2019 (11) TMI 43 - HC - Indian Laws

Guilty of professional misconduct on the part of Chartered Accountant - Clause (8) of Part I of the First Schedule to the Chartered Accountants Act 1949 - statutory auditor or not - whether KNA is guilty of any professional misconduct? HELD THAT - KNA was appointed as an auditor of TIL for auditing the accounts for the financial year 2009-2010. It appears that on becoming aware that TIL was proposing to pass a resolution to appoint another auditor (KNA) the petitioner sent a letter dated 13.09.2011 to TIL asserting that the petitioner continued to hold office as an auditor and alleging that appointment of any statutory auditor would be illegal. In the same breath the petitioner also stated that it is not known who the present auditor of TIL is as respondent no. 6 (Manu Sharma) had allegedly disclaimed that he was appointed as an auditor of TIL. Thus the petitioner was fully aware that another auditor was to be appointed by TIL at the AGM to be held on 30.09.2011. Whether KNA or its constituent partner CA Alok Shukla was guilty of professional misconduct on account of not obtaining a NOC from the petitioner? - HELD THAT - The Board held that KNA was not guilty of any professional misconduct as alleged as the petitioner was not the previous auditor with which KNA was required to communicate before accepting the assignment to audit the accounts of TIL. It is relevant to note that there is no requirement for an auditor to secure a no objection from the previous auditor. Therefore the premise that respondent no.3 required to obtain a no objection certificate from the petitioner is fundamentally flawed. The only requirement is that the Chartered Accountant who accepts the position as an auditor must communicate with the previous auditor about the same. In the present case the accounts filed with the Registrar of Companies for the years 2006-07 to 2008-09 that is for the three years prior to the period for which KNA was appointed had been audited by M/s Manu Sharma and Co. and therefore there was no necessity for KNA to correspond with the petitioner since the petitioner was not the previous auditor of TIL - the petitioner was not appointed as an auditor for the financial year 2007-08. The assertion made by the petitioner that it continued to be a statutory auditor of TIL for the said period is incorrect. This Court finds no infirmity with the impugned order. It is also relevant to note that the complaint filed by the petitioner is essentially motivated on account of inter se disputes between the petitioner and TIL. The entire correspondence placed on record clearly indicates that the petitioner had made all efforts to dissuade other Chartered Accountants from taking up the assignment to audit the accounts of TIL. This clearly is not the object of requiring an auditor to correspond with the previous auditor. It is also material to note that the petitioner is not associated with TIL as an auditor since 2008. The present petition is dismissed with costs quantified at Rs.25, 000/-.

Summary

Issues:
1. Impugning an order of the Board of Discipline of the Institute of Chartered Accountants of India (ICAI) finding a firm not guilty of professional misconduct.
2. Disputes between a petitioner firm and a company regarding audit records and statutory auditor appointment.
3. Allegations of professional misconduct against a new auditor appointed without obtaining a No Objection Certificate (NOC) from the previous auditor.

Issue 1: Impugning the Board of Discipline's Order
The petitioner challenged the Board of Discipline's order finding a firm not guilty of professional misconduct. The petitioner, a Chartered Accountant firm, claimed it was the statutory auditor of a company for a specific financial year but did not complete the audit due to incomplete records. However, the court found that the petitioner's claim of being the statutory auditor was incorrect as the annual general body meeting deadline had passed, and there was no formal appointment letter or resolution supporting the claim.

Issue 2: Disputes Between Petitioner Firm and Company
There were disputes between the petitioner firm and the company regarding audit records and the statutory auditor appointment. The petitioner made efforts to dissuade other auditors from accepting the assignment, alleging properties were sold below market rate and raising concerns about the appointment of a new auditor. The court noted the petitioner's actions were aimed at pressurizing the company and did not align with professional conduct standards.

Issue 3: Allegations of Professional Misconduct Against New Auditor
Allegations of professional misconduct were raised against a new auditor appointed without obtaining a No Objection Certificate (NOC) from the previous auditor. The court clarified that there is no requirement for an NOC but communication with the previous auditor is necessary. The Board found the new auditor not guilty of professional misconduct as they were not required to correspond with the petitioner, who was not the previous auditor.

In conclusion, the court dismissed the petition, emphasizing that the petitioner's actions were motivated by disputes with the company and did not serve the professional standards expected. The court upheld the Board's decision, highlighting that the new auditor did not commit professional misconduct by accepting the assignment without obtaining an NOC from the petitioner, who was not the previous auditor. The petitioner was also ordered to pay costs.