Superintendent of Police Vs CA T.R. Sarathy (ICAI Disciplinary Committee)
Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI), in the matter of Superintendent of Police, CBI, Anti-Corruption Branch, Chennai Vs CA T.R. Sarathy, ordered the removal of the respondent Chartered Accountant’s name from the Register of Members for two months after holding him guilty of professional misconduct under Clauses (2) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The disciplinary order dated 1 May 2023, bearing File No. PR/207/14-DD/223/14-DC/1137/2019, followed the Committee’s findings dated 7 February 2023. The proceedings arose from a complaint filed by the Central Bureau of Investigation (CBI), Anti-Corruption Branch, Chennai, concerning financial statements and a bank certificate allegedly issued by the respondent in connection with the credit facilities of M/s Swastik Enterprises. The underlying CBI investigation concerned the takeover of the borrower’s credit facilities by Canara Bank from Punjab National Bank and an alleged conspiracy resulting in a wrongful loss of ₹18.35 crore to Canara Bank. The Committee confined its examination to the respondent’s professional conduct and the discharge of his duties as a Chartered Accountant.
The first charge related to the respondent having signed the balance sheets and profit and loss accounts of M/s Swastik Enterprises for the financial years ended 31 March 2008 and 31 March 2009 without examining the relevant supporting documents. The Committee compared the financial statements signed by the respondent and submitted for obtaining enhanced banking facilities with another set signed by CA A. Srinivasan and furnished to the Income Tax Department. It found substantial differences in important financial particulars. For the year ended 31 March 2009, the sales reported in the statements signed by CA A. Srinivasan were ₹19.90 crore, whereas the statements signed by the respondent reflected ₹29.90 crore. Similarly, capital increased from ₹4.61 crore to ₹7.58 crore, while net profit increased from ₹24 lakh to ₹38 lakh. The figures relating to loans, liabilities and sundry creditors also differed. For the year ended 31 March 2008, the Committee noticed that unsecured loans and advances received from customers had been omitted from the respondent’s statements, accompanied by a corresponding increase in the capital figure. These discrepancies were considered material and could not be explained merely as differences in presentation or accounting classification.
In his defence, the respondent admitted that he had signed the financial statements but asserted that he had conducted the audit and that subsequent alterations were made to the financial statements by another Chartered Accountant. He contended that the financial statements submitted to the Income Tax Department were prepared differently and that his own audit figures were correct. He also challenged the reliability of the statement made by Shri R. Hariharan, who had introduced the borrower to him. However, the Committee examined Hariharan’s statement recorded during the CBI investigation and his statement before the Metropolitan Magistrate under Section 164 of the Code of Criminal Procedure, 1973. According to those statements, the respondent had signed the financial statements without verifying the relevant records and had received ₹3,000 for doing so. The Committee noted that the respondent had not sought an opportunity to cross-examine Hariharan during the disciplinary proceedings. Considering the documentary discrepancies and witness evidence together, it rejected the respondent’s explanation and concluded that he had certified financial statements without exercising the professional diligence expected of a Chartered Accountant.
A significant part of the defence concerned the non-production of audit working papers. The respondent claimed that his office records, including working papers relating to the disputed audits, had been destroyed during the Chennai floods of December 2015. He produced his membership card and newspaper reports describing flooding in the locality to support this explanation. The Committee, however, found that these materials did not establish that the relevant audit files had actually been destroyed. More importantly, the Director (Discipline) had requested the respondent to produce the working papers through letters dated 15 January 2015 and 5 May 2015, several months before the floods occurred. The respondent had failed to produce the records even at that stage. The Committee therefore regarded the flood-related explanation as an afterthought and held that the absence of supporting audit documentation, coupled with the material discrepancies between the financial statements, undermined the respondent’s claim that a proper audit had been conducted. It concluded that his conduct attracted professional misconduct under Clauses (2) and (7) of Part I of the Second Schedule.
The second charge concerned a certificate dated 10 March 2010, purportedly issued by the respondent, certifying the credit limits available to M/s Swastik Enterprises with Punjab National Bank and stating that the borrower had no overdue liabilities. The respondent denied having signed the certificate and alleged that his signature had been forged. He also argued that the seal appearing on the certificate differed from the seal normally used by him. To examine this defence, the Committee considered the Central Forensic Science Laboratory report dated 20 January 2015. It noted that the relevant portion of the forensic report indicated similarity between the respondent’s signature and the signature appearing on the disputed certificate. The Committee further observed that the respondent had not produced documentary evidence showing that he had lodged an FIR or otherwise taken action concerning the alleged misuse of his signature. His objection regarding the difference in the seal was also unsupported by adequate evidence. In these circumstances, the Committee rejected the forgery defence and held the respondent guilty of professional misconduct under Clause (7) of Part I of the Second Schedule in relation to the certificate.
The respondent also raised several procedural objections. He questioned the authority and standing of the complainant, arguing that the complaint had not been filed in accordance with the prescribed requirements. The Committee rejected this objection after examining the authority under which the CBI officer had acted. Another objection concerned Rule 18(6) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, which refers to fixing a hearing within 45 days of receipt of the prima facie opinion. The respondent argued that the proceedings were time-barred because the hearing had not been scheduled within that period. The Committee held that the provision was directory rather than mandatory, observing that the Rules did not prescribe any consequence invalidating the proceedings for non-compliance with that timeline. It also noted the circumstances affecting the scheduling of hearings, including the COVID-19 pandemic. Accordingly, the delay did not render the disciplinary proceedings invalid.
The respondent further requested that the disciplinary proceedings be kept in abeyance because criminal proceedings arising from the same banking transactions were pending. The Committee declined this request, explaining that criminal proceedings and professional disciplinary proceedings serve different purposes and operate independently. The criminal investigation concerned alleged conspiracy, irregularities in the takeover of banking facilities and financial loss to the bank. In contrast, the disciplinary inquiry examined whether the respondent had fulfilled his professional responsibilities, exercised due diligence and complied with the standards prescribed under the Chartered Accountants Act, 1949. The Committee therefore held that the pendency of criminal proceedings did not prevent it from independently determining professional misconduct on the material available before it.
After evaluating the documentary evidence, differences in financial statements, statements of witnesses, non-production of audit working papers, forensic findings and the respondent’s explanations, the Committee concluded that the respondent had failed to exercise the required professional diligence. It held him guilty under Clauses (2) and (7) of Part I of the Second Schedule. Following the findings dated 7 February 2023, the respondent was given an opportunity to make further representations at the punishment hearing held through video conferencing on 12 April 2023. The Committee considered his submissions but found no sufficient grounds to alter its conclusions. Exercising its disciplinary powers under Section 21B(3) of the Chartered Accountants Act, 1949, it ordered that CA T.R. Sarathy’s name be removed from the Register of Members for a period of two months. The decision emphasises that a Chartered Accountant cannot discharge professional responsibilities merely by signing financial statements or issuing certificates without appropriate verification. Maintaining reliable working papers, examining supporting records, exercising due diligence and ensuring the accuracy of professional certifications are essential obligations. The ruling also illustrates that unsupported explanations concerning missing audit records or alleged forgery may not be sufficient to rebut documentary and other evidence establishing professional misconduct.ICAI orders two-month removal of CA T.R. Sarathy for unverified financial statements and a disputed bank certificate in a loan case.Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) ordered removal of CA T.R. Sarathy’s name from the Register of Members for two months after finding him guilty of professional misconduct. The proceedings concerned financial statements signed without verification of supporting records and a certificate stating that a borrower had no overdue bank liabilities.
The order dated 1 May 2023, in File No. PR/207/14-DD/223/14-DC/1137/2019, followed findings dated 7 February 2023. The Committee held that the respondent violated Clauses (2) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
Background of the Complaint
The complaint was filed by the Superintendent of Police, Central Bureau of Investigation, Anti-Corruption Branch, Chennai. It arose from an investigation into Canara Bank’s takeover of the credit facilities of M/s Swastik Enterprises from Punjab National Bank, Nungambakkam, Chennai.
According to the complaint, the takeover involved non-compliance with prescribed procedures and an alleged conspiracy causing wrongful loss of ₹18.35 crore to Canara Bank. The disciplinary proceedings examined the respondent’s professional conduct in connection with documents used for obtaining banking facilities.
The first charge concerned his signing the concern’s balance sheets and profit and loss accounts for the years ended 31 March 2008 and 31 March 2009 without verifying relevant documents. The second concerned a certificate dated 10 March 2010, certifying credit limits and stating that the concern had no overdues with Punjab National Bank.
Respondent’s Defence
The respondent admitted signing the financial statements but maintained that he had conducted the audit. He argued that another chartered accountant subsequently signed financial statements used for income-tax purposes and that alterations had occurred after his own audit.
He challenged reliance on the statement of Shri R. Hariharan, who had introduced the borrower to him. He also claimed that his audit working papers were destroyed in the Chennai floods of December 2015.
Regarding the bank certificate, he denied signing it, alleged forgery, and contended that the seal differed from the one he ordinarily used. He further sought suspension of the disciplinary proceedings because related criminal proceedings were pending.
Material Differences Between Financial Statements
The Committee found significant differences between the two sets of financial statements: one signed by CA A. Srinivasan and submitted to the Income Tax Department, and another signed by the respondent and used for enhanced banking limits.
For the year ended 31 March 2009, sales were shown at ₹19.90 crore in one set and ₹29.90 crore in the respondent’s set. Capital differed from ₹4.61 crore to ₹7.58 crore, while net profit differed from ₹24 lakh to ₹38 lakh.
For 2008, the Committee noted omission of unsecured loans and customer advances, accompanied by a corresponding increase in capital. It rejected the contention that the differences were merely matters of presentation.
Working Papers and Witness Evidence
The Committee rejected the flood-related explanation because the Director (Discipline) had requested working papers through letters dated 15 January 2015 and 5 May 2015, both preceding the December floods. The respondent had failed to produce them even then.
Although he furnished his membership card and newspaper reports about flooding in the locality, the Committee found no adequate documentary evidence establishing destruction of his office records. It regarded the explanation as an afterthought.
The Committee also relied on Hariharan’s statements before the CBI and a Metropolitan Magistrate under Section 164 of the Code of Criminal Procedure. He stated that the respondent signed the financial statements without actual verification for a payment of ₹3,000. The Committee noted that the respondent never sought an opportunity to cross-examine him.
Forgery Defence Rejected
For the certificate dated 10 March 2010, the Committee examined the Central Forensic Science Laboratory’s report dated 20 January 2015. It recorded that the relevant portion reported similarity between the respondent’s signature and the signature on the disputed certificate.
The respondent produced no documentary evidence of action taken over the alleged misuse of his signature, such as an FIR. His contention concerning the different seal was also unsupported by evidence. The Committee therefore held him guilty under Clause (7) on this charge.
Procedural Objections and Final Order
The Committee rejected objections concerning the complainant’s authority and standing. It also treated the 45-day hearing provision in Rule 18(6) as directory, observing that the rule prescribed no consequence rendering proceedings non-actionable upon delay.
It declined to await the criminal proceedings, explaining that disciplinary scrutiny of professional duties and criminal investigation into conspiracy and bank loss had different and independent scopes.
After considering further representations at the punishment hearing on 12 April 2023, the Committee maintained its findings and ordered removal for two months.
The decision highlights the importance of verification, due diligence and supporting audit documentation. In this case, material financial discrepancies, unproduced working papers, witness evidence and the forensic report collectively supported the finding of professional misconduct.
