The Institute of Chartered Accountants of India’s Disciplinary Committee found CA. G. Selvaraj guilty of professional misconduct. The complaint, filed by the Registrar of Companies, stemmed from an inquiry into M/s VJL Dairies LLP regarding alleged fraudulent activities. CA. Selvaraj, as the auditor for the LLP’s 2012-13 financial year, failed to report that the LLP was accepting deposits, a practice prohibited for LLPs by the RBI and a violation of Section 37(b) of the LLP Act, 2008. The Committee noted a significant amount (Rs. 1 crore) under “Sundry Creditors” in the balance sheet, constituting over 96% of the total balance sheet size, for which CA. Selvaraj could not provide a satisfactory explanation or obtain balance confirmation. Despite his submissions, including claims that no interest payments raised suspicion and the amount belonged to a designated partner, the Committee determined he was grossly negligent. His failure to adequately audit and report on these transactions established professional misconduct under Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. Consequently, the Committee ordered the removal of CA. G. Selvaraj’s name from the Register of Members for a period of one month.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
[DISCIPLINARY COMMITTEE (BENCH-III (2024-2025)]
[Constituted under Section 21B of the Chartered Accountants Act, 1949]
ORDER UNDER SECTION 2113(3) OF THE CHARTERED ACCOUNTANTS ACT, 1949 READ WITH RULE 19(1) OF THE CHARTERED ACCOUNTANTS (PROCEDURE OF INVESTIGATIONS OF PROFESSIONAL AND OTHER MISCONDUCT AND CONDUCT OF CASES) RULES, 2007
PR-G/341/2019/DD/252/21/DC/1742/2023
In the matter of:
Shri Asehar Ponraj,
…Complainant
Versus
CA. G Selvaraj
…Respondent
MEMBERS PRESENT:
CA. Charanjot Singh Nanda, Presiding Officer (Present in Person)
Smt. Anita Kapur, Government Nominee (Present in Person)
Dr. K. Rajeswara Rao, Government Nominee (Present through Video Conferencing Mode)
CA. Piyush S. Chhajed, Member (Present in person)
Date of Hearing: 2nd May 2024
Date of Order: 31st July, 2024
1. That vide findings under Rule 18(17) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 dated 22’d December 2023, the Disciplinary Committee was, inter-alia, of the opinion that CA. G. Selvaraj (hereinafter referred to as the “Respondent”) was GUILTY of Professional Misconduct falling within the meaning of Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
2. The Committee noted that the extant complaint was filed by the Complainant Department based on its enquiry report initiated on the instructions of Ministry of Corporate Affairs when a complaint was received by it from one Mr. M Jagadeesan raising charges with respect td cheating ‘to a tune of Rs. 46 Crore against M/s VJL Dairies LLP. The Respondent was the auditor Of M/s VJL Dairies LLP for the financial year 2012-13 and the charge against the Respondent was that he failed to report that the said LLP was accepting deposits from, various depositors even though the LLPs were prohibited by the RBI for carrying out financing activities which was in violation of Section 37(b) of the LLP Act, 2008. Further, during the enquiry before the Complainant Department, it was found that an amount of Rs.1 crores was appearing in the Balance Sheet under the head Sundry Creditors’ whereas the total Balance Sheet size was Rs. 1.17 Crores. The Respondent failed to explain the nature of the said transaction to the Complainant Department.
3. That pursuant to the said findings, an action under Section 216(3) of the Chartered Accountants Mt, 1949 was contemplated against the Respondent and a communication was addressed to him thereby granting an opportunity of being heard in person/through video conferencing and to make representation before the Committee on 2nd May 2024.
4. The Committee noted that on the date of hearing held on 2nd May 2024, the Respondent was present through Video Conferencing Mode and made his verbal submissions on the findings of the Disciplinary Committee. The Committee noted that the Respondent had relied upon his earlier submissions dated 11th March 2024 and 29th January 2024 wherein he had, inter-alia, submitted as under:
a. That at the time of audit there was no interest payments or provision of interest in the books of account which may raise suspicion that the Company might be accepting loans/deposits otherwise he would have reported the same in his audit report.
b. That there was only one sundry creditor for supply of milk and milk products and he too was a designated partner who has also signed the financials and he retained his funds in the unit as his contribution in the business due to which the same did not raise any skepticism.
c. He also requested to take a lenient view in the matter.
5. The Committee considered the reasoning as contained in the findings holding the Respondent Guilty of professional misconduct vis-à-vis representation of the Respondent made before it.
6. Keeping in view the facts and circumstances of the case, along with the material On record including representations on the findings, the Committee viewed that the Respondent was grossly negligent in not obtaining any balance confirmation from the single creditor constituting more than 96% of total balance sheet size. As per the Respondent, the same belongs to Mr. Pargasam who is one of the designated partners of LLP and the Balance sheet Of the LLP was also confirmed and signed by the same designated partner. However, the Respondent had failed to provide any concrete evidence to support his argument. Even if for the sake of argument it is accepted that the said amount belongs to designated partner and he wants to retain his funds in the unit as his contribution in the business then also the same should be shown under the head Partner’s Capital and not as sundry creditor.
7. The Committee further observed that the Respondent was duty bound to audit the activities of the LLP identifiable from the books of accounts and also raise query/ objection for any suspected transactions. However, the Respondent had not raised any objection regarding the single creditor for the whole financial year that constitute more than 96% of total balance sheet amount and had contravened the provisions of Section 37(b) of the LLP Act, 2008 by not reporting the financing activities to RBI carried out by the LLP. This conduct of the Respondent establishes Professional Misconduct falling within the meaning of Item (7) of Part 1 of the Second Schedule to the Chartered Accountants Act, 1949.
8. The Professional Misconduct on the part of the Respondent is clearly established as spelt out in the Committee’s Findings dated 22nd December 2023 which is to be read in conjunction with the instant Order being passed in the case.
9. The Committee, hence, viewed that the ends of justice will be met if appropriate punishment commensurate with his professional misconduct is given to him.
10. Accordingly, the Committee, upon considering the nature of charge and the gravity of the matter ordered that the name of G. Selvaraj be removed from the Register of Members for a period of 1 (one) month.
Sd/-
(CA. CHARANJOT SINGH NANDA)
PRESIDING OFFICER
Sd/-
(SMT. ANITA KAPUR)
GOVERNMENT NOMINEE
Sd/-
(DR. K. RAJESWARA RAO)
GOVERNMENT NOMINEE
Sd/-
(CA. PIYUSH S CHHAJED)
MEMBER
DATE : 31sr JULY, 2024
PLACE : NEW DELHI
