only a prima facie opinion and the finding of guilt has to be returned only after the conclusion of the disciplinary proceedings.
However the Hon’ble High Court clarified that the jurisdiction of the ICAI in initiating disciplinary proceedings shall be confined to the Show-Cause Notice and so, petitioner cannot be called upon to give his response in respect of applicability of the provisions of Income Tax Act, FEMA, Benami Act, Prevention of Money Laundering Act, etc.
