Registrar of Companies Vs CA. Rajib Kumar De (ICAI Disciplinary Committee)
Mere Designation as “Principal Officer” Does Not Establish a Chartered Accountant’s Complicity in Alleged Digital Lending Malpractices
Summary: The ICAI Disciplinary Committee, Bench II, held CA. Rajib Kumar De not guilty of professional misconduct under Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949, in proceedings initiated by the Registrar of Companies, Kerala and Lakshadweep. The complaint concerned alleged irregularities in the digital lending operations of Inditrade Fincorp Limited, an RBI-registered non-banking financial company. The allegations included excessive interest and processing fees on short-term loans, harassment during recovery, involvement of Chinese-controlled service providers and transfers of funds to alleged shell companies. The complainant alleged that the respondent, who served as Manager and Principal Officer, had connived with the company’s management in these activities.
The Committee rejected the respondent’s preliminary objection concerning authorisation of the complaint. On the merits, however, it considered the chronology of his appointment decisive. The digital lending business had commenced in July 2019, whereas the respondent joined on 2 February 2021. The service agreements had been executed before his appointment, several were terminated before he joined and the remaining arrangements were terminated shortly thereafter. The respondent was not a signatory to those agreements. His appointment letter and Form DIR-12 showed that he served as Manager under the supervision and control of the Board, without establishing that he exercised directors’ powers or participated in the disputed transactions.
The Committee also considered the RBI framework governing fair lending practices and outsourcing, the company’s compliance policies and the circumstances surrounding termination of the service arrangements. Although the allegations against the company’s lending model were serious, the complainant had not established a direct evidentiary connection between the respondent and the alleged misconduct. The Committee distinguished allegations concerning the company’s activities from proof of an individual professional’s participation or breach of duty.
Accordingly, the Committee held that the charges were not substantiated by sufficient evidence, found the respondent not guilty and directed closure of the disciplinary proceedings under Rule 19(2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.
Background and Allegations
The proceedings arose from a complaint filed by the Registrar of Companies against CA. Rajib Kumar De, who served as Manager and Principal Officer of Inditrade Fincorp Limited, formerly known as JRG Fincorp Limited, an RBI-registered NBFC.
The company provided micro loans through digital platforms and mobile applications under agreements with various service providers. These providers undertook activities such as identifying borrowers, collecting documents and KYC information, facilitating loan documentation and assisting in recovery.
The complainant alleged that loans as small as ₹500 were extended with substantial processing fees and excessive interest, and that borrowers faced mental and physical harassment during recovery. It was further alleged that Chinese nationals controlled the operations and that substantial funds were transferred to shell companies.
The charge was that the respondent had connived with management in facilitating these activities, attracting disciplinary action under Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949.
Objection to Authorisation of the Complaint Rejected
The respondent initially questioned whether the complaint had been properly authorised under the applicable disciplinary rules.
The Committee found that the complaint had been authorised by the Regional Director, Southern Region, Ministry of Corporate Affairs, an officer of Joint Secretary level, and signed by the Registrar of Companies, who was above the prescribed minimum rank.
Consequently, the procedural objection was rejected, and the complaint was examined on its merits.
Date of Joining Was Crucial
The Committee noted that the company’s digital lending business commenced in July 2019, whereas the respondent joined as Manager and Principal Officer only on 2 February 2021.
The relevant service agreements had been entered into before his appointment. Four agreements were terminated in January 2021, before he joined, while three others were terminated in March 2021.
The respondent was not a signatory to the service agreements and was not employed by the company when the business model was established. The Committee also noted that he facilitated closure of the digital lending business shortly after joining.
These facts were material because the complaint sought to connect him with arrangements and activities that substantially preceded his employment.
Actual Role Must Be Established Through Evidence
The respondent produced his appointment letter and Form DIR-12. His appointment was as Manager for a fixed tenure and remuneration, functioning under the supervision, control and direction of the Board of Directors.
The Committee found that these documents established an employer–employee relationship and did not demonstrate that he was a director or exercised powers equivalent to those of a director.
No material established that he participated in Board decisions, executed the service agreements, authorised the disputed transactions or controlled the alleged activities.
The Committee expressly observed that mere designation as “Principal Officer”, or appearance in corporate records, was insufficient to impose professional liability without evidence of active involvement or a direct nexus with the alleged misconduct.
Regulatory Framework and Termination of Agreements
The Committee considered the applicable RBI framework concerning interest policies, fair practices and outsourcing. It noted that outsourcing did not diminish the NBFC’s responsibility for regulatory compliance and effective oversight of digital lending platforms.
The respondent produced the company’s Interest Rate Policy, Fair Practice Code and Grievance Redressal Policy, and submitted that the relevant disclosure and compliance requirements had been implemented.
He further explained that, after learning of criminal proceedings against certain service providers and the freezing of the company’s bank accounts, the company terminated the concerned arrangements as a precautionary measure.
The Committee noted that termination was permitted under the contractual terms. It also recorded that the respondent’s submissions concerning compliance were supported by the absence of adverse findings in the RBI inspection referred to in the proceedings.
Allegations Against the Company Did Not Prove Individual Misconduct
The Committee found that the complainant had not produced evidence connecting the respondent personally with the alleged Chinese-controlled operations, transfers to shell companies or other disputed activities.
The complainant was absent at the hearing and did not substantively rebut the respondent’s documentary evidence. The decisive consideration was the absence of sufficient evidence establishing his involvement, rather than merely the complainant’s non-appearance.
The respondent’s appointment records, the chronology of the agreements and the evidence concerning his limited role remained uncontroverted.
Decision
The Committee held that the charges were not substantiated by sufficient evidence. CA. Rajib Kumar De was therefore held not guilty of professional misconduct under Clause (1) of Part II of the Second Schedule, and the proceedings were closed under Rule 19(2).
Author’s Comments
The decision emphasises that serious allegations against a company cannot automatically establish misconduct by every Chartered Accountant employed by it. Disciplinary responsibility requires examination of the individual’s tenure, functions, authority and demonstrated participation.
However, employee status is not, by itself, immunity from disciplinary action. The finding rests on the absence of evidence connecting this respondent with the alleged wrongdoing. Equally, the discussion should not be read as establishing that a statutory manager can never be a KMP; designation, statutory status and proof of misconduct are distinct questions.
The practical lesson is that appointment documents, clearly recorded responsibilities and a reliable chronology can be decisive when allegations seek to attribute an organisation’s conduct to an individual professional.
