Jasvantlal P. Upadhyay Vs CA. Aalok Sunilkumar Mehta (ICAI Disciplinary Committee)
Treating Disputed Reimbursements as Advances to Trustees Did Not Establish Auditor Misconduct
Summary: The ICAI Disciplinary Committee, Bench II, held CA. Aalok Sunilkumar Mehta not guilty of professional and other misconduct arising from the statutory audit of Shree Trilokinath Vishnu Mandir Trust for FY 2020–21. The complainants, who were former trustees or office bearers, alleged that the auditor had issued a biased audit report following disputes between the outgoing and incoming Boards of trustees. Their principal objection concerned the classification of ₹3,31,575 as advances relating to COVID-19 activities, including ₹2,25,000 against Shri Prafullbhai D. Upadhyay. They also challenged the inclusion of a deceased trustee’s name in Schedule IX-C of the audit documentation.
The Director (Discipline) initially formed an adverse prima facie opinion, questioning the supporting evidence, the treatment of the disputed advances and the apparent inconsistencies in the auditor’s observations. However, the Committee examined the competing claims, available documents and explanations furnished by the respondent. It noted that the invoices supporting the COVID-19 expenditure were not consistently issued in the Trust’s name and that the relevant transactions were disputed between the old and new trustees. The auditor had disclosed the classification and the circumstances surrounding the disputed reimbursements. The Committee accepted that the treatment reflected professional judgment exercised in the circumstances rather than established misconduct.
Regarding the deceased trustee, Late Shri Gunvant B. Trivedi, the respondent explained that the name appeared in a pre-filled Schedule IX-C and that the audit report had been delivered to the Trust office and emailed to the Trust Manager. The Committee accepted the explanation and found no sufficient evidence of deliberate misrepresentation or misconduct. It also rejected the respondent’s procedural objection concerning non-supply of documents, noting that the relevant papers had been dispatched through speed post. Accordingly, the respondent was held not guilty under Clause (7) of Part I of the Second Schedule and Clause (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949. The proceedings were closed under Rule 19(2).
Background
The complainants were former office bearers or trustees of Shree Trilokinath Vishnu Mandir Trust. Following the appointment of a new Board for 2021–2025, disputes arose concerning expenditure incurred by the outgoing trustees.
CA. Aalok Sunilkumar Mehta, who had audited the Trust for several years, issued the audit report for FY 2020–21 with observations concerning amounts claimed as reimbursements for COVID-19 relief activities.
The complainants alleged that the reporting was biased, unsupported and damaging to their reputation. They particularly challenged classification of ₹2,25,000 against Shri Prafullbhai D. Upadhyay as an advance.
A separate allegation concerned mentioning a deceased trustee’s name in Schedule IX-C, filed under the Bombay Public Trusts Rules, 1951.
Disputed COVID-19 Expenditure Was Shown as Advances
The audited statements disclosed ₹3,31,575 as advances relating to COVID-19 activities, including ₹2,25,000 against Shri Prafullbhai D. Upadhyay.
The auditor explained that supporting invoices were in the personal names of trustees rather than the Trust’s name. In the absence of proper Trust-authorised documentation and amidst conflicting claims, he classified the disputed amounts as advances instead of recognising them as expenditure.
His audit observations disclosed that the amounts were stated to concern reimbursement for COVID-19 assistance. They also recorded the absence of formal resolutions approving the reimbursements, while acknowledging confirmations from certain trustees that the expenditure had been incurred and reimbursed with their consent.
The auditor expressly identified the matter as a disagreement between the old and new Boards of trustees.
Prima Facie Opinion Questioned the Supporting Evidence
The Director (Discipline) initially expressed concerns about the apparent inconsistency between reporting absence of approval and recording confirmations of consent.
Questions were also raised about the voucher supporting ₹2,25,000, including the identity of the recipient and whether its signature established receipt by the trustee against whose name the advance appeared.
The prima facie examination further considered the Trust deed’s requirement concerning payments exceeding ₹5,000 and the effect of an Assistant Charity Commissioner’s order closing a related complaint against former trustees.
These matters led to an adverse prima facie view. The final inquiry, however, required assessment of whether the auditor’s classification and disclosures amounted to established professional or other misconduct.
Committee Accepted the Classification as Professional Judgment
The Committee noted that the relevant period involved internal disputes and a change in the Board of trustees. The competing claims and incomplete documentation affected how the transactions could be characterised.
It accepted that the auditor’s classification was based on the documents available during the audit, particularly the absence of undisputed supporting records in the Trust’s name.
The Committee regarded the disclosures in the financial statements and audit report as demonstrating transparency. In those circumstances, a disagreement over classification between expenditure and advances did not establish professional misconduct.
It also found no evidence of personal gain, mala fide motivation or deliberate misrepresentation. The classification was treated as an exercise of professional judgment in good faith amidst conflicting claims.
Deceased Trustee’s Name Appeared in a Pre-filled Schedule
The second charge concerned Late Shri Gunvant B. Trivedi, who died on 29 April 2021, before the audit report dated 28 July 2021.
His name appeared in Schedule IX-C in the section identifying the trustee to whom the report had been submitted.
The respondent explained that the schedule was pre-printed or pre-filled. He maintained that the audit report was delivered to the Trust office and emailed to the Trust Manager, rather than delivered personally to the deceased trustee.
The Committee accepted this explanation and found no evidence that the name had intentionally been used to deceive anyone or obtain an advantage. It consequently held this charge unproved.
Procedural Objection Was Rejected
The respondent also alleged that the prima facie opinion and supporting documents had not been supplied, impairing his defence.
The Committee found that these documents had been made available through speed post on 17 November 2022. It held that Rule 18 had been complied with and that adequate opportunity of hearing had been provided.
Decision
The Committee held the respondent not guilty under Clause (7) of Part I of the Second Schedule and Clause (2) of Part IV of the First Schedule, as applicable to the respective charges. The proceedings were closed under Rule 19(2).
Author’s Comments
The decision recognises that a disputed accounting classification does not automatically establish auditor misconduct, particularly where the underlying disagreement and documentation deficiencies are disclosed.
However, classification as an advance against a named trustee requires evidence supporting attribution of the amount to that person, independently of whether expenditure recognition is justified. The conclusion remains dependent on the evidence accepted in this case.
Equally, a pre-filled form should be verified before signature. Acceptance of the explanation here does not remove that practical responsibility. Nor should absence of dishonest intent alone be treated as a complete answer to every negligence allegation.
The professional lesson is to document competing claims, verify individual balances and state reporting limitations clearly, especially when management changes are accompanied by internal disputes.
