Simon M.S. Vs CA Venkatrao Vayuvegula Subba Rao (ICAI Disciplinary Committee)
Vendor Payments Alone Do Not Prove Loan Utilisation: ICAI Orders Three-Month Removal of CA
Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI), Bench-II, by its final order dated 15 October 2026, held CA Venkatrao Vayuvegula Subba Rao (Membership No. 030916) guilty of professional misconduct for issuing utilisation certificates without obtaining sufficient independent evidence establishing the actual end use of borrowed funds. The disciplinary proceedings arose from a complaint by Simon M.S., Chief Manager–Vigilance, CSB Bank Limited, concerning certificates issued for Aspire Fitness Private Limited. The Committee found misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, relating to failure to exercise due diligence or gross negligence in professional duties. Following findings pronounced on 29 August 2026, it ordered a reprimand, removal of the respondent’s name from the Register of Members for three months and a fine of ₹1,00,000, payable within 60 days from receipt of the order. The decision establishes that a professional certificate concerning the sanctioned utilisation of borrowed funds must be supported by evidence appropriate to the assurance actually expressed; verification of payments to named suppliers is not necessarily verification of their ultimate application.
The dispute originated from a term loan of ₹37.50 crore sanctioned by Catholic Syrian Bank Limited on 8 October 2018 to Aspire Fitness Private Limited for establishing 20 new gyms. The aggregate project cost was ₹50 crore, with the borrower required to contribute a margin of at least 25%. The bank disbursed ₹28,40,46,482 in four instalments between December 2018 and March 2019. According to the borrower’s representations, approximately ₹9.46 crore of its own contribution was added to the disbursements, and an aggregate of approximately ₹37.86 crore was paid to two designated vendors. Gympac Fitness Systems Private Limited received ₹23,76,53,128 towards gym equipment, while Nitash Engineering and Consulting Private Limited received ₹14,10,42,181 towards interior works. The respondent issued utilisation certificates dated 7 March 2019 and 31 May 2019 after examining proforma invoices, work orders, vendor receipts, bank statements and explanations supplied by the borrower. He maintained that these documents showed that payments were made for the sanctioned project and that subsequent transactions undertaken independently by the vendors were beyond his professional engagement.
The bank’s investigation, however, identified onward transfers from the vendors to Talwalkers Group entities and other related companies. The disciplinary findings referred to a communication dated 27 September 2019 from Standard Chartered Bank showing that approximately ₹23.76 crore was credited to Gympac on 4 December 2018, followed on 5 December 2018 by transfers of approximately ₹20.76 crore to Growfitter Private Limited and ₹2.50 crore to Talwalkers Better Value Business. The record also discussed transfers from Nitash to Talwalkers Lifestyles. These banking records formed the basis of the bank’s allegation that loan proceeds had been diverted from the intended gym-development project. The respondent denied collusion and stated that he had no access to the vendors’ independent bank accounts. The Committee’s operative misconduct finding was not a separate determination of personal collusion but the respondent’s failure to perform adequate verification procedures before certifying utilisation. It regarded the substantial onward transfers as relevant evidence of why confirmation of the initial vendor payments was insufficient.
A central defence was that the certificates were interim utilisation certificates, issued while the project remained incomplete. The respondent explained that gym equipment had not been delivered, interior work had not been completed and final invoices, delivery challans and physical assets were consequently unavailable for inspection. He submitted that the advances had been recorded in the borrower’s books and supported by vendor acknowledgements, proposed delivery schedules and contractual documents. He also referred to the ICAI Guidance Note on Reports or Certificates for Special Purposes (Revised 2016), emphasising professional judgment, engagement limitations and reliance on available records. The Committee nevertheless examined the substance of the certification, particularly the representation that funds had not been used for purposes other than establishing gyms. It held that an interim designation did not remove the obligation to undertake reasonable procedures supporting that broader assertion. The distinction between certifying that money had been paid to vendors and certifying that money had actually been utilised for the sanctioned purpose was decisive.
The Committee further observed that the lending bank had itself made payments directly to the designated suppliers and contractor. Accordingly, merely verifying those transfers added little independent assurance about the project’s actual progress or the application of funds. The Committee found no demonstrated physical verification or other adequate corroborative procedures establishing the existence, delivery, installation or operational status of the assets for which the loan had been sanctioned. While acknowledging that the respondent was neither the company’s statutory auditor nor its internal auditor and could not ordinarily examine unrelated suppliers’ complete records, it held that the limitations of an engagement must be considered when deciding what conclusions can properly be certified. A professional unable to obtain evidence supporting a broad end-use assertion cannot overcome that deficiency simply by describing the certificate as interim or relying on the borrower’s representations. This reasoning is consistent with the importance of independent verification before issuing professional certificates.
The respondent also argued that the bank had failed to enforce certain sanction conditions promptly and had taken comparatively limited action against its own officials. He asserted that he had acted honestly, received no financial benefit, had no relationship with the vendors or recipient group entities and had not participated in the alleged diversion. The Committee considered these submissions but held that alleged shortcomings by the bank did not extinguish the respondent’s independent duty to exercise professional due diligence. The relevant issue was whether sufficient evidence had been obtained to justify the conclusions contained in the certificates. The disciplinary findings also recorded the respondent’s reliance on judicial authorities concerning the distinction between professional misconduct, negligence and honest errors of judgment, including the principle associated with Re Kingston Cotton Mill. Those submissions did not persuade the Committee that the verification performed was adequate in the circumstances.
At the punishment stage, the respondent submitted that he was 74 years old, suffered from severe hearing impairment and had completed approximately 48 years of professional practice without a disciplinary blemish. He requested a compassionate view and elected not to attend the final hearing, asking the Committee to consider his written representations. After considering the seriousness of the established charge and the material on record, the Committee imposed a reprimand, three-month removal from the Register of Members and a fine of ₹1 lakh. The decision illustrates the distinction between a certificate of payment and a certificate of actual utilisation: a professional engaged to certify the end use of funds must obtain evidence sufficient to support that conclusion, appropriately address limitations and exercise professional scepticism where the available information does not establish that funds have remained deployed for the sanctioned purpose.
The ICAI Disciplinary Committee has reprimanded CA Venkatrao Vayuvegula Subba Rao, ordered removal of his name from the Register of Members for three months, and imposed a ₹1 lakh fine for issuing utilisation certificates without adequately verifying the actual end use of borrowed funds.
The Committee held that checking payments to designated vendors did not establish that the funds were deployed for the sanctioned purpose. Describing certificates as “interim” did not dilute the professional responsibility attached to the conclusions expressed.
The final order dated 15 October 2026 followed findings dated 29 August 2026 in Case No.PR/326/2020-DD/351/2020-DC/1656/2022. The fine is payable within 60 days of receipt of the order. The case appears in the ICAI’s official disciplinary orders register.
Loan Sanctioned for Establishing 20 Gyms
The complaint was filed by Simon M.S., Chief Manager–Vigilance, CSB Bank Ltd., concerning certificates issued for Aspire Fitness Private Limited.
The bank sanctioned a ₹37.50 crore term loan on 8 October 2018 for establishing 20 new gyms, with an aggregate project cost of ₹50 crore and a borrower contribution of at least 25%.
The respondent issued utilisation certificates dated 7 March 2019 and 31 May 2019.
Following an investigation, the bank alleged that borrowed funds had been diverted to group entities instead of being used for the sanctioned project.
Certificates Covered Substantial Vendor Payments
The findings recorded bank disbursements totalling approximately ₹28.40 crore.
Together with the borrower’s stated contribution of approximately ₹9.46 crore, the company represented that about ₹37.86 crore had been paid to two vendors.
These comprised approximately ₹23.76 crore to Gympac Fitness Systems Pvt. Ltd. for gym equipment and ₹14.10 crore to Nitash Engineering and Consulting Pvt. Ltd. for interior works.
The respondent relied on the borrower’s books, proforma invoices, work orders, vendor acknowledgements, bank statements and management explanations when issuing the certificates.
His position was that subsequent movement of funds by the vendors was outside his assignment.
Bank Records Indicated Diversion to Group Entities
The Committee examined banking communications and account statements showing subsequent transfers from the suppliers and contractors to Talwalkers Group entities and other related entities.
For example, the findings referred to an approximately ₹23.76 crore inward credit to Gympac, followed the next day by transfers of ₹20.76 crore and ₹2.50 crore to two entities.
The Committee considered these records indicative that the funds had not remained deployed for the purpose for which the loan was sanctioned.
Its misconduct finding rested on the respondent’s failure to obtain adequate evidence supporting his certificates, rather than an express conclusion that he had colluded in the alleged diversion.
“Interim” Description Did Not Remove Verification Duty
The respondent argued that the certificates were interim utilisation certificates, not final end-use certificates.
He explained that interior work remained incomplete and equipment had not been delivered by the second certificate date. Consequently, final invoices, delivery records and physical equipment were unavailable for verification.
The Committee nevertheless focused on the assurance actually expressed: that funds had not been used for any purpose other than setting up gyms.
Such a statement required reasonable verification of utilisation, even if the project was incomplete. Verification of transfers to vendors alone could not support the broader conclusion.
Independent Corroboration Was Missing
The Committee noted that the bank had itself directly disbursed funds to the designated suppliers and contractor. Merely confirming those payments therefore did not fulfil the purpose of obtaining an independent professional certificate.
It found no evidence of physical verification or other corroborative procedures establishing actual utilisation or the existence and operational status of the assets purportedly acquired.
The certificates were issued after the relevant disbursements, providing an opportunity for additional verification. However, the respondent did not demonstrate procedures commensurate with the assurance given.
Limited Engagement Did Not Dilute Professional Responsibility
The respondent emphasised that he was neither the statutory auditor nor the internal auditor and lacked access to the vendors’ bank accounts.
The Committee acknowledged these limitations but held that they did not reduce the professional obligations arising from certification.
It did not require an unrestricted audit of supplier records. Its concern was the absence of sufficient independent evidence reasonably supporting the certified utilisation.
The respondent’s allegations of procedural failures by bank officials also did not displace his own responsibility. Good faith could not substitute for due diligence and professional scepticism.
Reprimand, Removal and Fine Imposed
The respondent sought compassion, citing his age of 74 years, severe hearing impairment and 48 years of unblemished professional practice.
After considering his representations and the gravity of the findings, the Committee held him guilty under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
It imposed a reprimand, three-month removal and ₹1 lakh fine. The order highlights that utilisation certification requires evidence supporting the stated end use, extending beyond proof that money reached the named vendors.
