The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) found CA P. Ramalingam guilty of professional misconduct. The case stemmed from a complaint by Catholic Syrian Bank, alleging that Ramalingam certified a balance sheet for M/s Iswari Spinning Mills with inflated stock figures for the financial year 2012-13. The bank, which had extended a loan of Rs. 45.80 crores, later found discrepancies when a stock audit revealed non-existent stock, and a second set of financial statements submitted by Ramalingam differed from the first. Despite arguments from the Respondent’s counsel claiming the differing balance sheets were for different purposes (full concern vs. head office segment) and that the bank had no privity of contract with the CA, the Committee found these explanations unsubstantiated. The Committee noted inconsistencies in cash balances between the two submitted balance sheets and significant differences in unsecured loans and sundry debtors. Concluding that Ramalingam failed to exercise due diligence, the Committee ordered his name to be removed from the Register of Members for six months and imposed a fine of Rs. 50,000. Failure to pay the fine within 90 days would result in an additional one-month removal from the Register.
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, 19491]
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/105/15-DD/111/2015-DC/797/2018
In the matter of:
Shri V. Ganesan, DGM (ARD), Catholic Syrian Bank
Versus
CA P. Ramalingam
MEMBERS PRESENT:
CA. Charanjot Singh Nanda, Presiding Officer
Smt. Anita Kapur, Government Nominee
Dr. K. Rajeswara Rao, Government Nominee
CA. Sushil Kumar Goyal, Member
CA. Piyush S. Chhajed, Member
The following party was also present:
(i) Advocate, B. Ramana Kumar — Counsel for the Respondent (appeared through video conferencing from his personal location)
Date of Hearing: 25th June 2024
Date of Decision taken: 18th July 2024
Date of Order: 24th October, 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 10th February 2020, the Disciplinary Committee was, inter-alia, of the opinion that CA. P. Ramalingam (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 brief facts of the case are that the Respondent had signed the balance sheet alongwith Form 3CB and 3CD in respect of the proprietary firm namely M/s Iswari Spinning Mills, Dindigul (hereinafter referred to as the firm’) for the Financial year 2012-13 on 28.09.2013 and the financials were dated 12.07.2013. The Complainant bank had lent a sum of Rs. 45.80 crores against the hypothecation of stocks/book debts under the C.C. limit. to the firm. Thereafter, the stock audit was conducted by the Complainant bank in the year 2014-15 which reflected the non-existence of stock. On being questioned by the Bank, the Respondent submitted another set of the Financial statements to the Complainant Bank. The Complainant Bank noticed discrepancy in both sets of financial statements.
3. Accordingly, the Complainant Bank had raised following two charges against the Respondent:
a. The Respondent knowing the fact that stocks did not exist, certified the balance sheet of the firm with inflated stocks that resulted in serious erosion to the Complainant bank’s security value thereby resulting in financial loss to the bank.
b. That the balance sheet submitted to the bank at the time of sanction/renewal i.e. while giving his opinion on 30.09.2013 is different from the one which is submitted to the bank when the Complainant Bank questioned the Respondent after the stock audit.
4. That pursuant to the said findings, an action under Section 216(3) of the Chartered Accountants Act, 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 or through his authorised representative and to make representation before the Committee on 25th June 2024.
5. The Committee noted that on the date of the hearing held on 25th June 2024, the Respondent was not present for the hearing. However, his Counsel had appeared through Video Conferencing for hearing. The Committee noted that Montle Madras High Court (Madurai Bench) in the matter of P. Ramalingam Vs. The Institute of Chartered Accountants of India vide order dated 5th October 2023 allowed the Respondent to be represented through an authorized representative considering his age of 72 years. Accordingly, the Committee in the extant matter permitted the Respondent to be represented through his Counsel. The Committee noted that the Counsel for the Respondent in his oral submissions relied on earlier written representations filed by/ on behalf of the Respondent. The Committee noted that apart from the same, the Counsel for the Respondent had nothing further to say on merits on the findings of the Committee. Upon consideration of the facts and circumstances of the case and after due deliberations, on the Report, the Committee decided to reserve its order in the matter. Thereafter, this matter was placed for decision in the meeting held on 18th July 2024.
6. The Committee noted that the Counsel for the Respondent in his oral submissions relied on earlier written representations dated 11th June 2024 and 18th June 2024 filed by/ on behalf of the Respondent wherein he inter-alia stated as under:
a) That the two balance sheets necessarily contains differential figures, as the constituting figures are relating, one to the full balance Sheet of the concern as a whole and the other is exclusively for the Head office alone (segment wise working sheet). Hence these documents cannot be compared as a single document.
b) That the ‘Consolidated Balance Sheet’ and ‘Segment wise working sheet’ were provided only based on the request of the client for his internal purpose and there was no intention to make use of it for availing any additional loan or advance from any financial institution.
c) In fact, the loan was availed by the client, much ahead of the date of the documents and during that period of availing the loan, he has not issued any , document of any nature.
d) That the even after the Balance sheet was issued by him for FY 2012-13, another 11Balance Sheet was issued for 2013-14 by another Chartered Accountant, i.e. CA. M. Balasubramaniam and based on the strength of the Balance sheet so issued for 2013-14, the loans were renewed, without any objection or scrutiny.
e) That no official appointment letter was ever issued by the said Bank, for engaging “him for conducting the tax audit of the Company, at any point of time. Thus, as ‘concluded by the Appellate Authority in its order in the similar case of the Complainant vs. M. Balasubramaniam, there was no privity of contract existing, between him and the concerned Bank. Hence as per the ratio of order of the Appellate Authority, the ongoing enquiry proceedings, before the Disciplinary Committee, should be dropped fully and finally, by rejecting the complaint in toto.
f) The day to day verification of the physical stock has to be done by the Bankers Only at periodical visits and inspection. The same is not within the domain of the Chartered Accountant. The Chartered Accountant issuing the certificate would rely upon only on the books of stock and other materials provided to him and on the strength of the same.
7. The Committee, with regard to submission of the Counsel for the Respondent that the reason for the difference is that one of the balance sheets is for the head office alone and the next balance sheet is for the entire concern, noted that nothing was mentioned by the Respondent on the face of the balance sheet to establish his submission regarding another set relating to segment of business (i.e. Head Office). It is also noted that as per the Respondent, Balance sheet submitted earlier is for the entire concern and the subsequent is for head office alone however, on perusal of balance sheets it is observed that balance of cash in hand in balance sheet of head office was Rs. 16,90,623.95 whereas amount of cash in hand in the balance sheet of entire concern was Rs. 66,420.00, which means certain other remaining segments of business were having negative cash balance which is practically not possible.
8. The Committee further noted that the stock constitutes 64% of total assets and the Respondent with regard to its valuation had merely relied on the asessee. It was further noted by the Committee that stock in trade figures amounting to approx. Rs.51.88 crores are same but there is a difference in the total of Rs.21 crores (approx.) in the two balance sheets. The total of one balance sheet amounts to Rs. 101,09,62,656/- whereas total of another balance sheet was Rs.80,48,46,211/-. The Committee further noted that there was difference of Rs.18 crores and 1.22 (approx.) in the figures of unsecured loan and sundry debtors in both the balance sheets.
9. The Committee accordingly noted that the Respondent failed to exercise due diligence in conduct of his professional duties and conduct of the Respondent constitutes Professional Misconduct as per Item (7) of Part 1 of the Second Schedule to the Chartered Accountants Act, 1949.
10. As regards submission of Counsel for the Respondent regarding similarity of case, the Committee noted that the facts of present matter were different from the case referred by the Counsel for the Respondent as in the present matter the Respondent had signed two different sets of financials containing different figures. Hence, the plea of the Counsel for the Respondent is not maintainable.
11. The professional misconduct on the part of the Respondent is clearly established as spelt out in the Committee’s findings dated 10th February 2020 which is to be read in conjunction with the instant Order being passed in the case.
12. The Committee, hence, viewed that the ends of justice will be met if appropriate punishment commensurate with his professional misconduct is given to him.
13. Accordingly, the Committee, upon considering the nature of charge and the gravity of the matter ordered that the name of P. Ramalingam be removed from Register of Members for a period of 6 (six) months and a fine of Rs.50,000/I (Rupees Fifty Thousand only) be imposed upon him, to be paid within 90 days of the receipt of the order and in case of failure in payment of fine as stipulated, , the name of the Respondent be removed for a further period of 1 month from the Register of Members.
Sd/-
(CA. CHARANJOT SINGH NANDA)
PRESIDING OFFICER
Sd/-
(SMT. ANITA KAPUR)
GOVERNMENT NOMINEE
Sd/-
(DR. K. RAJESWARA RAO)
GOVERNMENT NOMINEE
Sd/-
(CA. SUSHIL KUMAR GOYAL)
MEMBER
Sd/-
(CA. PIYUSH S CHHAJED)
MEMBER
DATE: 24th October, 2024
PLACE: New Delhi
