TMI Blog2017 (12) TMI 1854X X X X Extracts X X X X X X X X Extracts X X X X ..... roprietor of MMM enterprise located at No.44, Alapakkam main road, Maduravoyal and dealing with old scarp materials. While the bank officials have not been prosecuted for extending the loan, despite the receipt of CIBIL report, indicating the loans availed by the borrower Murugan and his actual bank balance on date of sanctioning loan, the petitioner herein who has discharged his professional duty based on the documents given by the Bank Official cannot be suspected for being party to the crime and put to the ordeal of prosecution. In this case, the records relied by the prosecution as against the petitioner herein is the statement of LW.16 Malliga Rani, Branch Manager that she sanctioned loan to Murugan based on the due diligence certificate given by the Audit/petitioner herein. When the record indicates that they have obtained CIBIL report rating of the borrower before advancing the loan and despite adverse information they have extended loan, her statement does not appears to be correct or true. Therefore it is very clear from the statement of LW.16 that they have over looked the relevant materials which were available with them before granting loan. To make proper assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and finance including Audit, Taxation, Finance and General Management. As a part of the work, Indian Bank has engaged him to cross verify the credential of Housing loan applicant Mr. Murugan. The questionaire was given by the Bank to be filled and submitted, based on the documents given to him. As a professional, he is expected to make preliminary enquiry to verify and comment on the financial detail provided by the loan applicant through the bank. When the housing loan application of one Murugan and Bhuvashwari along with the documents was forwarded by the bank for verification, he verified the documents and he provided Due Diligence certificate to Indian Bank, Korattur Branch for which a professional fees of Rs.750/- was paid to him. Vide his invoice dated 31.08.2013. 3. Based on the complaint given by one Nagarajan, General Manager/Zonal Manager of Chennai (North) Zone of Indian bank, to CBI, he was examined by IO, who asked to explain his role in the process of sanctioning loan to MMM Enterprises by the Bank. Accordingly, he has forwarded the detailed letter to the investigating officer on 09.12.2016 explaining his role in the loan transaction between the borrower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not properly appreciated the documents before taking cognizance of the offence against the petitioner, which per se bad in law, requires interference by the superior court under its inherent power. 5. The learned Special Public Prosecutor filed counter, wherein it is stated that the petitioner without exercising reasonable application of mind colluded with A1 and issue a false Due Diligence Certificate. Quoting the statement of LW-14 that the Kotak Mahindra Bank Statement is forged and figures are inflated he submitted that the accused/petitioner has not at all verified the Kotak Mahindra Bank Statement. The duty expected from the Chartered Accountant to verify the genuineness/correctness of the document submitted by the borrower to the lending bank (here it is Indian Bank) and give due diligence certificate thereby enabling the bank to sanction the loan assessing the income capacity of the borrower. This exercise is meant to prevent the occurrence of any fraud and disabling any ineligible income holder from availing the bank loan. In this case petitioner/accused in connivance with co-accused, without verifying the genuineness/correctness of the statement of accounts dishonestly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 30.07.2013 is Rs.32,276.80/-. Whereas, in the statement of LW-14, Mr. Sridar, branch Head of Kotak Mahindra Bank, Porur Branch, had stated that the statement of Account of MMM Enterprise between first week of August 2012 to 31st June 2013 handed over to the IO along with the Certificate u/s.2A of Banker's Books of Evidence Act. 1891 and u/s.65-B(4)(c) of the Indian Evidence Act 1872. This account started in the year 2011 and at present the account is Dormant. Further on showing the statement of Account of MMM Enterprises from the loan documents of Indian Bank, Korattur Branch, Chennai, he has categorically stated that the same was not issued by his Branch and it appears to be forged. Though it bears the name of Kotak Mahindra Bank Branch-Chennai-Porur, it is not issued by his branch and appears to be forged. While comparing it with original Statement it is found that the Account Details/figures were inflated and appears to be forged. 11. Further it has been ascertain from Kotak Mahindra Bank, Porur Branch, that MMM enterprises a proprietor concerned having Account No.04722120003243 have nil balance in his account, during the period from 01.08.2012 to 31.12.2013 and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Being a photocopy, the petitioner herein had failed to see the superimposition. Had the petitioner shown better amount of alacrity he could have noticed the superimposition. 16. Having failed, should he be mulcted with criminal prosecution is a point for consideration. 17. The perusal of the Due Diligence certificate given by the petitioner indicates at the bottom, that Bank Statement of the applicant not been submitted. Which means that, the Indian Bank which has sought the professional assistance of the petitioner had not furnished adequate document of its borrower but for sake of record had requested the petitioner to provide due diligence certificate. 18. This observation of this Court emanates from the verification of the documents relied by the prosecution which is found in the file of the document 16. The petitioner herein has received the request from the Indian Bank for due diligence certificate on 29.08.2013. The petitioner has handed over the certificate on 22.09.2013 with information that on his verification, he has found that the applicant is a proprietor of MMM enterprise located at No.44, Alapakkam main road, Maduravoyal and dealing with old scarp materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIBIL report for themself to cross verify whether the statement of account produced by the borrower is genuine or not. 22. It is the responsible of the bank officials who advance loan to place all the necessary documents before an expert for getting his opinion. While the builder in connivance with the bank officials had purported the crime of availing loan based on forged documents, the petitioner herein who as an auditor given his Due Diligence Certificate solely based on the documents produced by the Bank. From the records it is found that the bank officials have not placed all the necessary and vital records before the auditor/petitioner, which could have enabled him to suspect the statement of account produced by the borrower. 23. While the bank officials have not been prosecuted for extending the loan, despite the receipt of CIBIL report, indicating the loans availed by the borrower Murugan and his actual bank balance on date of sanctioning loan, the petitioner herein who has discharged his professional duty based on the documents given by the Bank Official cannot be suspected for being party to the crime and put to the ordeal of prosecution. 24. In this regard, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IE there is anything calculated to excite suspicion he should probe it to the bottom; but in the absence of that kind he is only bound to be reasonably cautious and careful. The duties of auditors must not be rendered too onerous. Their work is responsible and laborious and the remuneration moderate. 3. On the face of this explanation offered by the first respondent, is it possible for me to say that, as per the provisions of Section 21(5) and Section 22-A or the second schedule part I, R. (5), the respondent, a chartered accountant in practice, shall be deemed to be guilty of professional misconduct if he failed to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary to make the financial statement not misleading. Neither the Registration of Companies nor the Deputy Secretary to the Government of India who laid the information to the Council of the Institute of Chartered Accountants, has ever said in clear and explicable terms that the auditor was aware of the material fact that the Managing Agents' term expired, at the time of the audit and still he approved the remuneration paid to them and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed the CIBIL report to the Auditor. Without furnishing relevant documents but expecting the auditor to do the job of deductive, does not fall within the scope and ambit of Auditors profession. 27. In Central Bureau of Investigation, Hyderabad versus K. Narayana Rao reported in (2012) 9 SCC 512 the Hon'ble Supreme Court has observed that: In the banking sector in particular, rendering of legal opinion for granting of loans has become an important component of an advocate s work. In the law of negligence, professionals such as lawyers, doctors, architects and others are included in the category of persons professing some special skills. A lawyer does not tell his client that he shall win the case in all circumstances. Likewise a physician would not assure the patient of full recovery in every case. A surgeon cannot and does not guarantee that the result of surgery would invariably be beneficial, much less to the extent of 100% for the person operated on. The only assurance which such a professional can give or can be given by implication is that he is possessed of the requisite skill in that branch of profession which he is practising and while undertaking the performance ..... 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