Abhishek Kumar Mishra Vs CA. Ashish Dilipkumar Parikh (ICAI Disciplinary Committee)
Rectified UDIN Omission and Unproved Related Party Disclosure Lapses Did Not Establish Auditor Misconduc
Summary: The ICAI Disciplinary Committee, Bench II, held CA. Ashish Dilipkumar Parikh not guilty of UDIN-related and related party disclosure charges arising from his professional work for Sawan Residency Private Limited. The first charge concerned a certificate dated 9 March 2019 issued without a UDIN, although the requirement had become mandatory for certificates from 1 February 2019. The respondent withdrew the original certificate and issued a replacement dated 17 April 2019, generating UDIN on 22 April 2019. The Committee noted that the replacement contained identical information, the UDIN was generated within the then-permitted 15-day period and no evidence established that the certification itself was incorrect or misleading. Considering the initial implementation phase and ICAI’s one-time condonation scheme, it extended the benefit of doubt to the respondent.
The second charge concerned alleged non-disclosure of related party transactions and expenditure of ₹1,02,11,849 on development of property owned by directors or their relatives. The Committee noted that the expenditure was recorded in the company’s books and that unsecured loans from directors of approximately ₹5.47 crore explained the source of funds. A notarised agreement dated 1 January 2016 established that rent would become payable only from 1 January 2019, outside FY 2017–18, the year under audit. The Committee consequently accepted that no rent liability had crystallised during that financial year. It also examined AS 18, recognising that the name and nature of a related party relationship involving control must be disclosed even where no transaction occurred. The relevant names and disclosures were found in the financial statements and accompanying notes.
Finding no established material misstatement, concealment or failure of professional diligence, the Committee held the respondent not guilty under Clauses (5) and (7) of Part I and Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949. The proceedings were closed under Rule 19(2). The decision turned on the particular chronology of UDIN correction, contemporaneous contractual evidence and disclosures actually made, rather than any general exemption from professional reporting requirements.
Background
The complaint concerned CA. Ashish Dilipkumar Parikh’s professional work relating to Sawan Residency Private Limited, whose accounts he audited for FY 2017–18.
Two principal allegations were raised. First, the respondent issued a certificate dated 9 March 2019 without a UDIN, although UDIN had become mandatory for certificates from 1 February 2019. Second, he allegedly failed to report related party transactions and expenditure of ₹1,02,11,849, concerning development of property on land owned by directors or their relatives.
The complainant alleged that the expenditure was not properly disclosed and questioned how the company could finance construction on privately owned land. The respondent disputed these allegations and maintained that the expenditure was accounted for and the relevant disclosures were made.
Certificate Was Reissued and UDIN Generated
The respondent acknowledged the initial omission. He explained that the earlier certificate was withdrawn and a fresh certificate dated 17 April 2019 was issued with identical contents. UDIN was generated on 22 April 2019.
At the prima facie stage, the Director (Discipline) viewed the sequence adversely, including the timing of UDIN generation after correspondence from the complainant. The respondent’s explanations concerning preparation, signing and replacement of the certificate were also considered inconsistent.
Before the Committee, however, the respondent emphasised that the lapse occurred during the initial implementation of the UDIN system and had been corrected. He also relied on ICAI’s one-time condonation scheme covering documents issued between 1 February 2019 and 31 December 2020.
Committee Extended Benefit of Doubt on UDIN Charge
The Committee noted that UDIN for the replacement certificate had been generated within the then-permitted 15-day period. The contents of the original and replacement certificates were identical, and no material established that the certification itself was incorrect or misleading.
Considering the initial implementation phase, the corrective action and the benefit flowing from the condonation scheme, the Committee extended the benefit of doubt to the respondent.
He was accordingly held not guilty under Clause (7) of Part I and Clause (1) of Part II of the Second Schedule in respect of this charge.
The finding thus rested on the particular chronology and remedial circumstances, rather than on treating UDIN compliance as optional.
₹1.02 Crore Expenditure Was Accounted For
The second allegation concerned expenditure of approximately ₹1.02 crore on development of property used by the company.
Even at the prima facie stage, it had been noted that the expenditure appeared in fixed assets and that the company’s accounts reflected unsecured loans from directors of approximately ₹5.47 crore, providing an explanation for the source of funds.
During the final proceedings, the respondent demonstrated that the expenditure was recorded in the books and appropriately classified between capital and revenue expenditure.
The Committee found that the complainant had not established any material discrepancy or misstatement supporting the allegation that the expenditure had been concealed.
Rent Became Payable Only After the Audit Year
The respondent produced a notarised agreement dated 1 January 2016 between the company and the landowners. It provided that rent would become payable only from 1 January 2019.
The audit under examination concerned FY 2017–18. The Committee therefore accepted that the alleged rent liability had not crystallised during that financial year.
On this evidence, it found no basis for recognising the alleged rental outflow in the accounts for the year under audit. The respondent consequently had a reasonable basis for not making the specific qualification sought by the complainant.
Related Party Relationship Had Been Disclosed
The Committee separately recognised the requirement under AS 18 to disclose the name of the related party and nature of the relationship where control exists, irrespective of whether transactions occurred.
It noted that related party names had been disclosed in the financial statements for FY 2017–18 and that the accompanying notes contained the required disclosures.
Accordingly, the finding was not merely that no rent had been paid. It also rested on the contractual commencement of rent, accounting records and disclosures actually made.
Decision
The Committee held both charges unproved and found the respondent not guilty under Clauses (5) and (7) of Part I and Clause (1) of Part II of the Second Schedule. The proceedings were closed under Rule 19(2).
Author’s Comments
The UDIN finding offers relief on specific facts: prompt correction, unchanged certificate contents and consideration of the condonation framework. It should not be understood as establishing that issuing a replacement certificate invariably cures an earlier default.
The related party finding also requires careful reading. Absence of a cash payment does not, by itself, settle every related party disclosure question. Contractual rights, liabilities, arrangements and the applicable disclosure requirements must be examined.
Here, the Committee accepted that rent had not become payable during the relevant year, the expenditure was accounted for and related party disclosures existed. Contemporaneous agreements and clear financial statement disclosures were therefore central to the auditor’s defence.
