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TMI Blog2024 (11) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... oo, who is the member of Institute of Chartered Accountants of India [hereafter 'ICAI'], guilty of professional misconduct falling within the meaning of clause (7) of Part-1 of Second Schedule to the Act, and has recommended the removal of his name from the Register of Members of the ICAI for a period of one year. FACTUAL BACKGROUND 2. The present reference emanates from a complaint filed on 29.11.2005 by the Additional Development Commissioner (Handicrafts), Government of India, Ministry of Textiles, R.K. Puram, New Delhi [hereafter 'the complainant'] against the respondent no. 1. 3. The complainant alleged that it had sanctioned a loan of Rs. 11,18,000/- to one M/s Maokot Handloom & Handicrafts Cooperative Society Ltd., Churachandpur, Manipur [hereafter 'the Society']. It had also released a sum of Rs. 6,84,000/- as the first instalment in advance to enable the Society to conduct capacity building-cum-training programme at Common Facility Centre, Imphal, Manipur. In this regard, the Society, on 29.11.2003, had submitted an undated Utilisation Certificate, issued by respondent no. 1 for expenditure of Rs. 6,84,000/-. On 15.03.2004, an officer of the complainant's office had in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defend his case. The witnesses namely Ms. Prabha Mohanty and Mr. G.K. Asthana were examined before the Disciplinary Committee. Both the parties were directed to submit their written submissions, and the hearing was concluded. The Disciplinary Committee submitted its report on 05.12.2008, finding respondent no. 1 guilty of professional misconduct under clause (7) of Part I of the Second Schedule under Section 22 read with Section 21 of the Act. 7. A copy of the report of the Disciplinary Committee was forwarded to the parties and they were informed that the report would be considered at an upcoming meeting of the Council. The respondent no. 1 was also asked to submit a written representation, if any. The respondent no. 1 submitted two representations dated 30.03.2009 and 15.04.2009 in this regard. The report of the Disciplinary Committee was placed for consideration before the Council at its Meeting held on 17.04.2009 to 19.04.2009 at New Delhi. Considering that some additional documents had been submitted by respondent no. 1, the Council referred the matter back to the Disciplinary Committee for further inquiry, which was communicated to the parties on 26.06.2009. 8. On the Counc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the respondent as taken on 02.06.2013. Further, it is directed that in its next meeting, the Council shall consider the report of the Disciplinary Committee afresh after affording an opportunity of hearing to both sides along with the written representation received from the respondent and thereafter take a decision in accordance with law, with intimation to the respondent. 6. The petition is disposed of." 11. In compliance thereof, the Council informed both the parties that the Disciplinary Committee's report, along with any written representations, would be reconsidered afresh, and the parties were again requested to submit written representations, if any, and also appear before the Council, either in person or through a duly authorized representative, to make oral submissions. The respondent no. 1 submitted written representations dated 01.11.2017 and 15.03.2018, and his authorized representative, CA Ashish Makhija, appeared before the Council to advance oral submissions. 12. The Council, in its meeting held from 21.03.2018 to 24.03.2018 at New Delhi, accepted the conclusion of the Disciplinary Committee, and held that the respondent no. 1 was guilty of professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slightly higher than balance of probabilities (as required in civil cases) but it would not reach the standard of proof required in criminal prosecutions. Submissions on Behalf of the Respondent No. 1 17. The learned counsel appearing on behalf of respondent no. 1 argued that the findings returned by the Council demonstrate complete non-application of mind, and that the same is evident from the fact that this Court, vide order dated 25.07.2017 in Chat A. Ref. No. 8/2014, had set aside the Council's earlier decision taken on 02.06.2013 and had specifically instructed the Council to re-evaluate the Disciplinary Committee's report afresh, after affording a fair hearing to both the sides. However, the Council has failed to comply with the directions of this Court, as paragraph nos. 15 to 19 of the findings dated 22.03.2018 are verbatim reproductions of paragraph nos. 13 to 17 of the earlier findings dated 02.06.2013. Therefore, it was argued that the Council, in effect, did not re-evaluate the matter or consider the respondent no. 1's submissions. 18. It was further contended that the Council has overlooked key documents that substantiate the actions of respondent no. 1. These inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him the right to fair trial. It is submitted that the respondent no. 1 had repeatedly requested for calling Mr. M.K Maheshwari (being the chartered accountant who had initially certified Receipts and Payments Accounts) and Mr. Amang Haokip (being the Secretary of the Complainant Society) as a witness during both the enquiries before the Disciplinary Committee conducted in 2008 as well as on 02.04.2013. However, his request was not accepted. 23. Therefore, it is prayed that the recommendations of the Council be quashed and the present reference by the Council be dismissed. ANALYSIS & FINDINGS 24. The issue which arises for this Court's consideration is whether, on the basis of the material available on record, the petitioner has been rightly held guilty of professional misconduct, as covered under clause (7) of Part I of the Second Schedule to the Act, and whether an order from this Court under Section 21(6) of the Act is merited. 25. Before appreciating the rival contentions, it shall be apposite to take note of Section 21 of the Act (as it stood prior to the amendment dated 17.11.2006), which provided the 'Procedure in inquiries relating to misconduct of members of Institute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and to the Central Government, and shall afford such member, the Council and the Central Government an opportunity of being heard, and may there- after make any of the following orders, namely:- (a) direct that the proceeding be filed, or dismiss the complaint, as the case may be; (b) reprimand the member; (c) remove him from membership of the Institute either permanently or for such period as the High Court thinks fit; (d) refer the case to the Council for further inquiry and report." 26. Section 22 of the Act defines 'professional misconduct'. The same is extracted hereunder: "22. Professional misconduct defined:- For the purpose of this Act, the expression "professional misconduct" shall be deemed to include any act or omission specified in any of the Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or duty cast on the Council under sub-section (1) of Section 21 to inquire into the conduct of any member of the Institute under any other circumstances." 27. In Institute of Chartered Accountants of India v. S.K. Jain, 2000 SCC OnLine Del 808, the Coordinate Bench of this Court, while dealing with 'professiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onally, wantonly, or willfully disregardful of others' rights; the doing of what a reasonable and prudent person would not do under the particular circumstances, or the failure to do what such a person would do under the circumstances... gross negligence. (16c) 1. A lack of even slight diligence or care. ● The difference between gross negligence and ordinary negligence is one of degree and not of quality. Gross negligence is traditionally said to be the omission of even such diligence as habitually careless and inattentive people do actually exercise in avoiding danger to their own person or property. - Also termed willful and wanton misconduct. 2. A conscious, voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party, who may typically recover exemplary damages. - Also termed reckless negligence; wanton negligence; willful negligence; willful and wanton negligence; willful and wanton misconduct; hazardous negligence; magna neglegentia." 31. In P. Ramanatha Aiyar's Advanced Law Lexicon [5th Edition, Vol. 3], the expressions 'negligence' as well as 'gross negligence' have been explained in the following manner: "Negligence. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the conduct of professional duties. On the background facts, it has to be seen whether failure of respondent to notice the mistake would constitute an act of negligence. It depends upon the fact whether the concerned person had applied his mind diligently to the job entrusted to him, and whether due care and caution, as is required to be adopted, was taken. Respondent took the stand that by mistake CIF value was typed out instead of FOB value. When a certificate is given, arithmetical accuracy has to be ensured. That is the minimum requirement to be done by a Chartered Accountant. The test, according to us, is whether in addition to the failure to do the duty, there was failure to act honestly and reasonably. Word 'negligence' is associated in the provision with the word 'misconduct' and involves some element of moral culpability. Mere imprudence or want of judgment or grave error in judgment is not enough. Misconduct implies failure to act honestly and reasonably either according to the ordinary and natural standard or according to the standard of a particular profession. But error or misinterpretation of law and specially one view or another over a debatable construction canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that mind he is only bound to be reasonably cautious and careful." 34. The duties and responsibilities of an auditor were also emphasized by the Hon'ble Supreme Court in Institute of Chartered Accountants of India v. P.K. Mukherjee & Anr., 1968 SCC OnLine SC 224, wherein it was observed as under: "6. ... In London Oil Storage Co. Ltd. v. Seear, Hasluck & Co. Lord Alverstone stated as follows "He must exercise such reasonable care as would satisfy a man that the accounts are genuine, assuming that there is nothing to arouse his suspicion of honesty and if he does that he fulfils his duty; if his suspicion is aroused, his duty is to probe the thing to the bottom and tell the directors of it and get what information he can." 35. In the present case, as taken note of in the earlier discussion, following an inspection and some inquiries by the complainant, discrepancies were found between the expenditures certified by the respondent no. 1 and the actual amounts spent by the Society. On receipt of the complaint, the Council, after forming a prima facie opinion, had referred the matter to the Disciplinary Committee. The Disciplinary Committee had initially found respondent no. 1 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Complainant Department has filed a complaint against M/s M.K.M. Associates in another case wherein the said Firm has categorically denied their involvement in any certification work for the grantee company and has stated it to be a case of forgery. The Disciplinary Committee which inquired into that matter had sought handwriting expert opinion as well wherein the said certificate purportedly issued by M/s. M.K.M. Associates has been established as a clear case of forgery. Thus, the certificate of M/s M.K.M. Associates on which the Respondent has placed reliance in the instant matter is a forged document and the Respondent has placed his reliance on the same at his own risk. 24. The Committee also noted that the Respondent while issuing the First Utilization Certificate dated nil which was received by the Complainant Office on 29.11.2003 did not mention that he had relied on the certificate of another CA and bank statement produced by the society showing the payment made by way of demand draft on 4,4.2003 for Rs.2.50 lakhs. Though the Respondent before the Committee categorically submitted that they had relied on the certificate of another C.A. and the bank statement yet, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have clarified the same in the certificate issued by him by duly mentioning the fact, which he failed to do. 16. As regard the second certificate dated 28th January, 2004 issued by the Respondent and submitted by the Society to the Complainant organization vide letter dated 15th April, 2004, the Respondent failed to substantiate his contention that machineries already bought for Rs.2,50 lacs for which payment was made through demand draft to the concerned party In April, 2003 have been returned. Thereafter, the Respondent could not bring on record that another set of machineries amounting to Rs. 41,000/- were purchased by the Society. In view of the above, the Council formed a considered opinion that the Respondent did not take necessary care while issuing the said certificate. Thus, In view of the above, the Council accepted the Report of the Disciplinary Committee with respect to this charge." 38. In a nutshell, the Disciplinary Committee and the Council have held as follows: (a) The Disciplinary Committee observed that the respondent no. 1 failed to independently verify the machinery purchased by the Society before issuing the Utilisation certificates. While issuing the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate issued by the respondent no. 1 is concerned, even if it is accepted that the respondent no. 1 could not have physically verified the machinery by visiting Manipur, and he had to rely on the certificate issued by M/s MKM Associates, Manipur, which he claims is an ethical practice adopted by all CAs, the fact remains that the respondent no. 1 only mentioned in the Utilisation Certificate that he had verified "Books of Account, Vouchers, Wage Registers and other relevant records" but did not mention or clarify that he had primarily relied on the certificate (i.e. Receipt and Payment Account) issued by another CA firm. Eventually, the said certificate issued by M/s MKM Associates was also found to be forged. 41. Insofar as the second Utilisation Certificate issued by the respondent no. 1 is concerned, the respondent no. 1, in his written statement dated 06.03.2006, mentioned that it was the decision of the Society to return the machinery worth Rs. 2,50,000/- purchased earlier and buy another machinery worth Rs. 41,000/- and he, as a chartered accountant, had to go by the bills/vouchers/receipts/books of account and other related records submitted by the concerned organization. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to grant his client a loan amounts to other misconduct within the meaning of the Act read with the Regulations framed there under. We agree with this conclusion. 13. The lack of responsibility displayed by Respondent No. 1 clearly shows that he had acted in a manner unbecoming of a Chartered Accountant and, therefore, the Council rightly recommended removal of his name from the register of members for a period of one month. 14. We have examined the issue whether the punishment is too harsh but we find that there has to be some degree of integrity and probity which is expected of a Chartered Accountant who is regularly concerned with financial transactions and on the basis of whose recommendations and certificates financial institutions such as banks disburse loans or enter into other financial transactions." (Emphasis supplied) 45. Similarly, in The Institute of Chartered Accountants of India v. Manakchand Laxman Baheti, 2023 SCC OnLine Bom 2319, the Division Bench of Bombay High Court noted that the reports of the Disciplinary Committee had revealed that the respondent therein (a chartered accountant) had no documents on the basis of which the certificates were issued by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/-, is a mis-statement in the prospectus which resulted in defrauding investors of the company, other stakeholders, and the public at large. *** It is also contended that to impose penalty or punishment against a professional for his misconduct, the act of such professional must be deliberate and intentional. While an intentional omission would certainly amount to gross negligence, even failure to discharge the statutory obligation or duty imposed on an Auditor by a statute i.e. issuing certificate, without verifying actual receipt of consideration, amounts to gross negligence since such omission is in utter disregard of the statutory duty imposed on the respondent, and is not a simple professional lapse on his part. As noted hereinabove, it is based on this certificate that the company invited subscription from the general public for Rs.4,50,00,000/-, even without the promoters contributing Rs.2,25,00,000/- as mentioned in the prospectus, and yet they were allotted shares worth Rs.2,25,00,000/- on payment of merely 35 lakhs to the company." (Emphasis supplied) 47. Having taken note of the aforesaid judicial precedents, even if we assume - for the sake of argument - that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases of professional misconduct, the degree of proof may be higher than the balance of probabilities, yet the same would not reach the criminal standard of proof beyond reasonable doubt. The aforesaid passage was also cited by the Hon'ble Supreme Court in case of Maya Gopinathan v. Anoop S.B. & Anr., 2024 SCC OnLine SC 609. 52. The Division Bench of High Court of Andhra Pradesh in Mukesh Gang (supra), framed an issue as to whether "these disciplinary proceedings are quasi-judicial and quasi criminal in nature and, if so, what is the standard of proof applicable to such disciplinary proceedings against a professional?". In this regard, it was observed as follows: "The Enquiry Officer cannot also reject relevant testimony of witnesses on the basis of surmises and conjectures. A charge in a departmental proceedings, as held in M.V.Bijlani v. Union of India and Ors., is not required to be proved beyond reasonable doubt like in a criminal trial, but should be proved on a preponderance of probabilities. In A, a pleader v. The Judges of the High Court of Madras the Privy Council held that the evidence should be carefully taken and judged according to the ordinary standards of proof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Act is preponderance of probabilities. However, as the weight of the authorities indicates, it is higher than preponderance of probabilities, but not as high as beyond reasonable doubt. 56. The learned counsel for the respondent no. 1 had relied on the decision in H.V. Panchaksharappa v. K.G. Eshwar, (2006) 6 SCC 721, wherein it was held that the charge of professional misconduct under the Advocates Act, 1961 must be proved beyond reasonable doubt, and had contended that the same standard should be followed in cases of chartered accountants too. 57. We, however, are not inclined to accept the said contention. Though both an Advocate and a Chartered Accountant are professionals, their duties and responsibilities are distinct. Advocates have the primary responsibility of representing clients in legal proceedings and providing legal advice. Their duties are also closely intertwined with the ethical standards of courtroom conduct, where they serve as Officers of the court. This requires them to maintain a high degree of accountability toward the Court, clients, and the legal system as a whole. In contrast, Chartered Accountants operate in the areas of finance and accounting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61. Therefore, for the reasons recorded hereinabove, in the given facts and circumstances, we are of the view that the Council has not erred in holding the respondent no. 1, guilty of professional misconduct under clause (7) of Part-I of Second Schedule to the Act. 62. Insofar as the recommendation for removing the name of respondent no. 1 from the Register of Members for one year is concerned, we note that the respondent no. 1 has been a member of ICAI for approximately three decades, with no history of any other complaint or allegation of misconduct on record. The present complaint was filed against him in the year 2005, and the proceedings against him have remained pending for about 19 years. 63. In similar circumstances, the Hon'ble Supreme Court in P.K. Mukherjee (supra), considering that the proceedings against the respondent therein had remained pending for about 13 years, had directed as under: "In our opinion, the conduct of respondent No. 1 is wholly unworthy of a Chartered Accountant who is expected to maintain a high standard of professional conduct. The proper punishment would have been the removal of the respondent No. 1's name from the Register for a limite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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