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TMI Blog2022 (9) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that the complaint itself relates to an alleged misconduct committed more than seven years prior to the Institute taking cognizance of the same and would, therefore, be barred under Rule 12 of the 2007 Rules. 2. In order to rule on the questions which arise, the following essential facts may be noticed. The petitioner was the Statutory Auditor of Canyon Financial Services during the period of 2003-2004 to 2007-2008. By virtue of an order passed by the Union Government in terms of Section 212(1) of the Companies Act, 2013 (2013 Act), directions were framed for the Serious Fraud Investigation Office ["SFIO"] to initiate an investigation into the affairs of six companies. The aforesaid directions were, thereafter, extended to the affairs of an additional 104 companies and one Limited Liability Partnership ["LLP"] headed by the prime accused. In that investigation, the petitioner was summoned by the SFIO on 18 May 2017 and his statement recorded therein. SFIO is, thereafter, stated to have prepared and submitted a final report which was duly examined by the Ministry of Corporate Affairs under Section 212(14) of the 2013 Act and prosecution sanction granted on 11 August 2017. 3. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imitation to the entertainment of complaints which may be based on allegations of misconduct allegedly committed more than seven years ago. Learned counsel appearing for the petitioner would contend that once the Disciplinary Directorate had found that the complaint had been lodged beyond the period of limitation prescribed under Rule 12 of the 2007 Rules, no cognizance on the same could have been taken. Drawing the attention of the Court to the contentions which were raised in the preliminary reply, it was additionally pointed out that it was, ex-facie, evident that the complaint related to Financial Years 2003-04 to 2007-08 and thus evidently made after more than 13-17 years. Reliance was also placed on the provisions contained in the "Consequential Amendment to Audit Documentation Retention Period in Standard on Auditing (SA) 230", to submit that a statutory auditor is obliged to retain documents relating to an audit for a period of seven years only. It was contended that since the documentation retention period had already expired, the petitioner had no material on the basis of which an effective defense could be proffered or submitted. It was further asserted that in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e constraints in accessing information and records from the firm. 17. Keeping the aforesaid in view, the Director (Discipline) accepted JMG's plea for invoking Rule 12 of the Rules. He declined to entertain the complaint and forwarded his prima facie opinion that JMG was not guilty of the alleged misconduct." 5. It becomes pertinent to note that the aforesaid decision was affirmed by the Division Bench in Wholesale Trading Services P. Ltd. v. Institute of Chartered Accountants of India and Others 2019 SCC OnLine Del 11603 which came to be dismissed on 11 September 2019 with the Court observing as follows:- "8. A conjoint reading of Rule 12 with the written statement filed by Respondent No.3, it appears that the complaint was filed after 7 years, which has led to difficulty for the chartered accountant - Mr. Jayesh M. Gandhi. It has been mentioned categorically by Respondent No. 3 that the working papers may not be available on the basis upon which the last audit report was filed in the year 2009, and the complaint was only filed after several years, in 2016. Thus, no error has been committed by the Director (Discipline) while passing the order dated 24 September, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e writ petition had clearly been filed prematurely since the Disciplinary Directorate was yet to take or form a prima facie opinion on the question of guilt and the merits of the complaint. It was the submission of learned counsel that the petitioner in terms of the 2007 Rules was obligated to file a written statement dealing not just with the provisions made in Rule 12 of the 2007 Rules, but also the merits of the allegations levelled in the complaint. Learned counsel submitted that the Disciplinary Directorate was yet to take a decision on the objections as tendered by the petitioner and that consequently the apprehension as harbored is clearly misconceived. According to learned counsel, the ends of justice would warrant the Court permitting the Disciplinary Directorate to proceed in the matter in accordance with law and the relevant rules which apply. The aforesaid submissions were adopted and reiterated by learned counsel appearing for the SFIO. 7. In order to examine the merits of the rival submissions, it would be appropriate to briefly advert to the procedure of investigation which is contemplated under the 2007 Rules. Rule 8 of the 2007 Rules sets out the procedure to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed of the complaint filed against him (hereinafter referred to as the respondent) shall, within 21 days of the service of a copy of the complaint, or within such additional time, not exceeding thirty days, as may be allowed by the Director, forward to the Director, a written statement in his defence. (4) On receipt of the written statement, if any, the Director may send a copy thereof to the complainant and the complainant shall, within 21days of the service of a copy of the written statement, or within such additional time, not exceeding thirty days, as may be allowed by the Director, forward to the Director, his rejoinder on the written statement. (5) On perusal of the complaint, the respondent's written statement, if any, and rejoinder of the complainant, if any, the Director may call for such additional particulars or documents connected therewith either from the complainant or the respondent or any third party or parties, as he may consider appropriate: Provided that if no reply is sent by the respondent within the time allowed under sub-rule (3) or by the complainant within the time allowed under sub-rule (4), the Director shall presume that the respondent or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or both the Schedules, or may advise the Director to further investigate the matter. (4) The Director shall, after making further investigation as advised by the Board of Discipline under sub-rule (2) or (3) of this rule or by the Committee under sub-rule (2), shall further proceed under this rule." 9. Rule 12 of the 2007 Rules and on which the challenge essentially rests, reads as under: - "12. Time limit on entertaining complaint or information Where the Director is satisfied that there would be difficulty in securing proper evidence of the alleged misconduct, or that the member or firm against whom the information has been received or the complaint has been filed, would find it difficult to lead evidence to defend himself or itself, as the case may be, on account of the time lag, or that changes have taken place rendering the inquiry procedurally inconvenient or difficult, he may refuse to entertain a complaint or information in respect of any misconduct made more than seven years after the same was alleged to have been committed and submit the same to the Board of Discipline for taking decision on it under sub-section (4) of section 21A of the Act" 10. Before proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule also does not prescribe that a complaint would not lie if it be preferred seven years after the alleged misconduct was committed. Rule 12 is founded on the satisfaction of the Director Discipline that the circumstances envisaged and stipulated therein render it impracticable to conduct an enquiry. That satisfaction may be arrived at if the Director be of the considered opinion that it would be difficult to gather evidence in connection with the complaint made or where it be of the view that the member would find it difficult to lead evidence to defend himself effectively in the proceedings contemplated. The Director could arrive at the aforesaid conclusions either on account of the time that may have elapsed since the commission of the misconduct or on account of other changes that may tend to make the enquiry "procedurally inconvenient or difficult" to hold. It is in the aforesaid circumstances that the Director "may refuse" to entertain a complaint preferred seven years after the commission of the misconduct. 13. The usage of the expressions "is satisfied" and "may refuse" in Rule 12 clearly detract from that provision being construed or understood as a rule of limitation or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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