• Dec
  • 08
  • 2013

Continuance of proceedings by ICAI after settlement before CLB is unreasonable

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It is rather amazing to note that the complainant having settled the dispute with the contesting respondent before the Company Law Board, did not appear before the disciplinary committee and the Council. The Company Law Board, however, conveyed to the petitioner that in view of the settlement between the complainant and the contesting respondent nothing survived in the complaint but the disciplinary committee and the Council still 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 proposition. However, proof with certainty or sufficient evidence apart, there is no evidence, whatsoever, in proof of the allegations against the contesting respondent. Report of the disciplinary committee and decision of the council do not say that instead of the complainant some other witnesses were examined in proof of the allegations and/or record of the case was proved during the course of the proceedings.

In fact, after the complainant settled the matter with the complainant before Company Law Board and then wrote to the petitioner that he does not press his complaint against the contesting respondent, the disciplinary committee and the council were not justified in continuing with the proceedings as the very basis of the proceedings, i.e., the complaint on the basis of which  the proceedings had been initiated, had become non-existent. It is not the case of the petitioner that the settlement reached before the Company Law Board and request of the complainant that he does not press the complaint were not in the knowledge of the disciplinary committee and the council. The two documents, in fact, form part of the report of the disciplinary committee. No reasons have been given for ignoring the settlement and as regards request of the complainant not to press the complaint.

Neither the disciplinary committee nor the council has referred to the evidence on the basis of which the charge is stated to have been proved. Finding of the disciplinary committee and decision of the council, therefore, are found to be perverse and not backed by evidence. In view of the position explained above, the reference fails and is hereby rejected.

CIVIL REFERENCE NO.1 OF 2012

DATE OF DECISION : 17.07.2013

Institute of Chartered /Accountants of India

Versus

K.K. Sindwani and another

CORAM: HON’BLE MR. JUSTICE SATISH KUMAR MITTAL

HON’BLE MR. JUSTICE MAHAVIR S. CHAUHAN

ORDER

MAHAVIR S. CHAUHAN, J.

This reference under sub-section (5) of Section 21 of the Chartered /Accountants Act, 1949, (for short ‘the Act’) is brought by Institute of Chartered Accountants of India (hereinafter referred to as ‘the petitioner’) seeking confirmation to the proposed punishment, of removal of name of respondent K.K. Sindwani from the register of members of the petitioner for a period of one month, upon said K.K.Sindwani (hereinafter referred to as ‘the contesting respondent’).

Factual matrix indicates that one Deepak Panday (hereinafter referred to as ‘the Complainant’) filed a complaint against the contesting respondent levelling various allegations against him. After the Council of the Institute, in its meeting held on September 19, 20, 21 and 22, 2005, found the contesting Respondent, prima facie, guilty of professional and/or other  misconduct the matter was enquired into by the disciplinary committee, constituted under Section 17 of the Act. The disciplinary committee, in its report dated nil, held the contesting respondent guilty of various acts of professional and/or other misconduct. The Council of Institute (hereinafter referred to as ‘the Council’) in its meeting held on September 20 and 21, 2010, considered the report of disciplinary committee and held the contesting respondent to be:-

“(a) not guilty of Professional Misconduct with respect to charges as mention in Paras 1.2.3 (a)(b)(c), 1.2.4 and 1.2.7 of the Report;

(b) guilty of Professional Misconduct with respect to charges as mentioned in paras 1.2.1 and 1.2.2 of the Report, falling within the meaning of Clause (9) of Fart 1 of the First Schedule read with Sections 21 and 22 of the Chartered Accountants Act, 1949; and

(c) guilty of Professional Misconduct with respect to the charge as mentioned in para 1.2.6 of the Report falling within the meaning of Clause (7) of Fart 1 of the Second Schedule read with Sections 21 and 22 of the Chartered Accountants Act, 1949.”

In respect of the misconduct at serial No. (b) above, the Council decided to afford to the contesting respondent an opportunity of hearing as provided under Section 21(4) of the Act before passing orders against him and in respect of the misconduct at serial No. (c) above, the Council decided to make a reference to this Court that the name of the contesting respondent be removed from the Register of Members for a period of one month.

The instant reference has, accordingly, been made in terms of sub-section (5) of Section 21 of the Act.

Responding to the notice, the contesting respondent has filed a reply wherein he has pleaded a preliminary objection to the effect that the reference is not maintainable before this Court because before the Company Law Board the matter between the company and its shareholders and directors including the Complainant stood resolved; a compromise was recorded by the Company Law Board in its order dated 22.09.2006 wherein the Company Law Board held that in view the settlement between the parties nothing survived in the complaint filed by the complainant against the petitioner. The contesting respondent has denied the allegations constituting the reference.

Petitioner has filed a rejoinder to controvert the contentions raised in the reply.

We have heard learned counsel for the contesting parties and have perused the record very carefully.

Mr. Arun Nehra, Advocate, learned counsel representing the petitioner has argued that the Council having accepted report of the disciplinary committee as regards professional misconduct at Serial No.(b) and (c), a show cause notice in terms of sub-section 4 of Section 21 of the Act has been decided to be issued to the contesting respondent as regards the misconduct at serial No.(b) because this misconduct falls in Schedule-I appended to the Act and the instant reference is made for confirmation of punishment of removal of name of the contesting respondent from the register of members of the Institute for a period of one month as regards the misconduct at serial No.(c) because this misconduct falls in Fart-II Schedule-I of the Act.

In the instant reference, we are not concerned with the misconduct at serial No.(b). What we are concerned with is the misconduct at serial No.(c). It pertains to the charge as mentioned in paragraph 1.2.6 of the report of the disciplinary committee. This charge reads as under:-

“In Auditors report for the year enaing 31’t March, 2000, the Respondent has not reported whether the Profit & Loss account and Balance sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956. The Company has not provided depreciation on fixed assets during the year Enaing 31’t March, 2000 which is clearly non¬compliance of the provisions of Accounting Standard 6 namely ‘Depreciation Accounting”. But the Respondent has neither qualified the same in his report nor the amount wise Effect on the profitability as well as fixed assets have been mentioned. The Respondent has willingly omitted this paragraph from the Auditors Report to avoid qualdicatory reporting.”

It shall bear repetition to again refer to the preliminary objection raised by the contesting respondent. He has stated that the matter between the Company and its shareholders and directors, including the Complainant, stood resolved before the Company Law Board and that a compromise was recorded by the Company Law Board in its order dated 22.09.2006 wherein the Company Law Board had held that in view the settlement between the parties nothing survived in the complaint filed by the complainant against the petitioner. Factum of settlement between the complainant and the contesting respondent before the Company Law Board has not been denied by the petitioner in the rejoinder and during the course of hearing. Not only this, the disciplinary committee has annexed with its report Annexure D, which is a letter written by the complainant to the Institute of Chartered Accountants of India (the petitioner) saying that with reference to the above captioned matter he did not wish to press the charges in the above complaint.

The report also contains a communication from Company Law Board. It says

“In terms of the order dated 17.02.06 the Respondents having paid Rs.9.10 Lacs in various instalments and have today deposited pay order for Rs.12.90 Lacs out of the balance of Rs.22.00 Lacs to the petitioners.

Since full payment of Rs.22.00 Lacs has been made. All the shares heed by the petitioner group livid vest in Sh. Vipan Gupta, the son of respondent with immeoiate effect and Company is authorised to ratify its register of members accoraingiy without any further order. Petitioner submit that there are complaints and suits and the same have been withdrawn as undertaking as part of the compromise recorded on 17.02.06.

As for the Complaint penaing in the institute of Chartered Accountants of Inaia, in view of the settlement, nothing survives in the complaint. Fetition is accoraingly closed.”

The disciplinary committee not only ignored the settlement reached between the complainant and the contesting respondent before the Company Law Board but also the assertion of the complainant that he did not press the complaint and returned a finding with regard to the charge 1.2.6 in paragraph 24 of the report as under:-

“As regard the charge in the para 1.2.6 that the Auditor Jailed to mentioned the violation of the Accounting Standards, the Committee noted that the Auditor Report for the year 31st March 2000 aid not comment whether the Balance Sheet complied with the requirement of the Accounting Standards as mentioned in Section (3C) of Section 211 of the Companies Act, 1956 or not. Further, the Respondent agreed that the Company aid not provide the Depreciation in the Accounts and the same was aisciosed in the Notes to the Accounts, further, mentioning in the notes to the Accounts. The Committee noted that as per Section 211 of the Companies Act, 1956, it is Auditors duty to aisciose in his main /Wait report about the violation of the Accounting Standards and also deviation about the same. Moreover, the Respondent failed to invite the attention of the members to the fact that the Company aid not provide Depreciation in the Books of Accounts, further, mentioning in the notes to the Accounts that the Company aid not provide depreciation is not proper way to draw the attention of the Shareholders. The onus iies on the Respondent as auditor to draw the attention of the sharehoider about the same in his audit report by way of a note. It is apparent that the Respondent aid not carry out his duties alb-gently and failed to invite the attention of the Members to the violation of the Accounting Standards. Therefore, the Respondent is guilty of professional misconduct under this charge falling within the meaning of Clause (7) of Fart I of  Second Schedule to the Chartered Accountants Act, 1949.”

Similarly the Council considered the charge 1.2.6 in its decision as under:-

“As regard the charge mentioned in para 1.2.6 of the Report that the Respondent failed to mention the violation of Accounting Standards in the Auditors’ Report, the Council noted that in the Auditors Report for the year enaing 31’t March, 2000, the Respondent had not reported whether the Profit and Loss and Balance Sheet comply with the Accounting Standards as provided under sub-section (3C) of Section 211 of the Companies Act, 1956, as the Company aid not provide the depreciation in the Books of Accounts. The Council thus found that the Respondent failed to aischarge his duties diligently as it was his duty being an auoitor, to aisclose in his main Audit Report about the violation of Accounting Standards as required under Section 211(3C) of the Companies Act, 1956. The Council thus accepted the Report of the Disciplinary Committee for this charge and accoraingly decided that the Respondent was guilty of professional misconduct ialling under the meaning of Clause (7) of the Fart I of the Second Schedule to the Chartered Accountants Act, 1949″

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 charge against the contesting respondent was said to have been proved. It is rather amazing to note that the complainant having settled the dispute with the contesting respondent before the Company Law Board, did not appear before the disciplinary committee and the Council. The Company Law Board, however, conveyed to the petitioner that in view of the settlement between the complainant and the contesting respondent nothing survived in the complaint but the disciplinary committee and the Council still 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 proposition. However, proof with certainty or sufficient evidence apart, there is no evidence, whatsoever, in proof of the allegations against the contesting respondent. Report of the disciplinary committee and decision of the council do not say that instead of the complainant some other witnesses were examined in proof of the allegations and/or record of the case was proved during the course of the proceedings.

In fact, after the complainant settled the matter with the complainant before Company Law Board and then wrote to the petitioner that he does not press his complaint against the contesting respondent, the disciplinary committee and the council were not justified in continuing with the proceedings as the very basis of the proceedings, i.e., the complaint on the basis of which  the proceedings had been initiated, had become non-existent. It is not the case of the petitioner that the settlement reached before the Company Law Board and request of the complainant that he does not press the complaint were not in the knowledge of the disciplinary committee and the council. The two documents, in fact, form part of the report of the disciplinary committee. No reasons have been given for ignoring the settlement and as regards request of the complainant not to press the complaint.

Neither the disciplinary committee nor the council has referred to the evidence on the basis of which the charge is stated to have been proved. Finding of the disciplinary committee and decision of the council, therefore, are found to be perverse and not backed by evidence.

In view of the position explained above, the reference fails and is hereby rejected. We, accordingly, direct that the proceedings be filed.


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