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The Order issued by the Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) pertains to a case involving CA. Siddharth Shyam Shetye, a member of the institute, who has been found guilty of professional misconduct. The case revolves around allegations of Shetye’s failure to report instances of financial irregularities while conducting audits for M/s. S.S. Shetye and Associates.

The Committee’s findings indicate that Shetye was charged with professional misconduct falling within the ambit of Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. This finding prompted the Committee to initiate disciplinary action against him under Section 21B(3) of the Chartered Accountants Act, 1949.

Shetye was provided with an opportunity to present his case before the Committee, which he did through video conferencing on March 19, 2024. During the hearing, Shetye argued that he had not been charged by any investigating agency and highlighted the unavailability of certain company documents necessary for his defense. He pleaded for leniency, citing the adverse impact on his professional practice due to a prior one-year debarment in another disciplinary case.

The Committee deliberated on Shetye’s defense along with the evidence and submissions presented. It addressed his contention regarding the composition of the Committee, citing precedence from a previous case to reject his request for a fresh hearing. Additionally, the Committee dismissed Shetye’s argument regarding non-compliance with procedural rules, deeming such rules as subservient to the cause of justice.

Regarding the substantive allegations, the Committee found merit in the charges against Shetye. It noted discrepancies in the company’s financial records and criticized Shetye for failing to report instances of financial irregularities, including the acceptance of deposits under the guise of livestock sales. Despite Shetye’s assertion that his working papers were seized by investigating agencies, the Committee held him accountable for his failure to report these irregularities in his audit reports.

Based on its assessment of the case, the Committee concluded that Shetye’s professional misconduct warranted disciplinary action. Consequently, it ordered the removal of Shetye’s name from the Register of members for a period of six months and imposed a fine of Rs. 1,00,000/- (Rupees One Lakh Only) to be paid within 60 days from the date of receipt of the Order.

In summary, the Disciplinary Committee’s Order underscores the institute’s commitment to upholding professional standards within the chartered accountancy profession. It emphasizes the importance of adhering to ethical guidelines and fulfilling responsibilities diligently while performing auditing duties. The disciplinary measures imposed serve as a deterrent against future instances of professional misconduct, reinforcing public trust in the integrity of the accounting profession.

*****

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)

PR/262/16-DD/307/2016/DC/1310/2020

[DISCIPLINARY COMMITTEE [BENCH-II (2024-2025)]
[Constituted under Section 21B of the Chartered Accountants Act, 1949]

ORDER UNDER SECTION 21B(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/262/16-DD/307/2016/DC/1310/2020]

In the matter of:

Shri A.K. Mahala
DCIT, Central Circle-2(3), Pune,
4th Floor, PMT Building,
Shankersheth Road,
Swargate,
Pune 411 037.

…..Complainant

Versus

CA. Siddharth Shyam Shetye (M.No. 116188)
M/s. S.S. Shetye and Associates (FRN 124823W)

…..Respondent

Members Present:-

Mrs. Rani S. Nair, IRS (Retd.), (Government Nominee), Presiding Officer (through VC)
Shri Arun Kumar, IAS (Retd.), Government Nominee (in person)
CA. Sanjay Kumar Agarwal, Member (in person)
CA. Cotha S Srinivas, Member (in person)

Date of Hearing: 19th March, 2024
Date of Order: 7th May, 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, the Disciplinary Committee was, inter-alia, of the opinion that Siddharth Shyam Shetye (M.No. 116188) (hereinafter referred to as the Respondent”) is 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. That pursuant to the said Findings, an action under Section 21B (3) of the Chartered Accountants (Amendment) Act, 2006 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 19thMarch 2024.

3. The Committee noted that on the date of the hearing held on 19thMarch 2024, the Respondent was present through video conferencing and made his verbal representation on the Findings of the Disciplinary Committee, inter-alia, stating that he was not chargesheeted by any investigating agency. The company documents which were presented during the assessment procedure are under lock and key with the Complainant Department. However, till date none of these documents were either provided to the Disciplinary Committee or to the Respondent. There has not been any bad intention / motive while issuing the audit reports and thus, requested for a lenient view in the case as his professional practice had already suffered badly on account of one year debarment in another disciplinary case. The Committee also noted that the Respondent in his written representation on the Findings of the Committee, while requesting to recall the Findings of the Committee, inter-alia, stated as under:

(a) Since there is a change in the composition of the Disciplinary Committee in February 2024, a fresh hearing for this case needs to be granted.

(b) Observations in para no. 16 to 18 of the Findings do not match with the charges which are specified in para 2.1 to 2.4.

(c) The opinion from the experts as regards the “Deposits” or “Collective Investment Schemes” in the context of the matters like “Deposits Acceptance u/s 58A of The Companies Act, 1956” or “Non-Applicability of Collective Investment Schemes mentioned by the SEBI” have not been given consideration.

(d) It is the responsibility of the Management of the Company to ensure that the entity’s operations are conducted in accordance with the provisions of laws and regulations, including the compliance with the provisions of laws and regulations that determine the reported amounts and disclosures in an entity’s financial statements. The auditor is not responsible for preventing the non-compliance and cannot be expected to detect the non-compliance with all the laws and regulations.

(e) The case is not maintainable due to non-compliance of Rule 8(1) and Rule 18 (6).

(f) There was no mention in the SEBI or CBI’s Order with respect to the maintenance of records by the company.

(g) No opportunity was given to cross-examine the Complainant and the Special auditor.

(h) The copies of documents submitted by the witness and not provided to the Respondent are heavily relied in passing the abovesaid Order.

(i) Only Special Audit Report without the supporting documents, which is a “DISCLAIMER OF OPINION REPORT” is considered as an Evidence which is not acceptable evidence.

(j) The special audit report itself mentions that the Special Auditor has not received the records and the books of accounts maintained by the Company. The Special Auditor himself has stated in his letter dated 8th January 2024 forwarded to the Disciplinary Committee as under: “I say that there are no allegations in my report against the auditors of Sammruddha Jeevan Foods India Limited.”

(k) Audit Working Papers of the Respondent and other documentation were not made available to him by the various authorities in spite of follow up.

(l) The explanations given by the Company and also the denials expressed by the Company against the Findings of the Special Audit have not been considered.

(m) The Income Tax Department (Complainant) had finalised the assessments for all the financial years 2008-09 to 2012-13 without raising any objections to the treatment of ‘use of misleading nomenclature’ applied by the Company.

(n) The Respondent issued the necessary qualifications in the audit report for the Financial Year 2013-14 itself based on the first show cause notice from SEBI.

(o) He requested for not awarding a major punishment as he had completed only around six years of membership when the audit for the first year 2008-09 was commenced and he has not been involved in any case of misconduct till the year 2021, when in the case of a group Company of the same client he was charged only for some non-disclosure of the information.

(p) He has not been keeping good health for last few years.

4. The Committee considered the reasoning as contained in the Findings holding the Respondent Guilty of Professional Misconduct vis-à-vis written and verbal representation of the Respondent. As regard the submission of the Respondent that since there has been a change in the composition of the Committee and thus, fresh hearing is required in the case, the Committee keeping in view the following observations of the Honorable Appellate Authority in para 8 of its Order dated 14thJune 2021 passed in Appeal no. OS/ICAI/2020 in the matter of Devki Nandan Gupta vs- ICAI and others on the same issue was of the view that there is no merit in the contention of the Respondent:

We find no substance in the appellant’s plea that due to change in the composition of DC who had passed the order dated 08.02.2018 the new DC with changed members could not have passed the final order dated 07.11.2019…………………….

We are of the view that no prejudice whatsoever was caused to the appellant due to change in the composition of the DC who had held him guilty of ‘professional misconduct’ under Clause 7 of Part – I of the Second Schedule and the one who had finally awarded punishment vide order dated 07.11.2019. In fact, the changed DC was not expected or required to hear arguments afresh on merits to find if the appellant was guilty of ‘professional misconduct’. The said findings had already been recorded by the previous DC in its order dated 08.02.2019 and attained finality qua the changed DC. The changed DC was required only to hear the appellant on the quantum of punishment/penalty and for that, the appellant was afforded reasonable opportunity of being heard.”

Further, the Special auditor appeared as a witness before the Committee and stood by his Findings in the Special audit report. Also, the documents provided by the witness were duly shared with the Respondent vide email dated 9th January 2024 and 15th January 2024.Due opportunity to cross-examine the Special auditor was given to the Counsel for the Respondent on 9th January 2024 as the Respondent was not present for hearing on the said date. Looking into the merits of the case and the reasons on the basis of which the request was made by the Respondent to call the Complainant as witness, his request was not accepted by the Committee. As regard the submission of the Respondent regarding non-compliance with the requirements of Rule 8(1) and Rule 18 (6) of the aforesaid Rules, the Committee was of the view that all the Rules of procedure are the handmaid of justice, and the object of prescribing procedure is to advance the cause of justice. In this regard, the Committee also noted that the Hon’ble Supreme Court in the case of Smt. Rani Kusum case, considered its earlier judgment passed In Topline Shoes Ltd. v. Corporation Bank [(2002) 6 SCC 33]and observed the following in Topline case:

the question for consideration was whether the State Consumer Disputes Redressal Commission could grant time to the respondent to file reply beyond total period of 45 days in view of Section 13(2) of the Consumer Protection Act, 1986. It was held that the intention to provide time frame to file reply is really made to expedite the hearing of such matters and avoid unnecessary adjournments. It was noticed that no penal consequences had been prescribed if the reply is not filed in the prescribed time. The provision was held to be directory. It was observed that the provision is more by way of procedure to achieve the object of speedy disposal of the case”.

The Committee was of the view that it is trite law that procedural law should not ordinarily be construed as mandatory, and it is always subservient to and is in aid to justice. The Honorable Supreme Court in Smt. Rani Kusum case further observed that merely, because a provision of law is couched in a negative language implying mandatory character, the same is not without exceptions. The Courts, when called upon to interpret the nature of the provision, may, keeping in view the entire context in which the provision came to be enacted, hold the same to be directory though worded in the negative form.

The Committee held that the nature of the provisions contained in Rule 8(1) and 18(6) is procedural and not a part of the substantive law which have been provided to achieve the object of speedy disposal of the cases keeping in view the principle of natural justice. The consequences of non-complying with the same are not specifically provided for in the Rules. Thus, assuming, even if the time limit prescribed under the aforesaid Rules had not been adhered to, it cannot be said that the proceedings are not maintainable.

As regard other submissions of the Respondent, the Committee held that the same were basically a reiteration of the submissions made by the Respondent during the course of hearing and thus, due consideration to the submissions and documents on record had been given by the Committee before arriving at its Findings. Findings in respect of only the charges alleged against the Respondent have been given by the Committee. Further, the request of the Respondent to recall the Order/Findings of the Disciplinary Committee is not maintainable as there is no provision under the Chartered Accountants Act 1949 and the Rules framed thereunder for review or recall of the Order/Findings of the Disciplinary Committee. Also, the issues raised by the Respondent were duly addressed during the course of hearing. Due opportunity of being heard was provided to the Respondent as it is evident that the case was listed for hearing on seven occasions and the Committee came to a logical conclusion in the case only after a careful consideration of the submissions and documents on record. The Committee also held that no fresh ground can be adduced at this stage.

5. Thus, keeping in view the facts and circumstances of the case, material on record including verbal and written representations on the Findings, the Committee is of the view that the Company was engaged in collection of money through various schemes in guise of sale/ rearing of goats/ buffalo. Even the CBI or SEBI was not satisfied with the records maintained by the Company as they also observed that the Company had not maintained records of livestock, or it were incomplete and not showing complete details of inventory at the time of their investigation. The said facts were sufficient to negate the submissions of the Respondent that proper Stock registers were maintained in respect of sale and purchase of livestock. Since during the enquiry conducted by the CBI and SEBI or even in the hearing before the Hon’ble Court of Madhya Pradesh, the Company could not produce sufficient documentary record/ registers or details of inventory to establish that these were duly maintained or there was no material deviation in maintenance of the same and the quantity of inventory as claimed by it in its financial statements or to negate that it was not engaged in collection of money in guise of business of goat/ buffalos, the benefit was not extended to the Respondent merely on the ground that his working papers were seized by the CBI. The Respondent as auditor of the Company for the financial years 2008-09 to 2013-14, was required to report instances of accepting deposits in guise of sale and rearing of livestock but he failed to report the same in his audit report. He could not establish as to how the shortcomings pointed out by the special auditor in the audit reports were not correct. He failed to point out the correct nature of expenses and other irregularities related to the sale of goat / buffalo and expenses related thereto. Moreover, despite being the tax auditor of the Company, he failed to point out the non-deduction of TDS on the payment made to the agent in the form of interest and commissions. Hence the professional misconduct on the part of the Respondent is clearly established as spelt out in the Committee’s Findings dated 7th February 2024 which is to be read in consonance with the instant Order being passed in the case.

6. Accordingly, the Committee was of the view that ends of justice will be met if punishment is given to him in commensurate with his professional misconduct.

7. Thus, the Committee ordered that the name of CA. Siddharth Shyam Shetye (M.No.116188), Pune be removed from the Register of members for a period of 06(Six) Months and also a Fine of Rs. 1,00,000/- (Rupees One Lakh Only) be imposed upon him payable within a period of 60 days from the date of receipt of the Order.

sd/-
(MRS. RANI S. NAIR, IRS RETD.)
GOVERNMENT NOMINEE CUM PRESIDING OFFICER

SD/- SD/- SD/-
(SHRI ARUN KUMAR, IAS RETD.) (CA. SANJAY KUMAR AGARWAL) (CA. COTHA S SRINIVAS)
GOVERNMENT NOMINEE MEMBER MEMBER

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