- (1.) THIS reference is made under section 21(5) of the Chartered Accountants Act, 1949 [hereinafter referred to as "the Act"] by which the Council of Institute of Chartered Accountants of India [hereinafter referred to as "Council"] has forwarded the case to this Court after finding the respondent, who is the member of Institute of Chartered Accountants of India, guilty of misconduct other than the misconduct as is referred to in subsection (4) of section 21 of the Act, and has recommended removal of the respondent's name from the register of members of the Institute of Chartered Accountants of India for a period of six months.
(2.) THE matter arises out of a complaint filed by one Shri P. Sobhanadri, HeadAudit, Global Trust Bank Ltd. [hereinafter referred to as "the complainant"] against the respondent Shri Arun Purshottam Kapadia, who is a practicing chartered accountant. The complainant made the following allegations against the respondent. A. Mahadev Associates Escrow Account Deviations observed: (a) Account was opened on 05.08.2002 without obtaining regular sanction, despite the condition laid down in the inprinciple approval that the branch has to submit a detailed proposal with full particulars and take a regular sanction. (b) As per the inprinciple sanction, one day's balance has to be maintained in the escrow account whereas end of day's balance was always Nil. (c) Cheques out of Escrow account have to be issued only upto the extent of deposit provided. Though the deposit provided is Rs.1.00 crore, cheques were issued to the tune of Rs.2.50 crores on every day. (d) As per the approval OD against the deposit has to be given only to meet the cheques issued out of Escrow account. But branch released OD 95% on the very first day itself without any basis. (e) Escrow Account is operated by Branch officials and the cheques drawn on the account do not bear any stamp to indicate that it is drawn out of escrow account. This may lead to an impression in the banking circles that these cheques were Banker's Cheques. (f) Though Escrow account is meant for advance freight payment to S.E. Railways, many high value cheques favoring Mauli Impex (a sister concern of Mahadev Associates) were issued. (g) All the transactions in the account are of Kite flying nature. Customer has misused both the facilities of escrow account and cash line facility and resorted to kite flying. All the cheques deposited under cash lines are drawn by their group companies against their account with Bank of Rajasthan. B. Cheque Purchase and TOD's Deviations observed: (a) Since 01.08.2002, there were 218 cheque/PO purchases aggregating to Rs.113 Crores in certain accounts belonging to the same group. Most of the instruments were drawn by the Group concerns only like S.S. Enterprises on Bank of Rajasthan Ltd. (b) Since, 01.04.2003, the average daily cheque purchases outstanding is to the tune of Rs.3 crore in respect of above parties and most of the instruments are drawn on Bank of Rajasthan Ltd. (c) TOD in respect of 10 accounts has been created in the system for a much longer period whereas Branch does not have powers for grant of TOD for such a long periods. (d) In all the accounts, the transactions are either among the above said group accounts or favoring similar parties like Mahadev, Mauli, Deep, Deven, Kailash or Anjalee Corporation etc. and transfer/credit form similar parties suggesting that these are group accounts. It is observed that these TODs are of accommodative in nature. C. ABE Reports Deviations observed: During the period from 01.04.2002 to 30.04.2003, the Respondent has been submitting ABE (Audit before Event) reports with Nil remarks but serious deficiencies have been pointed out by the recent Internal Audit. (e.g. Digital Multi Forms Ltd., Transformer and Rectifier India Ltd., Chandan Steels Ltd., etc.) D. Margin in respect of FLC's for Import of Gold Deviations observed: Margin has to be obtained on 110% of the LC value until receipt of the final invoice and other documents. But the branch is in the practice of keeping the margin for 110% of LC value until receipt of the provisional invoice and after receipt of provisional invoice, the branch is keeping the 100% of LC value till the receipt of final documents. The Respondent has not brought to the Complainant's notice about this risk to the extent of 10% tolerance level. As on 09.05.2003, the shortfall in margin is to the extent of around Rs.3.00 Crores. Theses deviations were not pointed in the concurrent audit reports. E. Collection of Interest @ 17.5% for not taking delivery of goods/documents within 10 days from the date of Airway Bill Deviations observed: The branch is not in the practice of collecting the interest @ 17.5% for not taking delivery of Goods/Documents within 10 days from the date of Airway Bill though this was specifically mentioned in the sanction communication and the same was accepted by the Borrowers (Chetan Jewellers and Zaveri Bullion). This has resulted a revenue leakage of Rs.30.53 lac (Rs.11.91 Lac in case of Zaveri and Rs.18.62 Lac in case of Chetan). These deviations were not pointed in the concurrent audit reports. 2.1 The copy of the complaint was sent to the respondent vide Institutes' letter dated 25.05.2004 with a request to send his written statement to the institute. That the respondent submitted his written submissions dated 08.11.2005. It appears that as the said written statement was not duly verified, reminders were sent to the respondent dated 23.03.2006, 28.09.2006 and 29.05.2008 requesting him to verify his written submissions in the prescribed manner. Thereafter, in accordance with the provisions of Regulation 12(11) of the Chartered Accountant Regulations, 1988 [hereinafter referred to as "Regulations"], all the papers containing the complaint and the written submissions were considered by the Council at its meeting held on 5th, 6th and 7th, November 2008 at New Delhi. The Council which was prima facie of the opinion that the respondent was guilty of professional and/or other misconduct, decided to initiate inquiry to be made in the matter by the Disciplinary Committee and consequently referred the case to the Disciplinary Committee constituted under the Act, for inquiry. 2.2 On perusal of the documents on record and after recording the submissions of the complainant, written submissions [not duly verified] documents on record, the Disciplinary Committee submitted its report dated 10.02.2011. The committee was of the opinion that the respondent was guilty of professional misconduct for charges Nos.1.1[i], 1.1[ii], 1.1[iii], 1.1[iv], 1.1[v], 1.1[vi] and 1.4 falling within the meaning of Clauses (7), (8), (9) of Part I of Second Schedule to the Act. The respondent was, however, not guilty of any professional misconduct with respect to charge Nos.1.1[vii], 1.2, 1.3 and 1.5. 2.3 A copy of the report of the Disciplinary Committee was forwarded to both the parties vide institutes' letter dated 13.07.2011 and they were informed that the said report would be considered by the Council at one of its forthcoming meeting. They were requested to send the written representation, if any, in the matter and also if they so desire, they might appear before the Council either in person or through a member of the institute duly authorized by them and to make their oral submissions. Thereafter, the parties were further informed vide institutes' letter dated 30.11.2011 that the report of the Disciplinary Committee would be considered by the Council on 04.12.2011 at its meeting to be held on 14th and 15th December 2011. Both the parties were again requested to send the written representation, if any, in the matter and that if they so desire, they may appear before the Council either in person and/or through a member of the institute duly authorized by them and to make their oral submissions. The respondent submitted his written representation dated 06.12.2011 on the report of the Disciplinary Committee. It appears that report of the Disciplinary Committee could not be considered by the Council at its meeting held in December 2011. Both the parties were informed vide institutes' letter dated 09.03.2012 that the report of the Disciplinary Committee would be considered by the Council on 27.03.2012 at its meeting to be held from 26th to 28th March 2012. Both the parties were again requested to send the written representation, if any, in the matter and that if they so desire, they may appear before the Council either in person and/or through a member of the institute duly authorized by them and to make their oral submissions. The respondent submitted his further written representation dated 20.03.2012 on the report of the Disciplinary Committee. Both the parties were again informed vide institutes' letter dated 01.05.2012 that the report of the Disciplinary Committee would be considered by the Council on 16.05.2012 at its meeting to be held from 15th to 17th May 2012. The complainant submitted his written representation dated 31.05.2012 on the report of the Disciplinary Committee. That thereafter on consideration of the report of the Disciplinary Committee alongwith the written representation dated 31.05.2012 received from the complainant and the written representations dated 06.12.2011 and 20.03.2012 received from the respondent, the Council decided to accept the said report and accordingly found the respondent guilty of professional misconduct within the meaning of Clauses (7), (8), (9) of Part I of Second Schedule to the Act. The Council also decided to recommend to the High Court that the name of the respondent be removed from the register of members for a period of six months. 2.4 That the disciplinary case was forwarded by the Council to this Court in terms of section 21(5) of the Act which has been registered as Charter Accountant Reference No.1/2013.
(3.) SHRI S.N. Soparkar, learned Senior Advocate appearing on behalf of the Council has contended that the Council had found the respondent guilty of professional misconduct within the meaning of Clauses (7), (8), (9) of Part I of Second Schedule to the Act on the basis of the material on record gathered during the inquiry conducted by the Disciplinary Committee, which has been statutorily constituted. It is submitted that the recommendation of the Council be accepted and the name of respondent be removed from the register of members of institute for a period of six months. 3.1 It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the Council that the respondent who was assigned the work of concurrent audit has been found guilty of professional misconduct for the charges Nos.1.1[i], 1.1[ii], 1.1[iii], 1.1[iv], 1.1[v], 1.1[vi] and 1.4 falling within the meaning of Clauses (7), (8), (9) of Part I of Second Schedule to the Act. It is submitted that as such the respondent has not disputed that it was not his duty to verify the accounts. It is submitted that as such the only defence on the part of the respondent was that while performing his duty as concurrent auditor, he relied upon and/or trusted the Branch Office. It is submitted that as such as the concurrent auditor, it was his duty to report to the Head office rather than relying upon and/or trusting the branch office. It is submitted that therefore the respondent has failed to perform his duties as concurrent auditor. 3.2 It is submitted that as such as a concurrent auditor it was his duty to draw the attention of the head office with respect to any lapse on the part of the branch office, which the respondent has failed to perform. 3.3 It is submitted by Shri Soparkar, learned Counsel appearing on behalf of the Council that in respect of charge No.1.1[i] with respect to the escrow accounts of one Mahadev Associates, it has been found that the respondent failed to discharge his professionally assigned duties with best care and diligence and he has been gross negligent in carrying out necessary checks which were required from the respondent as concurrent auditor of the bank. It is submitted that similarly with respect to charge Nos.1.1[ii], 1.1[iii], 1.1[iv], 1.1[v], 1.1[vi] and 1.4, the respondent is found to be gross negligent in carrying out the necessary checks and performed his duties which were required from the respondent as concurrent auditor of the bank. 3.4 It is submitted by Shri Soparkar, learned Counsel appearing on behalf of the Council that the Council has found the respondent guilty of professional misconduct on the basis of the material on record gathered during the inquiry conducted by the Disciplinary Committee which has been statutorily constituted. It is submitted that the Council has upheld the finding of the Disciplinary Committee that while performing the duty as concurrent auditor, the respondent has failed to discharge his professionally assigned duties with utmost care and diligence and is thus gross negligent in carrying out the necessary checks which were required from the respondent as concurrent auditor of the bank; and has found the respondent guilty of professional misconduct and the Council has found the respondent's conduct as unbecoming of a member of the institute. Shri Soparkar, learned Counsel has referred to the Code of Conduct issued by Institute of Chartered Accountants of India, pointing out that the members of institute were required to maintain high standards of integrity and professional behavior. 3.5 It is submitted that the institute and the Council are the statutory bodies and the Council has been envisaged with statutory powers of taking disciplinary action against the members also in respect of "other misconduct". In support of his contentions the learned Counsel has relied upon the following decisions. 1. Council of the Institute of Chartered Accountants vs. B. Mukherjee, 1958 AIR(SC) 72 2. In the matter of P an Advocate, 1963 AIR(SC) 1313 3. N.G. Dastane v. Shrikant S. Shivde, 2001 AIR(SC) 2028 4. R.D. Saxena v. Balaram Prasad Sharma, 2000 AIR(SC) 2912 5. T. Balakotaiah v. Union of India, 1958 AIR(SC) 232 6. M.H. Devendrappa v. Karnataka State Small Industries Development Corpn., 1998 AIR(SC) 1064 7. Jamuna Prasad Mukhariya v. Lachi Ram, 1954 AIR(SC) 686 8. Sakhawaut Ali v. State of Orissa, 1955 AIR(SC) 166 9. Railway Board v. Niranjan Singh, 1969 AIR(SC) 966 10. Jang Bahadur Sant Lal v. Principal Mohindra College,1951 AIR(SC) 59 11. Indulal K. Yagnik v. State, 1960 AIR(Bom) 399 12. H.A.K. Rao v. Council of the Institute of Chartered Accountants of India, 1965 AIR(Mys) 112 13. Council of the Institute of Chartered Accountants of India v. P.C. Parekh, 2004 4 GLR 3634 14. Council of the Institute of Chartered Accountants of India v. Mukesh R. Shah, 2004 134 Taxman 265 15. C A Rajesh v. Disciplinary Committee,2012 28 Taxmann 100 Relying upon above decisions and making above submissions, it is requested to accept the recommendations of the Council. Though served, nobody appears on behalf of the respondent. Hence, present reference is proceeded further ex parte so far as the respondent is concerned.;