ICAI Professional Misconduct order quashed on the issue of limitation on entertaining complaint or information

ICAI Professional Misconduct order quashed on the issue of limitation period on entertaining complaint or information and remanded back to the Disciplinary Committee

ABCAUS Case Law Citation:
ABCAUS 2607 (2018) (11) AA

Important Case Laws Cited/relied upon:
Sunderdas Thakersey and Brothers V/s P K Mukherji, AIR 1966 Cal 468
Kishori Lal Datta V/s P K Mukherji, AIR 1964 Cal 131
H.V. Panchaksharappa V/s K.G.Eshwar, AIR 2000 SC 3344

The appellant Chartered Accountant (CA) had filed appeals before the Appellate Authority (AA) against the Order passed by the Disciplinary Committee (DC) of the Institute of Chartered Accountants of India (ICAI) under section 21B (3) of the Chartered Accountants Act, 1949 (the Act) read with Rule 19 (1) of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.

The ICAI held the appellant CA guilty under Clause (4) of Part-I of the Second Schedule to the Act in each of these cases and awarded composite punishment for all the three cases, of the removal of his name from the Register of Members for a period of two years and also imposed a consolidated amount of fine of Rs. 5,00,000/- upon him, to be paid within a period of 30 days with a rider that failure to deposit the amount of penalty within the stipulated period shall result in further removal from the Register of Members for a further period of six months.

The said Clause (4), dealt with Professional misconduct of chartered accountants in practice which requires action by a High Court. It was provided that a chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he expresses his opinion on financial statements of any business or enterprise in which he, his firm or a partner in his firm has a substantial interest, unless he discloses the interest also in his report.

Later the said clause was amended prohibiting CAs from auditing such related firms/concerns even if they make the disclosures.

In the instant case, the Government of India, Ministry of Corporate Affairs ordered an investigation into the affairs of M/s JVG Farm Fresh Limited under Section 235 of the Companies Act, 1956. During the Investigation of M/s JVG Farm Fresh Ltd., it was revealed that the appellant CA was working as Statutory Auditor of JVG Group of Companies. On the other hand, he was holding the position of Executive Director (Finance) in the JVG Group of Companies and was controlling and conducting the whole financial affairs of the Company. This way, he was holding both the positions of Statutory Auditor as well as Executive Director (Finance).

Before the Economic Offence Wing (EOW), the CA claimed that he was merely a Statutory Auditor in the JVG Group of Companies and was never appointed as Executive Director (Finance) of the Group.

As a result, Serious Fraud Investigation Office (SFIO) filed complaint with ICAI which resulted in the impugned order challenged by the CA.

Before the Disciplinary Committee of the ICAI, the CA submitted that he was never even a Director in the Company as was evident from the records of the Registrar of Companies and other Statutory Filings. Nor he or his relative anytime had any substantial interest in the Company audited by him. He further submitted that he only signed cheques as “Authorised Signatory”, the payments of which were duly approved by the management. Thus, he did not perform any managerial function and had no discretionary power or authority. He also pleaded that at the relevant time, the Guidance Note on Independence of Auditors, as issued by the Institute, inter alia, allowed an auditor to prepare or assist in the preparation of the accounts of a company before proceeding to audit them, or, agree to provide financial advice or to represent the Company for its tax matters without impairing the independence in any way.

Thus, it was submitted that at that relevant time, the relevant framework of the applicable Law permitted the auditors to perform certain other services as well. In other words, he submitted that at that time, the said work of signing of cheques done by the Appellant was not prohibited and thus there is no misconduct on his part on this account.

The Appellate Authority noted that the appellant CA had repeatedly taken the defence of limitation since inception of proceedings but the same had not been properly examined and decided and was dismissed by a brief mention stating that the plea that the matter was 15 years old did not stand as since 1998 the matter was under investigation.

The AA stated that the law of limitation under various statutes is not merely a legal right but it has been prescribed with definite objects in mind to ensure that proper justice is delivered to the litigants.

The AA observed that after enactment of Chartered Accountants (Amendment) Act, 2006, a new set of Procedure Rules to deal with the complaints or information of any misconduct alleged to be committed by any member of the Institute, namely the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 has been brought which is applicable w.e.f. 28th February, 2007.

It was further observed that Rule (12) of these aforementioned rules now deals with the issue of limitation which provide that he Director Discipline may refuse to entertain a complaint or information in respect of any misconduct made more than seven years after the same was alleged to have been committed and submit the same to the Board of Discipline for taking decision on it under sub-section (4) of Section 21A of the Act.

The AA opined that under said Rule (12), though the defence of limitation provided is not absolute right of Defendants, but it certainly casts a responsibility on the Director (Discipline) to examine as to whether on the facts of the case, the Defendant would find difficult to defend himself or lead evidence, on account of time lag or changes have taken place rendering the enquiry procedurally difficult. However, the Director (Discipline) had summarily rejected the same without examining the facts of the matter and without passing a reasoned Order. The Disciplinary Committee had not even considered this ground much less giving any finding on the issues.

The AA set aside the cases and remitted them back to Disciplinary Committee with direction to examine and decide by reasoned order the preliminary issue of limitation as raised in the light of observations made in this Order and decide the other Grounds after examining the objections raised by the Appellant in appeal.

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