ICAI Fines CA for Misstatements in NBFC Audit

Disciplinary Committee (Bench-I) of the Institute of Chartered Accountants of India (ICAI), in its order dated June 26, 2024, found CA Uttam Kumar Chauhan guilty of professional misconduct under Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

The complaint, filed by Shri Vineet Rai, Deputy Registrar of Companies (West Bengal), pertained to the audit of Pioneer Financial & Management Services Ltd. for FY 2015–16 and 2016–17. Two key charges were examined:

1. Fabricated Cash Flow Statement:
   The Committee noted that the original audit filings did not include a cash flow statement, which is a mandatory part of financial statements under Schedule III of the Companies Act. While the Respondent later submitted a cash flow statement during the proceedings, the Committee found multiple inconsistencies:

   • Different font and formatting compared to other financials.

   • Company name and director signature placement varied.

   • Membership number missing on the original Balance Sheet but present on the cash flow statement.
     These anomalies led the Committee to conclude the document was prepared as an afterthought to cover up the earlier omission.

2. Revenue Discrepancy in NBFC Reporting:
   Though the company claimed to be a Non-Banking Financial Company (NBFC), its income disclosures included only consultancy and commission income, with no interest income. This contradicted the company’s publicly listed activities, which included providing loans directly and indirectly. The absence of interest income raised serious concerns about the reliability of audit reporting. Despite requests, the Respondent failed to submit adequate documentation supporting the reported revenue streams.

After hearing the Respondent’s verbal submissions and reviewing written records, the Committee concluded that CA Chauhan had failed to exercise due diligence and professional skepticism, resulting in materially misleading financial statements.

Penalty:
The Committee imposed a fine of ₹25,000, to be paid within 90 days. If not paid within the prescribed period, the Respondent’s name will be removed from the ICAI Register of Members for 15 days.

Panel Members:

• CA Charanjot Singh Nanda (Presiding Officer)

• Shri Jugal Kishore Mohapatra (IAS Retd., Government Nominee)

• CA Chandrashekhar Vasant Chitale (Member)

This case reaffirms ICAI’s strict stance on audit quality, ethical responsibility, and the need for CA professionals to maintain rigor in audit procedures, especially for regulated entities such as NBFCs.

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

DISCIPLINARY COMMITTEE [BENCH-I (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/G/6013/2022/DD/187/2022/DC/1624/2022]
In the matter of: –

Shri Vineet Rai,
Indian Corporate Law Services,
Deputy Registrar of Companies,
….Complainant

–Vs-

CA. Uttam Kumar Chauhan,
….Respondent

MEMBERS PRESENT: –
CA. Charanjot Singh Nanda, Presiding Officer
Shri Jugal Kishore Mohapatra, IAS (Retd.) (Government Nominee)
CA. Chandrashekhar Vasant Chitale, Member

Date of Hearing :2nd April 2024

Date of Order : 26.06.2024

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 noted that CA. Uttam Kumar Chauhan, (hereinafter referred to as the Respondent”) was held GUILTY of professional misconduct falling within the meaning of Item (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949.

2. That pursuant to the said findings, an action under Section 216(3) of the Chartered Accountants (Amendment) Act, 2006 was contemplated against the Respondent and communication was addressed to him thereby granting opportunity of being heard in person / through video conferencing and to make written & verbal representation before the Committee on 2nd April 2024₁

3. The Committee noted that on the date of the hearing held on 2nd April 2024, the Respondent was present through video conferencing, and he made his verbal submission on the findings of the Disciplinary Committee.

4. In his verbal submission the Respondent inter alia stated that the Company has submitted an application to the ROC for re-submission of the AOC-4 along with the Cash flow statement and have also mentioned that due to their technical and inadvertent mistake they have forget to attach the Cash flow statement in AOC Form which shows that the company had the Cash flow statement at the time of filing of the original AOC Form. Accordingly, he should not be held guilty for the mistake of another CA.

5. The Committee considered the reasoning as contained in the findings holding the Respondent Guilty of professional misconduct vis-à-vis verbal submissions of the Respondent.

6. Keeping in view the facts and circumstances of the case, material on record including verbal submissions of the Respondent on the findings of the Committee, the Committee is ,of the view that the professional misconduct on the part of the Respondent is established. Accordingly, the Committee ordered that a fine of Rs. 25,000/- (Rupees Twenty-Five Thousand only) be imposed upon the Respondent i.e. CA. Uttam Kumar Chauhan,  to be ‘paid within 90 days of receipt of the Order. If the Respondent fails to pay the fine within the stipulated period, his name be removed from the Register of Member for a period of fifteen days.

Sd/-
(CA. CHARANJOT SINGH NANDA) 
(PRESIDING OFFICER)   

  Sd/-
(SHRI JUGAL KISHORE MOHAPATARA),
I.A.S. (RETD.), (GOVERNMENT NOMINEE)

Sd/-
CHANDRASHEKHAR VASANT CHITALE
(MEMBER)

Place : 26.06.2024
Date : New Delhi