The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) has found CA Shrawan Bhagwati Jalan and CA Amit Kabra guilty of professional misconduct under clauses (5), (6), and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The case stemmed from their audit of the financial statements of National Spot Exchange Limited (NSEL) for FY 2011–12, conducted through M/s S V Ghatalia & Associates. The complainant, Mr. Arun Dalmia of the NSEL Investor Forum, alleged irregularities in disclosures, particularly relating to unsecured advances and compliance with the Memorandum of Association. The respondents claimed that any deficiencies were based on misrepresentations by NSEL’s management and that the financial position for the year audited was not materially misstated. They also cited later developments involving different auditors in FY 2012–13. Despite their verbal and written representations, the Committee concluded that the auditors failed to qualify their opinion despite material irregularities and regulatory red flags during the audit period. The audit report gave a clean opinion, which the Committee found unjustified given the scale and nature of unsecured loans and lack of transparency. After considering all facts, the Committee ordered removal of CA Shrawan Bhagwati Jalan & and CA. Amit Kabra’s name from the Register of Members for one year. This penalty is to run concurrently with a previous order in another related matter.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
[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-28112013-DD/273/2013/DC1437/2016]
In the matter of: –
Mr. Arun Dalmia,
Secretary, NATIONAL SPOT EXCHANGE LIMITED(NSEL) Investor Forum,
….. Complainant
Versus
CA. Shrawan Bhagwati Jalan and
CA. Amit Kabra,
M/s S V Ghatalia & Associates ,
….. Respondent
Members Present:
CA. Ranjeet Kumar Agarwal, Presiding Officer (in person )
Mrs. Rani S. Nair, IRS.(Retd.), Government Nominee (through VC)
Shri Arun Kumar, IAS (Retd.), Government Nominee (through VC)
CA. Sanjay Kumar Agarwal Member (in person)
CA. Cotba S Srinivas, Member (in person)
Date of Hearing : 28th March 2024
Date of Order : 11th July 2024
1. That vide Findings under Rule 18(17) of the Chartered Accountants Procedure of Investigations of investigation of professional and Other Misconduct and Conduct of Cases ) Rules, 2007, the Disciplinary Committee was, inter-alia, of the opinion that CA. Shrawan Bhagwati Jalan and CA. Amit Kabra (hereinafter referred to as the ‘Respondent(s)’) are GUILTY of Professional Misconduct falling within the meaning of Item {5), (6) and (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(s) and a communication was addressed to them thereby granting opportunity of being heard in person / through video conferencing and to make representation before the Committee on 28th March 2024.
3. The Committee noted that on the date of the hearing held on 28th March 2024, the Respondent(s) were present in person and made their verbal representation on the Findings of the Disciplinary Committee, inter-alia, stating that, their professional reputation and professional work has suffered a lot as the case was going on since long-time. The true and fair view of the financial statements of the Company for FY 2011-12 was not actually vitiated because of the Audit Opinion. The. financial position of .the Company was not !affected by the alleged enhanced disclosures: -The regulatory Show cause notices were never brought to their notice. On being asked in the meeting with the Management also the Management gave a representation that they did .not receive any regulatory communication to that effect. To that extent, they were victims of fraud or wrong information given to them by the management. They had no reason to doubt the credibility of the CEO or CFO at that point in time. There were no complaints from any of the purchasers. There was no financial loss.
3.1 The Committee also noted that the Respondent(s) in their written representation on the Findings of the Committee inter-alia, stated as under:
a. In September 2013 i.e., 18 months after the end of the last year audited by the Respondent(s) and 15 months after the subject. Audit report had been issued the management of National Spot Exchange Limited(NSEL) itself identified issues pertaining to the subsequent year i.e. FY 2012-13, that led to the withdrawal of audit reports by the then statutory auditors of both National Spot Exchange Limited(NSEL) and Financial Technologies India Limited (FTIL) (i.e. the parent company of National Spot Exchange Limited), being M/s Mukesh P. Shah & Co, and Deloitte Haskins & Sells LLP respectively. As is clear from the audit report for the year ended 31st March 2014, which explains the circumstances leading up to the withdrawal of the audit reports. of Financial Technologies India Limited (FTIL) and National Spot Exchange Limited (NSEL), none of the issues identified related to the financial year ended 31st March 2012. In respect of FY 2011-12, the auditor’s report for Financial Technologies India Limited (FTIL) was not withdrawn.
b. The financial statements of–F–Y–2012=13 (i.e. the year in respect of which Financial irregularities were noticed by the Company, and accordingly the audit reports withdrawn) were audited by M/s Mukesh P. Shah & Co., who was earlier the internal auditor of NSEL and had issued a clean audit report. It was only when the Company issued letters in September 2013, regarding discrepancies in its financial statements for FY 2012-13, that CA. Mukesh P. Shah withdrew his report.
c. The Director(Discipline) in his Prima Facie Opinion and the Disciplinary Committee in its Findings have relied upon a media report which was published on 3rdOctober 2012. The said media report is dated 5 months after the Respondent dent CA. Amit Kabra signed the audit report (for FY 2011-12), and within the period audited by CA. Mukesh P. Shah i.e. in FY 2012-13. Despite the media reports being in the public domain within the period audited by CA. Mukesh P. Shah; he ,expressed no apprehension in .his audit :report in respect of the financial statements, internal controls, fraud- reporting etc. Despite: tie stark difference in circumstances where CA. Mukesh P. Shah actually had the benefit ,of such media reports Within the year which he audited CA. Mukesh P. Shah has been exonerated for 12 of 15 charges,- whereas .the Respondents) have been held guilty on multiple charges.
d. The Respondent(s) has also explained that they carried out appropriate audit procedures subsequent to the year-end (at paragraph 1.1.5 of submissions dated 8th February 2023), which have been completely ignored in arriving at the Findings.
e. The Finding base the charge on completely new allegation which were neither raised in the prime facia opinion nor during the course of the hearing. the Respondent(s) were not given an opportunity to explain their hearing. the Respondent(s) were not given an opportunity to explain their position in connection with the new allegations that DC has used to hold them guilty.
f. As regard the charge 1. impermissible activity as per memorandum of Association the respondent(s) stated that procurement advances made to third parties as an agent for the client in the conduct of its procurement activates for clients (principals) was rightly debited to the respective client and shown as due from them. simply rehiring “Advance recoverable” to “contractually reimbursable expenses ” does not means that there was any difference in the substance of the transaction and their reporting. The Findings treat the report of CA. Mukesh P. shah (for FY 2012-12) as different and an improvement to support his discharges and hold the Respondent(s) guilty (in respect of FY 2011-12)on the same matter, and that too without affording any opportunity to the respondent (s) to explain and demonstrate the similarity in both treatments.
g. The Respondent(s) demonstrated with specific timeline of events that the basis of withdrawal of Deloitte’s audit report does not indicate that the financial statements for FY 2011-12 were misstated.
h. The Disciplinary committee has arbitrarily ignored and overlooked Respondent(s) defense in charge 2 of the Finding regarding alleged non-governance and relied on conjectures and surmises.
i. The Appellate Authority is currently not quorate and functional. There is no reason for basis not to defer the proceedings till such time that the Respondent(s) can avail their statuary remedies any order passes under section 21B of the charred Accountants Act 1949 i.e. to seek the appellate remedy before the Appellate Authority. Such as approach would also be consistent weigh an order passed by the Delhi High Court in similar circumstances. Thus. The Respondent(s) requested the committee not to pass any orders till Appellate Authority is functional, as they will not have the ability to pursue their statutory right of appeal provided in Chartered Accountants Act 1949.
4. The committee considered the reasoning as contained in the Findings holding the Respondent(s) guilty of professional Misconduct vis-à-vis written and verbal representation of the Respondent(s). As regard the submission of the Respondent(s) regarding comparing the instant case with an earlier decided cases in Respondent(s) entity for a different financial year the committee is of the view that comparing two distinct disciplinary cases as ‘eyes to eye’ is not warranted as each case is decided on merits on the basis of document and submission on record. Father, the guilty by the committee After due consideration of all the facts, submissions and document on record, the committee arrived at its Findings holding the Respondent(s) guilty in respect of the charges alleged against them in From ‘I’
4.1 The committee also noted that the Respondent(s) referred to a decision dated 14th March 2023 of the Hon’ble High Court of Delhi in Vijaykant Jagannanth Kulkarni V.S Disciplinary Committee, The ICAI and Ors. (W.P (c) 1887 of 2023) as a basis of their request to defer the committee decision to pass Orders under section 21B(3) of the request to defer the committee’s decision to pass orders under section 21B(3) of the Charted Accountants Act 1949. The committee referred to the following contents of the said order;-
“17.The Disciplinary Committee has at stage passed and order holding the petitioner guilty of profession misconduct. However, the final decision as to what action needs to be taken against the petitioner is yet to be determined by the Disciplinary Committee, Under Section 21B(5), the only thereafter proceed to taken action. such an order under section 21B(5) is clearly appealable to the Authority…..
18…. in the unique facts and circumstances of this case, the following directions are issued:-
i) The Petitioner shall appear before the Disciplinary Committee and make his submissions in respect of the action under Section 21B(5).
ii) A final order passed by the Disciplinary committee shall be communicated to the petitioner.
iii) The petitioner would be entitled to approach the Appellate Authority Under Section 22G both in respect of the Order dated 6th January, 2023 and the final order to be passes by the Disciplinary Committee. for a period of eight weeks, the final Order that may be passed would not be given effect to in order to enable the petitioner to approach the Appellate Authority under Section 22G (emphasis provided)”
4.2 Thus, the Committee noted that even the Hon’ble Delhi High Court has not estopped the Disciplinary Committee from continuing with its proceedings on the said ground in the case under consideration before it. Accordingly, the Committee was of the view that it is well within its right to consider the case of the Respondent(s) for award of punishment.
5. 2 Keeping in view the facts and circumstances of the case, material on record including verbal and written representation on the Findings, the Committee with regard to the First Charge, on perusal of documents in support of the claim of the Respondent firm that subsequent to the Balance Sheet date, approximately 52% of total advances were recovered by National Spot &change Limited (NSEL) up to the date of signing financial documents, noted that these amounts. were squared off from. RTGS or cheque transfers.
5.1 This clearly shows that the amounts were not for procurements but were unsecured cash advance The committee that nomenclature suggests that these amounts were given by them. on comparing the bifurcation of loan and advances given by Respondent(s) the clients earlier and are now being reclaimed by them on committee found that the value of amount ”recoverable from National Agricultural Cooperative-Marketing federation of the India Ltd. (NAFFD) Was reduced. The Committee noted the financial certified by CA. Mukesh P. Shah was having elaborated disclosure of of the the loans and advance such as as the nomenclature of “recoverable, from clients’ to “Contractually reimbursable expenses”. Accordingly, the figures of Previous year in the Balance Sheet as on 31st March 2012 were restructured as reported .by CA. Mukesh P. Shah in his internal audit report as under:
“The transactions need to be restructured in the books of accounts of the Company’.
5.2 Accordingly, the Committee concluded that these advances were not for procurement and disclosure in the financial statement was incorrect and was not in line with the Object Clause of the Memorandum of Association of the Company. The Committee further noted that the unsecured loans constituted more than 33% of the total size of Balance Sheet of NSEL which shows its materiality. Thus, it was the responsibility of the Respondent(s) to qualify the same in their audit report. (The misconduct on the part of the Respondent(s) has been dealt in detail in Para 28.2 of the Findings dated 7th February 2024 with respect to the first charge- page 24 to page 28 of the Findings).
5.3 The Committee with regard to second charge noted that the financial statements of National Spot Exchange Limited (NSEL) for financial year 2011-2012 was certified by the Respondent CA. Amit Kabra on 21st May 2012 and Department of Consumer Affairs (DCA)–sought-clarifications from National-Spot-Exchange-Limited-(NSEL) vide its letter dated 22nd February 2012–1.–67 before the date of signing the financial statements. Thus, the Committee clearly inferred that signals of Mis-clarifications and and lack of transparency existed in the audit period of the Respondent(s). The Respondent(s), however, turned off their eyes and failed to report on the same.
5.4 The Committee noted that in the said case, the overall objective of the audit has not been met as the purpose of the audit is to enhance the degree of confidence of intended users in the financial statements which is lacking in this matter. Further, the auditor gave a clean audit report on true and fair view of the financial statements. However, considering the facts of the case, the auditor should have modified his Opinion. (The misconduct on the part of the Respondent(s) has been dealt in detail in Para 29.3 of the Findings dated 7th February 2024 with respect to the second charge — page 30 to page 34 of the Findings)
5.5 Hence, professional Misconduct on the part of the Respondent(s) is clearly established as spelt out in the Committee ‘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 was of the view that ends of justice will be met if punishment is given to the Respondent(s) in Commensurate with their Professional Misconduct.
7. Thus, the Committee Ordered That the name of Respondent(s) i.e. CA. Shrawan Bhagwati Jalan and CA. Amit Kabra be removed from the Register of member for a period of 01 (One) years which Shall run Concurrently with punishment awarded in case no. PR/255/2013-DD/251/2013-DC/675/2017.
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(CA. RANJ.EET KUMAR AGARWAL)
PRESIDING OFFICER
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(MRS. RANI S. NAIR, IRSRETD.)
GOVERNMENT NOMINEE
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(SHRI ARUN KUMAR, IAS RETD.)
GOVERNMENT NOMINEE
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(CA. SANJAY-KUMAR-AGARWAL)
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(CA. COTHA SRINIVA–S)
MEMBER
