SUPERINTENDENT OF POLICE, CRIME BRANCH (C. I. D.), MADRAS Vs. R. RAJAMANY

JUDGEMENT

(1.) This is a reference under section 21 of the Chartered Accountants Act, 1949 (XXXVIII of 1949). The proceedings out of which this reference arises were initiated on a complaint dated Sept. 15, 1953, made to the Council of the Institute of Chartered Accountants of India by the Superintendent of Police, Crime Branch (C.I.D.), Madras, who was entrusted with the investigation into certain irregularities committed by the management of the Hanuman Bank Ltd. (now under liquidation). The complainant charged the respondent who was practising as a chartered accountant at Thanjavur and who was the auditor of the bank with professional misconduct.

(2.) The Hanuman Bank Ltd. was incorporated in the year 1933 with headquarters at Tanjore. It had several branches in the district and had extensive business. Most of the depositors belonged to the middle class. Systematic acts of dishonesty and malversation of the bank's funds appear to have been committed by those in charge of its management. These led to an inevitable run on the bank and culminated in an order by this court on Nov. 5, 1951, in O.P. No. 192 of 1947 for the winding up of the bank. Messrs. Brahmiah and Co., auditors, were appointed as the official liquidators. The police investigation was made by a special staff of the C.I.D. deputed for the purpose. On Sept. 19, 1948, a charge sheet containing 67 charges was filed against the respondent and 27 others under section 120B read with sections 409 and 477A of the Indian Penal Code. A special magistrate was appointed to conduct the enquiry; the enquiry lasted for nearly three years during the course of which 203 witnesses were examined and nearly 6,000 exhibits were marked. On being moved by the accused at that stage the High Court quashed the charges on the ground that it was impracticable to try them at one trial without confusion; this court directed a de novo trial in accordance with the provisions of section 240 of the Criminal Procedure Code. The order directing de nova trial was set aside by the Supreme Court on Dec. 12, 1952. The result was that the criminal proceedings initiated against the respondent and others failed.

(3.) Investigation by the police revealed certain other irregularities which showed that it was the callousness of the respondent that facilitated the frauds committed by the management. The investigating officer filed a complaint, to which reference has been made earlier, to the Council of the Institute of Chartered Accountants setting out several acts of misconduct on the part of the respondent in relation to his duties as auditor of the bank. The Secretary of the Council promptly forwarded a copy of the complaint to the respondent and called upon him to explain. A written statement was filed by the latter in Nov., 1953. The enquiry was taken up by the Disciplinary Committee of the Council but for one reason or another the enquiry was adjourned from time to time. During that period there was a change in the personnel of the Committee, and that necessitated a de novo enquiry. Meanwhile, proceedings which were taken by the official liquidators for misfeasance of the directors of the bank and the auditor were concluded before this court. Subrahmanyam J., after an elaborate enquiry found that the persons in management of the bank and the auditor were guilty of several acts of malversation of the bank's funds, gross negligence, etc. The learned judge held that a large part of the responsibility for the failure of the bank had to be borne by the auditor, that the balance-sheets prepared since the year 1943 contained false and unsustainable statements, that there were manipulations of figures taken from books and observed "the auditor's liability would have to be fixed at any rate at a lakh of rupees for payment of compensation by him to the bank but he is said to be in insolvent condition and the learned counsel for the official liquidators agreed with me in my suggestion that no decree need be passed against him, since, if a decree were passed the only result would be that the official liquidators would have to come to court again for an application for writing off the amount due under such decree."