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Council of the Institute of Chartered Accountants of India Versus Deepak Jain & Anr.

2016 (9) TMI 714 - DELHI HIGH COURT

Charges against a chartered accountant - professional misconduct - Held that:- In the present case, the complainant appeared before the Committee - on 19.01.2011 and explained the circumstances under which the agreement, embodied in the MOU, were entered into. The complainant, in fact did not withdraw his allegations; he also deposed that the criminal proceedings against the respondents continued and that the amounts agreed to be paid to him had not been in fact paid. The complainant relies on a .....

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ater development. This, in the Court’s opinion, is a serious infirmity with the impugned order. - The next question is whether in the circumstances of the case, particularly having regard to the nature of evidence and the materials placed before it, the Council could have concluded that the respondent was guilty of cheating or indulging in fraud, causing loss to the complainant. No doubt, the complaint does mention the relative amounts, the challans, the amounts allegedly collected as due, a .....

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such criminal misconduct; the prosecution or the complainant would have to establish his guilt. - While disciplinary proceedings may not be in the nature of court proceedings, yet when a professional, such as a chartered accountant is arrayed for misconduct which has quasi criminal overtones, the Council has to be circumspect; some modicum of objective evidence- both documentary and oral (and not only the say of the complainant- possibly the relative bank records and relevant statement of b .....

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the complaint, i.e., that amounts were appropriated and lower amounts were paid into the accounts of Service tax authorities, were established objectively through documentary material. The findings recorded - from the state of the record, are such that they cast a slur on the professional integrity of the respondent, without proof of essential foundational facts. - In the light of the above discussion, this court is of opinion that the matter requires to be gone into afresh by the Council. .....

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f before the Council for further proceedings within three weeks from today. The Council shall complete the task, firstly by summoning the complainant, recording his deposition, and, thereafter proceeding to inquire into the material documents. - CHAT.A.REF. 2/2014 - Dated:- 4-8-2016 - MR. S. RAVINDRA BHAT AND MS. DEEPA SHARMA JJ. Petitioner Through: Mr. Rakesh Agarwal and Mr. Pulkit Agarwal, Advocates. Respondents Through: Mr. Ashish Makhija and Ms. Isha Jha, Advocates for Resp-1 along with Resp .....

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n, M/s. Jain Deepak & Co. (the respondent, referred to as such, hereafter). The complainant had entrusted the job of depositing Service Tax to the Respondent for which he used to pay him the professional fees. The Respondent used to collect the amount of Service Tax in Cash/Pay Orders on behalf of the Complainant's Company i.e. Nirvan Services and Nirvan Travels to deposit in the Service Tax account for both the companies at Punjab National Bank, Lawrence Road, Delhi in the Service Tax A .....

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of entire Service Tax amounts through DD/Pay orders. The Respondent advised the Complainant to give the Service Tax amount in form of DD/Pay Order favouring PNB, Lawrence Road for which he used to give the service tax challans copies of the same amount as deposited in PNB, Lawrence, Road. Thereafter, on repeated demand of the originals the respondent handed over the original challans, in October 2004. After seeing the entries made in these challans, the complainant got suspicious, particularly a .....

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ployees. Mr. Vishal Jain, brother of Deepak Jain is proprietor of Shakti Agencies. These entries were confirmed as well by the issuing Banks, i.e., Oriental Bank of Commerce and Indian Bank. It is understood that employees of PNB, Lawrence road had been a party to assist the Respondent to carry out this fraudulent activity by which loss to the Government amounted to ₹ 47,34,278.00. When the complainant detected the fraud, the Respondent admitted his fault and promised to pay the entire amo .....

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r accepted these challans without writing the amount in figures and also credited the DD/Pay Orders in the particular account of M/s. Shakti Agencies CA No.15390021000444667, giving enough opportunity to the Respondent to modify the amount and put the Central Excise &Taxation Department of Govt. of India to loss. The particulars of the complaint as filed in Complaint Form 8 have been filed as Annexure "A" to the complaint. The Council, on receipt of complaint, elicited the responde .....

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een signed mutually in order to recover the embezzled amount from the Respondent. The Complainant along with the said reply dated 22.08.2005 also enclosed a letter issued from the office of the Assistant Commissioner of Service Tax, which clearly stated that the Respondent has committed similar fraudulent activities with other parties as well. The said letter from the Office of the Assistant Commissioner of Service Tax dated 02.04.2005 has been written to the Station House Officer, Police Statio .....

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inders dated 31.08.2006, 17.08.2007 and 28.05.2008. The Respondent failed to submit anything. Subsequently, in compliance with provisions of Regulation 12(11) of the Chartered Accountants Regulations, 1988, the material was considered by the Council at its meeting held in November 2008 at New Delhi. The Council was prima facie of the opinion that the Respondent was guilty of professional and/or other misconduct, and decided to cause an enquiry to be made in the matter by the Disciplinary Committ .....

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cash and ₹ 13,25,522/- by Bankers Cheque) has been paid by the Respondent to the Complainant at the time of signing of the M.O.U. and remaining amount of ₹ 5,00,000/- will be paid on or before quashing of the FIR NO.33/2005.Thus on perusal of the M.O.U, the Committee was of the view that there was a clear admission by the Respondent about the act of cheating the Complainant by forging the service tax challans and the Respondent had agreed to refund the money embezzled and in return, .....

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ch the FIR could not be quashed. 7. The Committee held that the respondent was guilty of other misconduct . Its reasoning is as follows: …The Committee noted that the Respondent used to collect amount of service tax cash/pay orders on behalf of the company to deposit in the service tax account for both the companies at Punjab National Bank, Lawrence Road, Delhi for which the Respondent used to give to the Complainant the copies of the service tax challans of the same amount as deposited. .....

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him .The said act of cheating and forgery is clearly evident on comparing the challan copies as actually deposited and the forged copies as handed over to the Complainant. On the other hand, the DD/pay orders so received from the Complainant were credited in the Current account of M/s Shakti Agencies (CA no 44667) with unlawful assistance of the PNB Lawrence Road employees. The Complainant has provided on record the copies of the various demand drafts given to the Respondent along with their cor .....

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en carried out without connivance with the PNB, Lawrence Road Manager/ Cashier who was accepting these challans without writing the amount in figures and also crediting the DD/Pay Orders in the particulars account of M/s. Shakti Agencies CA No. 15390021000444667. 13. The Committee also noted the conduct of the Respondent in this matter before the Institute/Disciplinary Committee as well. The hearing in the matter was fixed twice before it was concluded. First time, the meeting got cancelled and .....

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is needed for preparation of the case. The Committee was however astonished at the casual approach so adopted by the Respondent while dealing in the matter wherein allegations of grave and serious nature have been alleged against him and instead of coming forward to defend his case and rebut the charges, he was trying to seek further time. The Committee noted that the instant matter pertains to the year 2005 and considerable time has elapsed and sufficient opportunity has been granted to the Res .....

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cted him a day before the meeting itself and thus he needed time for preparation. The Committee apprised him of the M.O.U entered into by the Respondent with the Complainant stating that it leaves no room for further arguments. The Committee, however, offered the Counsel of the Respondent time till evening to study the papers and prepare the case, which he declined. Thereafter, the Committee directed the Counsel for the Respondent to give his defence in writing; to reach the Office of the Instit .....

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of depositing service tax- modus operandi adopted by the Respondent has been explained in preceding paras. The Committee also observed that the Respondent thus not only failed miserably to work honestly and diligently as a professional but also misused the faith bestowed upon him by his client. The Respondent in connivance with the staff/employees of the PNB, Lawrence Road involved himself in such highly derogatory and criminal acts of embezzlement, cheating, forgery etc. The said conduct of th .....

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rties. The Council, it is urged, erred in holding that in absence of any provision in the Chartered Accountant Act, 1949 ("the Act"), the complaint cannot be withdrawn. The Council, it is stated failed to consider that the basis of the complaint proceedings became non-existent in view of the withdrawal letter dated 12.04.2012 of the Complainant as well as the Memorandum of Understanding dated 12.05.2005 and 16.04.2012 between the complainant and respondent. Counsel relies on Institute .....

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e Council failed to consider the written statement/submissions dated 16.10.2012 and the crucial arguments of the counsel for the Respondent. Further, the Petitioner also ignored and brushed aside the substantial submission made by the Complainant in its written reply dated 21.03.2013 wherein it was specifically admitted by the Complainant that he was under mistaken belief as to the conduct of the Respondent and that all the FIRs lodged were cancelled or quashed by the respective courts. Learned .....

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s alleged against the respondent were not proved beyond reasonable doubt. Being quasi criminal proceedings the result of which can severely affect the professional reputation of a chartered accountant, the higher burden of proof was required. Here reliance is placed on H.V. Panchaksharappa v K.G. Eshwar, AIR 2000 SC 3344 and Council of The Institute of Chartered Accountants of India vs. C.H. Padliya and Another, 1977 MPLJ 722. 11. The findings of the Council are that the respondent s attitude wa .....

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compromise. It was stressed that the complainant attended the hearing and deposed in the case on 19.01.2011. The respondent was absent and his counsel indulged in delaying tactics. He did not cross examine the complainant, who clearly deposed about the nature of the loss incurred by him. It was urged that the details and particulars of the amounts deposited, the relative challans, and the amounts actually payable were not in dispute; they could not be, because not only were they a matter of rec .....

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ainant or the parties cannot avoid the disciplinary proceedings by entering into a private settlement and more so when serious allegations of fraud were leveled by the complainant against the Respondent No.l. It is further submitted that the petitioner being a regulatory body was enquiring into the conduct of one of its members, the Respondent No.l. It is further submitted that the petitioner is under obligation to maintain status and standard of professional qualifications of its members. It is .....

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Procedure in inquiries relating to misconduct of members of Institute (1) Where on receipt of information by, or of a complaint made to it, the Council is prima facie of opinion that any member of the Institute has been guilty of any professional or other misconduct, the Council shall refer the case to the Disciplinary Committee, and the Disciplinary Committee shall thereupon hold such inquiry and in such manner as may be prescribed, and shall report the result of its inquiry to the Council. (2 .....

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he succeeding sub-sections. (4) Where the finding is that a member of the Institute has been guilty of a professional misconduct specified in Schedule 1, the Council shall afford to the member an opportunity of being heard before orders are passed against him on the case, and may thereafter make any of the following orders, namely,- (a) reprimand the member; (b) remove the name of the member from the Register for such period not exceeding five years, as the Council thinks fit: PROVIDED that wher .....

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, it shall forward the case to the High Court with its recommendations thereon. (6) On receipt of any case under sub-section(4) or sub-section(5), the High Court shall fix a date for the hearing of the case and shall cause notice of the date so fixed, to be given to the member of the Institute concerned, the Council and to the Central Government, and shall afford such member, the Council and the Central Government an opportunity of being heard, and may thereafter make any of the following orders .....

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, it may so transfer the case, subject to such conditions, if any, as it thinks fit to impose, and the High Court to which such case is transferred shall deal with it as if the case had been forwarded to it by the Council. 15. It is evident that misconduct has been defined under Section 21, read with the Schedule. Those species of misconduct are different and specific. What the respondent was charged with was other misconduct of a general category, i.e., conduct unbecoming of one engaged in the .....

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to maintainability of the complaint, on the ground that the disputes were settled between him and the complainant. He relies on two judgments. In the first, K.K. Sindhwani, the Punjab and Haryana High Court observed that: It is seen that the complainant did not appear either before the disciplinary committee or before the Council. Thus, the allegations contained in the complaint have remained unsubstantiated. The disciplinary committee and the Council have failed to disclose on what basis the ch .....

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ill proceeded with the complaint for reasons best known to them and came to a conclusion that the charge had been proved even without any evidence being led in support of the same. It may be added that the provisions of Section 21 of the Act being penal in nature the allegations against the contesting respondent were required to be established with some certainty, if not beyond reasonable doubt. Even by the understanding of a layman 'proof means sufficient evidence to substantiate a proposit .....

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t, but its old auditor, was not maintainable and that disputes related to the issue had been settled and so recorded by the Company Law Board. It was observed that: A perusal of the record shows that the Company, whose Audit Report is stated to have been prepared by respondent No. 1 contrary to the prescribed norms, has not made any complaint against respondent No. 1. One of the Directors of the Company, namely, Vipan Gupta, appeared before the Disciplinary Committee as a witness but he did not .....

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he also deposed that the criminal proceedings against the respondents continued and that the amounts agreed to be paid to him had not been in fact paid. The complainant relies on a subsequent MOU, the terms of which appear to be different, inasmuch as the complainant did absolve the respondent of all misconduct and withdraw the allegations. These facts, i.e. the parties appearing to have entered into another MOU on 16.04.2012 were material and had to be investigated. The impugned order does not .....

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heating or indulging in fraud, causing loss to the complainant. No doubt, the complaint does mention the relative amounts, the challans, the amounts allegedly collected as due, and the amounts paid. However, the relative or corresponding demands from the Service Tax authorities or the assessment orders, or even the service tax returns, are not on the record. These would have substantiated to a large measure the complainant s allegation. Likewise, there is no material to suggest that the amounts .....

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cumspect; some modicum of objective evidence- both documentary and oral (and not only the say of the complainant- possibly the relative bank records and relevant statement of bank officers, too have to be considered) evidence is necessary. 20. The authorities cited, i.e., K.G. Eshwar, Ghia and Sindhwani (supra) all emphasize that the charges against a chartered accountant are to be proved with convincing materials and the nature of the proceeding is quasi criminal. They also highlight that the o .....

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