- (1.) The Court: This is an application for approval of the findings and recommendations made, by the Council of Institution of Chartered Accountants of India, on March 21, 2011. The respondent Manish Kumar Surana was held guilty of professional misconduct under the provisions appearing from Notification No. 1-CA(7)/46/99 dated 28th October, 1999 falling under Clause (ii) of Part II of the Second Schedule thereof read with Sections 21 and 22 of the Chartered Accountants Act, 1949. The Council recommended to the High Court that the respondent be reprimanded. The facts and circumstances briefly stated are as follows: M/s. J. Gupta & Co., the complainant, lodged the following complaint on 8th September, 2004 against the respondent: M/s. M.K. Surana & Co. is guilty of professional misconduct in as much as they accepted the assignment although our Audit Fees for past years remained unpaid to us by the client and it was included in Sundry Creditors of Rs. 17,51,061 under current liabilities for the year ended 31.03.2001. Till date, we have not received any payment against our outstanding audit fees and the same appears to be included in "Sundry Creditors for others" of Rs. 3,75,000 and Rs. 1,00,000 for the years ended 31.03.2002 and 31.03.2003 respectively. (Balance Sheet with schedules for all the three years are enclosed as evidences) Thus, Mr. M.K. Surana, proprietor of M/s. M.K. Surana & Co. is deemed to be guilty of professional misconduct under clause 6 of the First Schedule Part 1, ICAI.
(2.) After the parties exchanged their pleadings and adjournments were given on two occasions the matter was taken up for hearing on 12th December, 2009. The complainant did not however appear. The Disciplinary Committee called upon the respondent to disprove the case of the complaint. After hearing the respondent the committee arrived at a finding that the respondent had failed to furnish any documentary evidence to show that undisputed audit fees of the complainant were actually paid by the Company. On that basis the alleged misconduct was held to have been proved and the Council recommended the aforesaid punishment.
(3.) We are of the opinion that the finding cannot be upheld for the following reasons. (a) The Notification No. 1-CA(7)/46/99 dated 28th October 1999 reads as follows: No. 1-CA(7)/46/99.- In exercise of the powers conferred by clause (ii) of Part II of the Second Schedule to the Chartered Accountants Act, 1949, the Council of the Institute of Chartered Accountants of India hereby specifies that a member of the institute in practice shall be deemed to be guilty of professional misconduct, if he accepts the appointment as auditor of an entity in case the undisputed audit fee of another Chartered Accountant for carrying out the statutory audit under the Companies Act, 1956 or various other statutes has not been paid: Provided that in the case of sick unit, the above prohibition of acceptance shall not apply. Explanation 1 - For this purpose, the provision for audit fee in accounts signed by both - the auditee and the auditor shall be considered as "undisputed" audit fee. Explanation 2 - For this purpose, "sick unit" shall mean where the net worth is negative." It would appear that by the notification itself proof of 'undisputed audit fee' has been prescribed which requires a document signed by both the auditee and the auditor indicating the undisputed audit fee. No such document was filed by the complainant either before the Enquiry Committee or before the Council. Learned Advocate appearing for the applicant submitted that he is unable to identify any such document from the documents disclosed. There was thus no statutory proof to hold that undisputed audit fee payable to the complainant was outstanding. (b) The respondent is not alleged to be the debtor himself. The complaint against him is that he did not take care to see, before accepting the assignment, that the arrear 'undisputed audit fee' had been paid. In the absence of the proof, required by the rules, as regards existence of any 'undisputed audit fee' the respondent cannot be held to have acted negligently in accepting the assignment. (c) When the complainant did not appear to challenge the veracity of the case run by the respondent that the outstanding fees of the complainant if any had already been paid, it was not open to the council to disbelieve the contention. (d) When the complainant did not appear to support the complaint, the council could not have upheld any part of the complaint to have been proved except on the basis of admission on the part of the respondent. The respondent did not admit the complaint or any part thereof.;