M.K. Sahoo Vs CA Tapas Chakrabarti (ICAI Disciplinary Committee)
ICAI Orders One-Month Removal and ₹50,000 Fine for Related-Party Audit Failures
The ICAI Disciplinary Committee has reprimanded CA Tapas Chakrabarti, ordered removal of his name from the Register of Members for one month, and imposed a ₹50,000 fine for professional misconduct concerning audits of a Prayag Group company.
The findings involved inconsistent related-party disclosures, incorrect CARO reporting, adjustment of borrowings against share application money and failure to disclose a holding company despite its 99.99% shareholding.
Background of the Proceedings
The complaint was filed by M.K. Sahoo, Additional Director, SFIO, following an investigation directed by the Ministry of Corporate Affairs into Prayag Infotech Hi-Rise Limited and its 21 group companies. The investigation concerned allegations that directors of certain group companies collected money from the public through schemes described as advances against real estate, timeshare holidays and private placements of redeemable preference shares. The Committee recorded these matters as the background to the investigation, not as separate findings of guilt against the respondent auditor.
The respondent was statutory auditor of Samudra Villa Private Limited for FY 2012-13 to FY 2015-16 and Sashi Kumar Tea Company Private Limited for FY 1992-93 to FY 2013-14. The disciplinary allegations addressed in the findings concerned Samudra Villa’s financial statements. The Director (Discipline) issued a prima facie opinion on 31 December 2024, finding a prima facie case in respect of three out of four allegations. The disciplinary hearings culminated in findings dated 29 January 2026.
₹6.48 Crore Difference in Related-Party Disclosures
For FY 2012-13, Samudra Villa disclosed short-term borrowings of ₹29.83 crore as “Advance from Body Corporate” under Note 3.4. However, the related-party disclosure in Note 3.24 showed only ₹23.35 crore, resulting in a difference of ₹6.48 crore. The respondent explained that confirmation had not been received for the difference and stated that he had challenged his earlier statement on oath before a court.
After examining the financial statements and statement on oath, the Committee found that the entire borrowing of ₹29.83 crore related to Prayag Infotech Network Private Limited. It held that the apparent inconsistency between the two financial-statement notes had not been appropriately addressed in the audit reporting.
CARO Report Contradicted the Loan Position
The Committee examined paragraph (iii) of the respondent’s report under the Companies (Auditor’s Report) Order, 2003 (CARO, 2003). The report stated that Samudra Villa had neither granted nor taken loans from parties covered by the register maintained under Section 301 of the Companies Act, 1956.
However, the financial statements recorded the borrowing and the respondent’s statement on oath identified it as a loan from Prayag Infotech Network Private Limited. The Committee concluded that the CARO reporting was incorrect. It held the respondent guilty under Items (6) and (7) of Part I of the Second Schedule.
Inter-Company Loan Adjustment Was Not Itself Prohibited
Samudra Villa passed journal entries on 31 March 2014 to adjust borrowings from Prayag Infotech Network Private Limited against amounts receivable from Prayag Infotech Hi-Rise Limited and against share application money received from the latter company.
With regard to the ₹24.62 crore loan receivable, the Committee observed that adjustment of funds between group companies was a prevalent commercial practice and was not prohibited by any specific provision of the Companies Act, 1956. It therefore did not sustain that part of the charge. The finding did not treat every inter-company journal adjustment as professional misconduct.
Share Application Money Required Separate Treatment
The Committee reached a different conclusion regarding the adjustment against share application money pending allotment. It held that unutilised share application money constituted a refundable liability requiring separate financial-statement disclosure under the applicable Schedule VI framework.
Such money could not be treated as share capital or as loans or advances without lawful allotment of shares. The Committee found the adjustment incorrect and concluded that the respondent failed to report it, resulting in a finding of misconduct under Items (5), (6) and (7).
Holding Company Omitted Despite 99.99% Ownership
For FY 2015-16, Samudra Villa’s related-party note stated that the company had no holding or associate company. However, Schedule 1D of its share-capital disclosures showed that Prayag Infotech Hi-Rise Limited held 99.99% of its share capital.
The Committee found that the holding-subsidiary relationship was evident from the financial statements themselves. The omission of the holding company from the related-party disclosures was held to constitute gross negligence. The finding reinforces the importance of consistency between share-capital schedules and related-party disclosures.
Personal Circumstances Did Not Displace the Findings
At the punishment hearing, the respondent referred to his age of 85 years, nearly 60 years of practice, serious health issues and dependence on his proprietorship practice. He requested a lenient view and stated that he had acted in accordance with his professional judgment.
The Committee considered his representations but concluded that the seriousness of the established charges justified a reprimand, removal from the Register of Members for one month and a fine of ₹50,000 payable within 60 days of receipt of the order.
