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2016 (9) TMI 658 - DELHI HIGH COURT

2016 (9) TMI 658 - DELHI HIGH COURT - TMI - Misconduct by Chartered Accountant - Held that:- Having perused the documents we find that the Disciplinary Committee of the Council had accorded full opportunity to the respondent to present his case. All material documents have been considered by the Disciplinary Committee. The Council has very fairly considered the respondentís response to the report of the Disciplinary Committee and has re-appraised the material to conclude that whereas the respond .....

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nion that accepting the decision of the Council at its meetings held on January 16 and 17, 2011 in so far it concludes the respondent guilty of misconduct contemplated by clause (7) of Part I of Second Schedule read with Sections 21 and 22 of the Chartered Accountants Act, 1949, ends of justice would suffice if penalty of severe reprimand contemplated by Section 21(6)(c) of the Chartered Accountants Act, 1949 is inflicted upon the respondent. - CHAT.A.REF. 1/2012 - Dated:- 11-8-2016 - MR. PRADEE .....

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ountant who has been indicted. 2. We have heard Sh.Rakesh Aggarwal who has very ably and painstakingly taken us through the record culminating in the report of the Disciplinary Committee constituted to look into a complaint dated July 05, 2005 lodged with the Institute of Chartered Accountants by the Assistant General Manager (Inspection) of the Punjab and Sindh Bank Ltd. 3. M/s.J.S.Bedi and Co., Chartered Accountants of which Sh.U.S.Jha was a partner/member, he being a Chartered Accountant, wer .....

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so to the Zonal Inspectorate and the General Manager as well. Guidelines issued for the concurrent audit required to check the new accounts opened and particularly the current accounts and see whether the operations therein were unusual. To verify that the loans and advances were duly sanctioned as per guidelines of the bank. To verify the securities and documents received and in particular whether they were entered in the register. To check reconciliation of entries in the suspense accounts. To .....

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itors in not detecting fraudulent transactions details whereof were enclosed with the complaint received. 4. The respondent admitted that the firm J.S.Bedi & Co. was charged with the concurrent audit for the period in question and that it had carried out the concurrent audit under his supervision but denied any fraud perpetrated for the period of the audit. But surprisingly it was also simultaneously pleaded that the purported frauds began in July, 2002 and continued till April, 2005 and wen .....

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enced much prior to the period of the audit and continued a little beyond. 5. The respondent also pleaded that a subsequent special audit report which unearthed the fraud had acknowledged that there was no control on the branch by the branch incharge and that the Chief Manager and the Senior Manager perpetrated the fraud in a manner that a normal audit could not detect the same. The respondent also highlighted the observations of the special audit report that vouchers were prepared to falsify ce .....

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e detected. 6. The findings by the Disciplinary Committee are that the respondent may be right that the manner in which the fraud was committed required an indepth investigation but opined that objective of a concurrent auditor was to keep a check on the general audit and qua the transactions which were carried out in the newly opened accounts the respondent had to be more vigilant because the term of the audit had brought to the notice of the auditors that recently a fraud allegedly committed b .....

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was considered by the Council at its meetings held on January 16 and 17, 2011. After deliberating on the report and the respondent s response, the Council opined as under:- 8.2 The Council after deliberations in this matter took note of the fact that one of the basic objective of concurrent audit is to keep the current routine work under continuous check and to ensure adherence to the system and procedures from the view point of internal control and statutory compliance. The Council further obse .....

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nt had started a year before he had taken over as concurrent auditor and continued even after the Respondent s term. 8.3 The Council in this context deliberated upon the applicability of Clauses (5) and (6) of Part I of Second Schedule to the Chartered Accountants Act, 1949 and noted in this regard that Clause (5) of Part I of Second Schedule envisages the non disclosure of a material fact known to the auditor which is not disclosed in a Financial Statement but disclosure of which is necessary t .....

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itors and/or during inspection by the senior officer of Bank and inspection audit done by RBI, was of the view that in the instant matter where undisclosed material fact or unreported material misstatement had emanated as a result of the fraud committed by an employee of the Bank in the said Branch, the same cannot be expected to be within the knowledge of the Respondent and certainly there was no malafide intention on his part. Hence, the Council held the view that the Respondent cannot be held .....

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least certain transactional entries would have been disclosed/unearthed by him in course of his routine crosschecking particularly wherein the terms of reference very well covered checking of such kind of transactions also. The Council, therefore, was thus of the view that the Respondent had basically acted negligently to some extent in performing his duties as a concurrent auditor. The Council thus accepted the Report of the Disciplinary Committee to the extent the Respondent was held guilty of .....

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a) to accept the report of the Disciplinary Committee to the extent wherein the Respondent was held guilty of professional misconduct falling within the meaning of Clause (7) of Part I of the Second Schedule read with Sections 21 and 22 of the Chartered Accountants Act, 1949. (b) NOT to accept the report of Disciplinary Committee to the extent wherein the Respondent was held guilty of professional misconduct falling within the meaning of Clauses (5) and (6) of Part I of the Second Schedule read .....

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