Case Law Details

Case Name : Devendraa P. Kapur Vs. ICAI & Others (Appellate Authority)
Appeal Number : Appeal No. 02/ICAI/2018
Date of Judgement/Order : 01/11/2018
Related Assessment Year :
Courts : Appellate Authority (7)

Devendraa P. Kapur Vs. ICAI & Others (Appellate Authority)

The Appellant has also taken a ground of Appeal before us that the Disciplinary Committee has decided these cases in accordance with the law which was not prevalent when the alleged misconduct was committed but came into effect after the amendment made in the year 2006 in the Chartered Accountants Act 1949, and/or by revised publications of ICAI. Since, we have set aside the Impugned Orders and the matters have been remanded back to the Disciplinary Committee, we direct the committee to also examine this issue and to decide these cases as per law prevailing at the relevant time including code of conduct and guidelines issued by the Council, whichever were in force at that relevant time, of the alleged misconduct and not as per the law enacted subsequently.

FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY

1. These appeals have been filed by the Appellant before this Authority against the Order dated 12thJuly,2017, passed by the Disciplinary Committee (Bench-I) of the Institute of Chartered Accountants of India, under section 21B (3) of the Chartered Accountants Act, 1949 read with Rule 19 (1) of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, whereby, the Appellant has been awarded the composite punishment for all the three cases, of the removal of his name from the Register of Members for a period of two years and also imposed a consolidated amount of fine of Rs. 5,00,000/- (Rupees Five Lakh Only) upon him, to be paid within a period of 30 days from the date of receipt of the Impugned Order with a rider that in case the Appellant fails to deposit the amount of penalty within the aforesaid period then his name shall be removed from the Register of Members for a further period of six months. This order was passed consequent upon a Report of the Disciplinary Committee dated 8th February, 2015, wherein, the Appellant was held guilty under Clause (4) of Part-I of the Second Schedule to the Chartered Accountants Act, 1949, in each of these cases.

2. The said clause (4), as prevailing before the Chartered Accountants (Amendment) Act, 2006, effective from 17th November, 2006, reads as under:

Second Schedule:

PART I: – Professional misconduct in relation to chartered accountants in practice requiring action by a High Court

A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he–

1. x x x      x x x

2. x x x   x x x

3. x x x   x x x

4. expresses his opinion on financial statements of any business or enterprise in which he, his firm or a partner in his firm has a substantial interest, unless he discloses the interest also in his report”

3. It is to be noted that after the amendment in the Chartered Accountants Act, 1949, in the year 2006, the said clause (4) reads as under:

Second Schedule:

PART I: – Professional misconduct in relation to chartered accountants in practice

A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he–

  1. x   x   x
  2. x  x   x
  3. x  x   x

4. expresses his opinion on financial statements of any business or enterprise in which he, his firm, or a partner in his firm has a substantial interest”.

4. All these three appeals filed by the Appellant involve common facts, common issues and common grounds. The only difference in these three Appeals is that the name of Auditee in Appeal No. 02/ICAI/2017 is JVG Farm Fresh Limited; in Appeal No. 03/ICAI/2017 the name of the Auditee is JVG Housing Finance Limited and in Appeal No. 04/ICAI/2017, the Auditee is JVG Overseas Limited. Mr. D. K. Kapur, Appellant herein, was a statutory Auditor of all these Group of Companies during the period 1993-94 to 1996-97. Hence, we are disposing of all these three appeals by passing this common order.

5. The brief and common facts of these appeals, as narrated in the aforesaid Report of the Disciplinary Committee of the Institute of Chartered Accountants of India, in appeal number 02/ICAI/2017 are as hereunder. As mentioned above, in other two appeals also, the facts are similar with the change being only the name of the company which was audited by the Appellant.

“1.1 The Government of India, Ministry of Corporate Affairs ordered an investigation into the affairs of M/s JVG Farm Fresh Limited vide its Order No.7/89/2004/CL -II, dated 9th July, 2007 under Section 235 of the Companies Act, 1956. During the Investigation of M/s JVG Farm Fresh Ltd., it was revealed that the Respondent was working as Statutory Auditor of JVG Group of Companies for the period 1993-994 to 1996-1997 (except 1995-1996). On the other hand, he was holding the position of Executive Director (Finance) in the JVG Group of Companies and was controlling and conducting the whole financial affairs of the Company. This way, he was holding both the positions of Statutory Auditor as well as Executive Director (Finance). He had misused both the positions. On one hand, he showed rosy picture about financial health of the Company and allured the investors to deposit and invest their hard earned money with JVG Group of Companies, on the other hand, he was the authorized signatory in various bank accounts of the Company. He signed various important business deals as an authorized signatory on behalf of JVG Investments. He not only neglected his responsibility as statutory auditor of the JVG Group of Companies but also facilitated in siphoning off the huge amounts by misappropriating and transferring through various firms owned, managed and controlled by him through intra -group transactions. The siphoning off money of JVG Group of Companies, through the front Companies of Pee Dee Kapoor & Co i.e., by the Respondent has already been investigated by EOW, Crime Branch, Delhi Police. In this case two FIRs bearing Nos. 239/98 and 240/98 have been filed against the Respondent. He was arrested by the EOW during the year 2003 and was remanded to Police custody for ten days. Later, on furnishing the personal surety/bond of Rs.3.00 crores he was released on bail. A case under Section 420 and 120B of the IPC is filed against him by Delhi Police in the Court of Chief Metropolitan Magistrate, Patiala Court, New Delhi in which the trail is pending.

1.2 The Respondent was having a very important position in JVG Group of Companies and his role has also been mentioned in the RBI Inspection Report (Annexure Q of Investigation Report) upon inspection conducted during the period from 18th December, 1997 to 15th January, 1998. The RBI has also filed a complaint case against JVG Finance Ltd and JVG Group of Companies, its Directors and the Respondent to prosecute them under various provisions of the RBI Act. The Respondent challenged the same upto Hon‟ble Supreme Court of India and Relie f was given to him and presently the accused is on bail in the said case.

1.3 It is observed from the copies of FIRs and other papers that the Respondent was called several times in the office EOW to Join the Investigation and to explain his role and transactions of the firms owned and controlled by him namely Action Credit Pvt. Ltd, Ronak Finance Ltd., APM Financial Consultancy Pvt. Ltd as well as Shivam Investment Pvt. Ltd owned by his wife Smt Sushma Kapoor with JVG Group of Companies. From time to time the Respondent submitted bulky replies claiming that he was merely a Statutory Auditor in the JVG Group of Companies and was never appointed as Executive Director (Finance) of the Group. The Respondent has also explained that various transactions with JVG Group of Companies and amounts transferred in the name of various firms including Action Credit Pvt. Ltd., Ronak Finance Pvt. Ltd, APM Finance Pvt. Ltd and Shivam Investment Pvt. Ltd were merely business transactions and the amount credited in these firms were merely the return of the amount due from JVG Group of Companies as an advance or Loan given to them. His replies were also scrutinized from time to time but same could not be found upto the satisfaction mark.

1.4 The aforesaid charged, if proved, would render the Respondent guilty of Professional and Other Misconduct falling within meaning clauses (2) of Part-IV of the First Schedule and Clauses (4) and (7) of Part-I of the Second Scheduled to the Chartered Accountants Act, 1949 (as amended by the Chartered Accountants Amendment Act, 2006).

6. Accordingly, this complaint was taken up for consideration by the Director (Discipline), who vide Order dated 16thMarch, 2012 found the Appellant Prima Facie‟ guilty of the professional misconduct falling within the meaning of Clause (2) of Part-IV of the First Schedule and Clauses (4) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

7. Pursuant to forming of the Prima Facie Opinion, the Director (Discipline), in terms of the requirements of Section 21 (3) of the Act read with rules as applicable, placed his Prima-Facie Opinion‟ before the Disciplinary Committee of the Institute for consideration, which, in turn, on examination of the said complaints and other records as available, while agreeing with the Prima-Facie Opinion‟ decided to proceed further in the matter and accordingly, after a thorough examination of the matter and subsequent to hearing of the parties concerned, gave its findings as hereunder:

“12. The Committee noted that it has been alleged against the Respondent that he was holding dual position as Statutory Auditor of JVG Group of Companies for the period 1993-1994 to 1996-1997 on one hand and on the other hand, he was holding the position of Executive Director (Finance) in the JVG Group o f Companies and was controlling and conducting the whole financial affairs of the group. This way, he was holding both the position of Statutory Auditor as well as Executive Director (Finance) of JVG Group of Companies. The Committee in this regard, on perusal of the papers on record, noted that the firm of the Respondent was the statutory auditor and certified the financial statements of the Company for the financial 1993-94 and 1996-97. However, for the financial year 1995-96, although the respondent firm had acted as the statutory auditor, yet a person other than the Respondent has certified the statements of the Company. The Committee has also perused various other related documents which have been submitted on record by both the Complainant and Respondent in this regard.

  1. The Committee further noted that an inspection was conducted by the RBI of the JVG Group Finance Companies viz. JVG Finance Ltd. and JVG Securities Ltd with reference to the position as on 31st March, 1997, wherein it has mentioned that the group companies did not function as independent units and were managed as a part of the group only. There was no separate management team or hierarchy of officers for any company and all the companies were managed jointly by a common team of Directors/Managers/Employees. It further mentioned that there was concentration of powers at the top with no hierarchy of management team. The RBI Inspection Report dated 15th July, 2011 has categorically mentioned w.r.t. the involvement or the role played by the Respondent in the Company as under:

“one of the intriguing features of the Management of the group was the involvement of the statutory auditor Shri D.K. Kapoor in the day to day affairs of the Company, being the defacto Executive Director (Finance) of the JVG Group and known in the organization by such designation. He was controlling the finance, banking and accounting functions of all the Group Companies after Mr. V.K. Sharma he was the most important man in the group and had direct control over the finances of the group. He was authorized signatory for the operation of various bank accounts of the Companies and almost all the cheques were signed/approved by him. The inspecting Officer saw salary sheets of the group employees signed by him with the designation of Executive Director (Finance). He also signed different agreements with the outside parties on behalf of the Company in the capacity of Executive Director (Finance). Needless to the point out that performance of such executive functions in the group, directly conflicted with the functions of the statutory auditors, and writing of audit report was only done as merely statutory obligation which the Company to comply with. As such there was no auditor of the Company which checked the financial and accounting accuracy o f the group companies, as what was to be supposedly checked was done by the same man.”

  1. The Committee also noted that the Complainant Department has also while investigating the matter under Section 235 of the Companies Act 1956 into the affairs of the Company has submitted a report dated 10th July, 2009 wherein the role of the Respondent in the working of the JVG Group Companies has been mentioned as under:

“On the other hand, he was holding the position of Executive Director (Finance) in the JVG Group of Companies and was controlling and conducting the whole financial affairs of the Company. This way, he was holding both the position of Statutory Auditor as well as Executive Director (Finance). He has misused both the positions. On one hand, he showed rosy picture about financial health of the Company and allured the investors to deposit and invest their hard earned money with JVG Group of Companies, on the other hand, he was the authorized signatory in various bank accounts of the Company. He signed various important business deals as an authorized signatory on behalf of JVG investments. He not only neglected his responsibility as statutory auditor of the JVG Group of Companies but also facilitated in siphoning of the huge amounts by misappropriating and transferring through various firms owned, managed and controlled by him through intra-group transactions. The siphoning off money of JVG Group of Companies, through the front Companies of Pee Dee Kapoor & Co. i.e., by the Respondent has already been investigated by EOW, Crime Branch, Delhi Police. In this case two FIRs bearing Nos. 239/98 and 240/98 have been filed against the respondent. He was arrested by the EOW during the year 2003 and was remanded to Police custody for ten days.

  1. The Committee thus noted that the role of the Respondent as brought out by the Inspection report of the RBI is same vis-à-vis what has been reported by the Complainant‟s Department although the scope of both the investigations is different. The Committee noted that the Respondent in this regard has submitted in his defense at the time of hearing, that the compendium of Notes issued by the ICAI in 1997 states that an auditor may prepare or assist in the preparation of the accounts of a Company before proceeding to audit them or agree to provide financial advice or to represent the Company for its tax matters without impairing his independence in anyway. These functions are complementary in character to the performance of the function of an auditor. The Counsel for the Respondent in this context thus submitted before the Committee that acting as a consultant and providing financial advice and actual preparation of the accounts, all these functions while simultaneously acting as the Statutory Auditor of the Body Corporate were permissible by the Institute in 1996 when the audit of the Company was actually conducted by the Respondent. In this context, he also brought on record a copy of the resolution passed at the meeting held on 11th August, 1994, wherein it was resolved that the Respondent be authorized to counter sign cheques of such amounts and drawn on such banks as may be specified from time to time, jointly with any other authorized signatory to ensure compliance of all legal technicalities for the payments before him and to see that the same are properly accounted.
  1. The Committee noted that the scope and duties of the statutory auditor is to ensure that he reports on the true and fair view of the financial statements i.e. the Balance sheet, Profit and Loss account and Cash Flow statements and the same are free from any material misstatements. The Committee noted that the compendium of ICAI on Independence of Auditorsas referred to by the Counsel for the Respondent in his submissions inter-alia states as under:

“An auditor may prepare or assist in the preparation of the accounts of a company before proceeding to audit them, or agree to provide financial advice or to represent the Company for its tax matters without impairing the independence in any way”.

On the perusal of the same, the Committee noted that as per the publication of the Institute, an auditor way back in 1996-97 was permitted to prepare or assist in preparation of the accounts of the Company but the same has not in any way permitted the auditor by any stretch o f imagination to perform the managerial functions or day-to-day operations o f the Company which would in fact beyond doubt impair his independence to perform the statutory audit. The spirit behind such publication issued by the ICAI in 1996-97 was limited to ensure that the expertise of the auditor may be used to draw Financial Statements which in todays scenario has been categorically prohibited to ensure the existence of independence. The Committee further noted that the allegations raised in the instant complaint is not with respect to writing of accounts of the Company by the Respondent but the same is relating to the dual role played by the Respondent during the said years. The Committee perused copy o f numerous cheques of the Company signed by the Respondent as the authorized signatory pursuant to the resolution dated 11th August, 1994 passed at the Board Meeting of the Company. In the said resolution, it has been authorized to countersign cheques of such amounts and drawn on such banks as may be specified from time to time, jointly with any other authorized signatory and further in the said resolution, he was entrusted with the responsibility to ensure the compliance of all legal technicalities for the payment placed before him and also to see that they are properly accounted for as per the accounting procedure adopted by the Company. In this context, the Committee is of the view that when a person is entrusted with the responsibility to act as the statutory auditor of the Company, he is expected to act independently to form an opinion as regard to the true and fair view of the financial position and operating result of a company and if such other duties are also undertaken by him which by nature fall within the day to day operations of the Company, then he cannot be deemed to have acted independently as statutory auditor.

17. The pronouncement of the ICAI on the independence of the Auditors very clearly provides that the Independence of mind is a fundamental concept and / or expression of opinion on the Financial Statements in any Form, and therefore, must always be maintained. Nothing can substitute for the essential and fundamental requirement of independence. The said pronouncement further provides that the Independence of the auditors has not only to exist infact, but also appear to so exist to all reasonable persons. The relationship between the auditor and the clientsneeds to be such that firstly, he is himself satisfied about his independence and secondly, no unbiased person would be forced to conclude on an objective assessment of circumstances that there is likely to be an abridgement of the auditors independence. Thus, independence o f auditor is a pre-requisite whose existence needs to be assured.

18. In the instant case, the Committee noted that the Respondent while acting as the statutory auditor of the Company from the F.Y.1993 -94 and 1996-97 (except 1995-96), has infact signed the cheques for the company, thereby, involving himself in the day-to-day functioning of the Company which is not excepted of an auditor who is expected to maintain highest degree of independence. The Committee in this context, is further o f the view that by undertaking the responsibility of signing of the Cheque on behalf of the Company, the Respondent has also undertaken the responsibility to ensure the compliance of all legal technicalities for the payments placed before him which in fact was in conflict with his role as the statutory auditor whereby he was expected to act independently. Thus, the Committee is of the considered opinion that the Respondent has acted in dual capacity whereby on one hand he has performed the managerial responsibilities of signing as authorized signatory and assuming the custodianship of the finances of the Company and on the other hand holding the position of the Statutory auditor as well. Thus in conclusion, the Respondent is guilty of Professional Misconduct falling within the meaning of Clause (4) of Part-I of the Second Schedule to the Chartered Accountant Act, 1949.

19. The Committee further noted that the Complainant Department has also placed on record zerox copies of certain salary sheets of the employees of the Company which have been signed / initialed by the Respondent as E.D. Finance which have been counter signed by the Assistant Official Liquidator, High Court, Delhi. The Complainant in this context submitted that the Company had gone into liquidation and all the documents were sized and kept in a building and with the help of Official Liquidator, certain documents were retrieved and zerox of the same were taken for the purpose of Investigation by the Complainant Department. The zerox of the salary sheets of the employees of the company forms part of such retrieved documents which is an evidence of the de-facto role assumed and played by the Respondent in the Management of the Company. The Committee is quite mindful of the fact that the same have been negated by the Respondent while submitting his defence, however, no documentary evidence has been placed on record by the Respondent to substantiate or establish that the said documents are forged or fabricated.”

8. As per these findings, the Disciplinary Committee found the Appellant NOT GUILTY of professional misconduct falling within the meaning of Clause (2) of Part-IV of the First Schedule and Clauses (7) of Part-I of the Second Schedule to the Chartered Accountants Act, 1949 and found him GUILTY of professional misconduct falling within the meaning of Clause (4) of Part-I of the Second Schedule of the Chartered Accountants Act, 1949, and subsequently awarded the punishment as detailed supra in all these three matters.

9. Aggrieved by the same the Appellant is in appeal before us in these cases.

10. Before us, the Appellant was present through his authorized representative Mr. Arvinder Pal Singh besides being present in person. The Appellant reiterated the same submissions and has taken various grounds of appeal before us, for which all his submissions are being discussed in this Order.

11. As is evident from the above facts, these cases were initiated on the complaint filed by the Serious Fraud Investigation Office (SFIO), consequent upon the investigation carried out by the Ministry of Corporate Affairs in the cases of JVG Group of Companies. The case was initiated with various charges; however after examination, only charge under clause (4) of Part-I of the Second Schedule to the Chartered Accountants Act, 1949, survived as per the Report of the Disciplinary Committee for which the Appellant was found guilty.

12. The said clause (4) as reproduced supra, deals with the independence of the auditors. It is perceived that if the auditor has substantial interest in the entity being audited by him, then he will lose independence. In this regard the basic principle has been explained by the Council of the ICAI from time to time by issuing of various Guidance notes, Code of Conduct and Code of Ethics etc.

13. This issue arose due to the RBI Inspection Report dated 15th July, 2011, as reproduced in Para (13) of the findings of the Disciplinary Committee supra, alleging the involvement of Appellant in JVG Group of Companies as a statutory auditor as well as de-facto Executive Director (Finance). The same allegations were also levied in the Investigation Report of the Ministry of Corporate Affairs as reproduced in Para (14) of the Findings supra. It is alleged that besides being auditor of the Company the Appellant was controlling the Finance, Banking and Accounting functions of the JVG Group of Companies. In Para (16) of the findings, the Disciplinary Committee also found that the Appellant has signed numerous cheques of the Company as signatory authorised by the Board of Directors of the Company, a fact not disputed by the Appellant.

14. The Appellant explained before the Disciplinary Committee of the Institute of Chartered Accountants of India that he was never even a Director in the Company, leave aside being a Finance Director or Executive Director, as was evident from the records of the Registrar of Companies and other Statutory Filings. Nor he or his relative anytime had any substantial interest in the Company audited by him. He further submitted that he only signed cheques as Authorised Signatory‟, the payments of which were duly approved by the management. Thus, he did not perform any managerial function and had no discretionary power or authority. He also pleaded that at the relevant time, the Guidance Note on Independence of Auditors, as issued by the Institute, inter alia, allowed that :-

“An auditor may prepare or assist in the preparation of the accounts of a company before proceeding to audit them, or, agree to provide financial advice or to represent the Company for its tax matters without impairing the independence in any way”.

15. The Appellant thus submitted that at that relevant time, the relevant framework of the applicable Law permitted the auditors to perform certain other services as well. In other words, he submitted that at that time, the said work of signing of cheques done by the Appellant was not prohibited and thus there is no misconduct on his part on this account.

16. On the other hand, Mr. Amit Sharma, Advocate appearing on behalf of the Institute of Chartered Accountants of India as well as Mr. Saud Ahmad, Joint Director & Mr. Ajeet Kumar Srivastava, Prosecutor appearing on behalf of SFIO in all the above mentioned Appeals vehemently supported the Impugned Order passed by the Disciplinary Committee. They submitted that the act of the Appellant was misconduct within the meaning of the said clause (4) of the Act. Mr. Amit Sharma, Advocate appearing on behalf of the Institute of Chartered Accountants of India also relied on the Code of Conduct issued by the Institute, 1995 Edition, which was then in vogue. He submitted that while interpreting this, the Council has widened the scope and covered all cases where there can be a conflict of interest or threat to Independence of Auditors. He drew our attention to page 59 of the said Code of Conduct, it inter alia provided that, even the following was mis-conduct as per the said Code of Conduct :-

a) Accept the auditor ship of a college, if he is working as part time lecturer in the college

b) Where relative of auditor or partner or auditor has any substantial interest in the business being audited

He submitted that the role played by the Appellant as alleged in report of RBI and Ministry was of much more involvement in the affairs of the auditee. Thus, he was guilty of said misconduct as decided by Disciplinary committee.

17. Additionally, the Appellant submitted before us that he had also raised a preliminary objection before the authorities below, which was initially filed before the Director (Discipline) that the Complaint was time barred for consideration as per the Rules and Regulations. He pleaded that the complaint relates to very old period and he does not have records as all of them have been submitted to SFIO on demand. The Appellant further submitted that the same objection was also raised even before the Disciplinary Committee.

18. The Learned Counsel appearing on behalf of the Appellant submitted the same arguments before us regarding the role of the Appellant in the auditee companies. He submitted that various activities were permitted to be performed by the auditors at that relevant time and the act of the Appellant is covered by those and therefore, the Appellant has not committed any misconduct and thus, he should not be penalised for the same.

19. He further submitted that due to lapse of time and various events, various papers that he wanted to produce are not in his possession. Furthermore, it is submitted that he has raised the ground of limitation before lower authorities but the same was not considered without giving any reason and that the same has been ignored by the Director (Discipline) while forming the Prima Facie Opinion‟ and no findings on the same was given even by the Disciplinary Committee.

Thus, according to the Appellant, neither Director (Discipline) nor the Disciplinary Committee have even considered the said preliminary objection.

20. The Learned Counsel appearing on behalf of the Appellant pleaded that this was an important safeguard provided to the members of the Institute, in case they were unable to produce evidence and record due to lapse of long time. The Learned counsel for the Appellant argued forcefully that the authorities below have erred in not considering and deciding this fundamental issue which precludes the Appellant from advancing evidence in support of work done by him which was permissible as per the Code of Conduct then prevailing.

21. Per Contra, the Learned Counsel appearing on behalf of the Respondent Institute supported the orders of lower authorities in this regard as well. He submitted that as mentioned in the PFO, as the matter was under investigation since 1998, the matter was not considered to be time barred. He further submitted that except merely taking defence about time barring, the Appellant has not sated at all as to what evidence he wanted to produce and why the same is now not available with him.

22. The Learned Counsel appearing on behalf of the Appellant submitted that in Appeal before this Authority also, he has raised the same ground being Ground No. (G4) of his Appeal Book by stating that the complaint itself was barred by limitation.

23. The learned Counsel appearing on behalf of the Appellant also relied upon various judicial pronouncements in his defence including the following:-

  1. Sunderdas Thakersey and Brothers V/s P K Mukherji, AIR 1966 Cal 468

2. Kishori Lal Datta V/s P K Mukherji, AIR 1964 Cal 131

3. V. Panchaksharappa V/s K.G.Eshwar, AIR 2000 SC 3344

24. We have noted that the Appellant has repeatedly taken the defence of limitation since inception of proceedings, and it appears from the records available before us that the same has not been properly examined and decided either by the Director (Discipline) or by the Disciplinary Committee of the Institute, thus, under the circumstances and in the interest of justice, we consider it appropriate to discuss and decide this issue first.

25. Though, we found that this ground had been raised by the Appellant before the Director (Discipline) vide his preliminary submissions dated 21stJanuary, 2011 and the same was briefly narrated in Para (3.1) of the Prima facie Opinion formed by the Director (Discipline) but the same was not properly addressed by her in the PFO and was dismissed by a brief mention as under:

“The plea taken by the respondent that the matter is 15 years old does not stand as since 1998 the matter is under investigation”.

26. We have also noted that the Disciplinary Committee even has not discussed this issue of limitation anywhere either in its Report or in its Impugned Order, much less giving any findings on the same.

27. At this stage, it is also relevant to record here the Law relating to the limitation of entertaining any complaint of professional or other misconduct against any member of the Institute by the Disciplinary Directorate, which, before the Chartered Accountants (Amendment) Act, 2006, was contained in Regulation (14) of the Chartered Accountants Regulations, 1988. The said Regulation is reproduced hereunder:

14. Time limit on entertaining complaint or information

[Applicable to a complaint or information pending before the Council or any inquiry initiated by the Disciplinary Committee or any reference or appeal made to a High Court prior to 17.11.2006]

Where the Council is satisfied that there would be difficulty in securing proper evidence of the alleged misconduct, or that the member against whom the complaint has been filed, would find it difficult to lead evidence to defend himself on account of the time lag, or that changes have taken place rendering the inquiry procedurally inconvenient or difficult, the Council may refuse to entertain a complaint or information in respect of misconduct made more than 10 years after the same was alleged to have been committed.”

28. After enactment of Chartered Accountants (Amendment) Act, 2006, altogether a new set of Procedure Rules to deal with the complaints or information of any misconduct alleged to be committed by any member of the Institute, namely the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 has been brought by the Central Government in exercise of the powers conferred by clauses (c) and (d) of sub-section (2) of Section 29A read with sub-section (4) of Section 21 and sub-sections (2) and (4) of Section 21B of the Chartered Accountants Act, 1949, into existence applicable w.e.f. the date of their publication in the Official Gazette i.e., 28thFebruary, 2007. Rule (12) of these aforementioned rules now deals with the issue of limitation, which is also reproduced hereunder :-

12. Time limit on entertaining complaint or information:-

Where the Director is satisfied that there would be difficulty in securing proper evidence of the alleged misconduct, or that the member or firm against whom the information has been received or the complaint has been filed, would find it difficult to lead evidence to defend himself or itself, as the case may be, on account of the time lag, or that changes have taken place rendering the inquiry procedurally inconvenient or difficult, he may refuse to entertain a complaint or information in respect of any misconduct made more than seven years after the same was alleged to have been committed and submit the same to the Board of Discipline for taking decision on it under sub-section (4) of Section 21A of the Act.”

29. We have heard rival submissions of all the parties, examined all the documents, pleadings and evidence produced before us and before lower authorities besides perusing various case laws cited by the parties.

30. The law of limitation under various statutes is not merely a legal right but it has been prescribed with definite objects in mind to ensure that proper justice is delivered to the litigants.

31. In Halsbury’s Laws of England, the objects of the Limitation Acts have been presented as follows:

The Courts have expressed various reasons supporting the existence of statutes of limitation, including the following –

(i) That a defendant might have lost the evidence to dispute the State claim.”

32. Further, the Encyclopedia Britannica also defined the significance of Law of Limitation as under:-

“Statute of limitations, legislative act restricting the time within which legal proceedings may be brought, usually to a fixed period after the occurrence of the events that gave rise to the cause of action. Such statutes are enacted to protect persons against claims made after disputes have become stale,evidence has been lost, memories have faded, or witnesses have disappeared. ”

33. The Hon’ble Supreme court of California, in the case of Addison v. State, 21 Cal. 3d 313. 317. 578 P.2d 941. 942-43. 146 Cal. Rptr. 224. 226 (1978) has observed as under:

“It is fundamental that the principal purpose of statutes of limitation is to prevent the assertion of stale claims by plaintiffs who have failed to file their action until evidence is no longer fresh and witnesses are no longer available …. The statutes, accordingly, serve a distinct public purpose, preventing the assertion of demands which, through the unexcused lapse of time, have been rendered difficult or impossible to defend”

34. It is therefore clear that the right of any respondent to take defence of Limitation is a substantial right and cannot be rejected lightly without examining all facts of the case.

35. On examination of Rule (12) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, it is clear that the defence of limitation provided in this Rule is not absolute right of Defendants, but it certainly casts a responsibility on the Director (Discipline) to examine as to whether on the facts of the case, the Defendant would find difficult to defend himself or lead evidence, on account of time lag or changes have taken place rendering the enquiry procedurally difficult.

36. While on the one hand, we find that the Appellant has taken this ground from very beginning but he has not submitted any details or description of the evidence which he wants to produce in support of his contention, which as per his version is not available now with him. On the other hand, we also find that the Director (Discipline) has summarily rejected the same without examining the facts of the matter and without passing a reasoned Order. The Disciplinary Committee has not even considered this ground much less giving any finding on the issues.

37.Be that as it may be, but it is clear from the records available with us that no enquiry has been carried out either by the Director (Discipline) or by the Disciplinary Committee of the Institute of Chartered Accountants of India about the facts in this regard. More so, when the Appellant is raising it from very beginning.

38. Here before us, the issue is to ascertain the actual services rendered by the Appellant to the Companies, in addition to being their statutory auditor. In this regard, we are of the view that these were required to be ascertained from the evidence on record by the Director (Discipline) and/or by the Disciplinary Committee and also to examine the contentions raised by the Appellant about inability to file evidence in his defence. Clearly, the same has not been done. This involves detailed examination of facts, Report of RBI, Report of Ministry of Corporate Affairs, specific defence of Appellant about what evidence he is precluded from leading and all other evidence on Record, for the first time. Considering these facts and circumstances of the case, in the interest of justice, we feel that it would be proper to carry out this exercise at the level of the Disciplinary Committee.

39. In the light of this, we have no option but to set aside all these cases to the Disciplinary Committee. We accordingly set aside the same and remit back all the cases to Disciplinary Committee. The Disciplinary Committee is directed to examine and decide by reasoned order the preliminary issue of limitation as raised by the Appellant in the light of observations made in this Order and decide the other Grounds after examining the objections raised by the Appellant in appeal. Needless to say that the Disciplinary Committee will provide the Appellant adequate opportunity of being heard. The Appellant will be at liberty to raise before Disciplinary Committee all issues raised before us or any other issue as well and produce any evidence in support of their case. The Disciplinary Committee will dispose of these cases within six (6) months from the date of receipt of this order.

40. The Appellant has also taken a ground of Appeal before us that the Disciplinary Committee has decided these cases in accordance with the law which was not prevalent when the alleged misconduct was committed but came into effect after the amendment made in the year 2006 in the Chartered Accountants Act 1949, and/or by revised publications of ICAI. Since, we have set aside the Impugned Orders and the matters have been remanded back to the Disciplinary Committee, we direct the committee to also examine this issue and to decide these cases as per law prevailing at the relevant time including code of conduct and guidelines issued by the Council, whichever were in force at that relevant time, of the alleged misconduct and not as per the law enacted subsequently.

41. It is clarified that since the matters have been remanded back to the Disciplinary Committee, therefore, we have not decided any issue on merit and we do not consider it necessary to decide other grounds of appeal raised by the Appellant under the circumstances, though, the Appellant will be at full liberty to raise all grounds of Appeal before the Disciplinary Committee.

42. These appeals are disposed of accordingly. Interim orders, if any, are vacated. No order as to cost.

43. Registrar of the Authority is hereby directed to keep a copy of this common order in each appeal file.

Devendraa P. Kapur Vs. ICAI & Others (Appellate Authority); Appeal No. 02/ICAI/2018; 01/11/2018

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Category : CA, CS, CMA (3888)
Type : Judiciary (12555)
Tags : ICAI (2711) professional misconduct (43)

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