INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Vs. V K VERMA

JUDGEMENT

(1.) This isarefe-ence under section 21 (5) of the Chartered Accountant Act. 1949 (Act 38 of 1 949), by the council of the Institute of Chartered Accountants of India accepting the report of the Disciplinary committee and finding the respondent, V.K-Verma, of Mesrs V-K.Verma and Company, Chartered Accountants, Delhi, guilty of professional misconduct under items (7) and (8) in Part I of the Second Schedule to the Act and iccommending to the High Court that the name of the respondent may be emoved from the membership of the Institute for a period of two years. The professional misconduct described and detailed in items (7) and (8) in part I of the Second Schedule to the Act is this-"A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he (7) is grossly negaigent in the conduct of his professional duties ; (S) fails to obtain sufficient information to warrant the expression of an opinion or his exceptions are sufficiently material to negate the exceptions of an opinion."

(2.) The facts and circumstances that have led to the reference are that a letter, dated October, 4 1961, purporting to have been sent by one Ravinder, was received by the Secretary in the Department of Company Law Administration, Government of India, charging the respondent wilh misconduct in these two respects-(a) that the respondents firm as chartered Accountants were auditors of M.issrs B. Dharam Singh and Company Private Limited, with Head Office in Lucknow and a Branch in Delhi, and also of the National Bank of Lahore Limited, of which Mr. S L. Verma, father of the respondent, was a director, and the National Bank of Lahore Limited have given a cash credit facility to the extent of seven lakhs of rupees to Messrs B. Dharam Singh and Company Private Limited, so that under the circumstances, the auditors were working in a dual capacity, as auditors of the Bank as well as of the borrowers and as such they could not be fair in the discharge of their duties to either, and (b) that, while assessing the income of Messrs B. Dharam Singh and Company Private Limited, the income-tax Officer pointed out in the order of assessment, dated May 30, 960. that from the audited accounts of that company, books of Lucknw office of the company were entirely excluded and on a revised balance-sheet and profit and loss account, after inclusion of the figures of the Lucknow office, having been given, the Income-tax Officer still found the figures in ''the Delhi accounts according to the books of the company different from those in the audited accounts.

(3.) The letter of Ravinder having been received by the secretary of the Institute, Ravinder was called upon to file a complaint in form (p') in accordance with regulation 11(3) of the chartered Accountants regulations, 1949, but he made no response. The Secretary of the Institute then proceeded to consider the letter of Ravinder as an information undersection 21 (1) of the Act. A copy of it was sent to Messrs V. K.. Verma and company, Chartered Accountants, informing them that the member concerned may send his written explanation to the charges in accordance with regulation 11 (6). The respondent gave his written explanation on September 21, 1962. In regard to the first charge he admitted that his father, Mr. S. L. Verma, was a Director of the National Bank of Lahore Limited and that his firm were auditors both to that bank and Messrs B. Dharam Singh and Company Private Limited, but he further said that on that account his firm were not debarred from being auditors to both the bank and the company as that was not a disqualification under the provisions of section 226 (3) and (4) of the Companies Act, 1956, and further that the appointment of his firm as auditors of the bank as under a special resolution of the bank inaccordance with section 314 of the Companies Act, 1956. It appears that the Disciplinary Committee was satisfied with this explanation on this charge and in its report it has said no more on.this aspect of the matter. In regard to the second charge the explanation given by the respondent was that he signed the balance- sheet relating to the year ending August 31, 1958, of Messrs B. Dharam Singh and Company private Li nited after the same and the profit and loss account were prepared by that company and checked by his firm with the accounts- books and records of the company produced at the time of the check and that it was incorrect that the figures of the Lucknow office of the company were not incorporated in the audited accounts, the books of account of the Lucknow and Delhi offices having been duly checked and incorporated in the balance-sheet and the profit and loss account of the company. A difference of Rs. 194. 79 was found in the_trial balance prepared by the company which was shown on the face of the balance- sheet. This irregularity was brought to the notice of the company and its share-holders. He than criticised the markes made by the Income-tax Officer in the assessment of the corn any on the ground that they were not only justified but were made at the back of his firm. He denied that he had signed the revised balance-sheet and said definitely that he had only signed one balance- sheet showing the difference in the tral balance of the amount as stated, which amount was shown on the face of the balance-sheet. The Disciplinary Committee in regard to this charge has considere that the information infomation in the letter of Ravinder refers to (i) the respondent having given wrong audited statements of amounts in so far as the same did not include the figures of Lucknow office transactions and the figures in Delhi account did not agree with the audited accounts, and (ii) that the revised balance-sheet and profit ard loss account in connection with the same period convered by the first balance-sheet and the proft and loss account were alleged to have been signed by the respondent and given to the Income-tax Officer. On these matters the Disciplinary Committee has found in favour of the respondent. It says that "it has found that the audited accounts did incorporat ' the figures relating to Lucknow office transactions" ,and further it found that it was not clear from the evidence whether the respondent prepared and signed the revised balance-sheet and profit and loss account, so that it was prepared to give benefit of the doubt to the respondent in this respect. In substance therefore, the charges of misconduct as appearing in the form of information in the letter of Ravinder were found by the Disciplinary Committee not to have been substantiated.