Disciplinary Committee (Bench-II) of the Institute of Chartered Accountants of India (ICAI), under Section 21B(3) of the Chartered Accountants Act, 1949, found CA. Pawan Kumar Jain, Indore, guilty of professional misconduct in connection with audit reports for the financial years 2016–17 and 2017–18. The Committee held that Jain was casual in his approach, citing inconsistencies and errors such as unverified figures of debentures, contradictory statements on fixed assets, and failure to correctly identify debentures as deposits under the Companies (Acceptance of Deposits) Rules, 2014. Although Jain claimed these mistakes were inadvertent and without malafide intent, and highlighted that they occurred during his early years of practice, the Committee determined that the professional standards expected were not met. Jain acknowledged his errors both in writing and during hearings, expressing regret and committing to greater diligence going forward. Despite his cooperation, the Committee concluded that the misconduct warranted disciplinary action. As a result, the Committee reprimanded CA. Pawan Kumar Jain and imposed a fine of ₹50,000, to be paid within 60 days from the receipt of the order dated 21st January 2025.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
[DISCIPLINARY COMMITTEE [BENCH-II (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/355/2022/DD/232/2022/0C/1724/2023]
In the matter of:
Shri Mukesh Kumar Soni,
Versus
CA. Pawan Kumar Jain
Members Present (in person): –
CA Ranjeet Kumar Agarwal, Presiding Officer
Smt. Rani S. Nair, Government Nominee
Shri Arun Kumar, Government Nominee
CA. Sanjay Kumar Agarwal, Member
CA. Cotha S Srinivas, Member
Respondent
Date of Hearing : 16th December 2024
Date of Order : 21st January 2025
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 was, inter-alia, of the opinion that CA. Pawan Kumar Jain , Indore (hereinafter referred to as the ‘Respondent’) is 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. That pursuant to the said Findings, an action under Section 21B (3) of the Chartered Accountants (Amendment) Act, 2006 was contemplated against the Respondent and a communication was addressed to him thereby granting opportunity of being heard in person / through video conferencing and to make representation before the Committee on 16th December 2024.
3. The Committee noted that on the date of the hearing held on 16th December 2024, the Respondent was present through Video Conferencing and made his verbal representation on the Findings of the Disciplinary Committee, inter-alia, reiterating his submissions dated 11th December 2024 and further requested for a lenient and compassionate view in this case.
4. The Committee also noted that the Respondent in his written representation dated 11th December 2024 on the Findings of the Committee, inter-alia, stated as under: –
(a) The errors in the financial statements, which he acknowledged during the Committee hearing, were entirely inadvertent and occurred without any malafide intent.
(b) These unintentional mistakes did not result in any default of public funds or liabilities.
(c) A review of the audited financial statements confirms that no borrowings from financial institutions or similar entities were recorded during the relevant audit period.
(d) These mistakes occurred during the initial years of Respondent’s practice (the Respondent is a member of ICAI since 21st September 2016 and holding Certificate of Practice since 4th Jan 2017).
(e) Since then, he has made every effort to enhance his knowledge and improve his professional practices.
(f) The Respondent has fully cooperated throughout these proceedings and accepted the errors made, which were purely accidental and devoid of any malafide intention.
(g) The Respondent undertook to remain vigilant in the future and to discharge his professional responsibilities with the highest degree of diligence, adhering strictly to the auditing standards and Statutory requirements.
5. The Committee considered the reasoning as contained in the Findings holding the Respondent Guilty of Professional Misconduct vis-a-vis written and verbal representation of the Respondent.
6. Keeping in view the facts and circumstances of the case, material on record including verbal and written representation on the Findings, the Committee in respect of the following charge(s) was of the following view:
(a) First Charge: The Committee viewed that the figures of debentures issued as provided in the Audit Report for the FY 2016-17 and 2017-18 are not corroborated with the figures stated in the Financial Statements of the Company audited by the Respondent. As per the provisions of Section 143 of the Companies Act 2013, the auditor should seek and obtain all the information and explanations which to the best of his knowledge and belief are necessary for the purpose of his audit, and if not the details and effect of such information on the financial statements must be mentioned. In the instant case, the Respondent copied the standard remark / comments from the previous year’s audit reports and failed to verify the amount independently with the total value of Debentures as mentioned in the Register of Debentures. Thus, the Committee held that the Respondent was casual while carrying out the audit of the Company for the Financial Years 2016-17 and 2017-18.
(b) Second Charge: The Committee viewed that contradictory information was stated by the Respondent in Annexure to the Auditor’s report that the Company does not own any fixed assets despite the fact that the Company was having fixed assets on which depreciation has also been charged and the same was duly reflected in the financial statement audited by him. The said act of the Respondent clearly indicates that the Respondent adopted a casual approach while signing the audit report. Moreover, the Respondent in his written submissions as well as during the course of hearing on 18th June 2024 accepted his mistake.
(c) Third Charge: The Complainant contended that since the debentures were not secured by the charge on immovable asset of the Company, the number of debentures so issued by the Company must be considered as deposits in terms of the requirement of provision of Acceptance of Deposit Rules 2014. The Committee noted that although the Respondent brought on record the copy of Certificate of Registration of mortgage according to which charge of Rs. 1000,00,00,000/- (One Thousand Crore) had been registered on the assets of the Company on 14th March 2012. However, as on 31st March 2017, the Company was having outstanding debenture of Rs.29.10 crores but the amount of total assets was only Rs.10.01 crore and thus, the total assets of the Company was not sufficient to cover the amount of outstanding debenture as on 31.03.2017. The Committee further noted that there was no asset charged/ mortgaged as security for the repayment of the debentures. However, Rs. 1000 crore charge was created at the time of issue of debentures though the Company’s net-worth was only Rs 5 lakh at that time. Hence, in view of the requirement of Acceptance of Deposit Rules, 2014, the amount so collected, which was not fully secured, falls within the meaning of Deposits in terms of the requirements of Rule 2(c)(ix) of the Acceptance of Deposits Rules, 2014. Accordingly, the amount of debentures so oustanding as on 31.03.2017 should have been treated as deposits in, terms of the requirment of Rule 2(c)(ix) which the Respondent as auditor failed to point out in his audit report. Moreover, the Respondent during the course of hearing held on 18th June 2024 accepted his mistake.
6.1 Hence, professional misconduct on the part of the. Respondent is clearly established as spelt out in the Committee’s Findings dated 25th November 2024 which is to be read in consonance with the instant Order being passed in the case.
7. Accordingly, the Committee was of the view that ends of justice will be met if punishment is given to him in commensurate with his professional misconduct.
8. Thus, the Committee ordered that CA. Pawan Kumar Jain manded and also a Fine of Rs. 50,000/- (Rupees Fifty Thousand only) be imposed upon him payable within a period of 60 days from the date of receipt of the Order.
Sd/-
(CA. RANJEET KUMAR AGARWAL)
PRESIDING OFFICER
Sd/-
(MRS. RANI S. NAIR, IRS RETD.)
GOVERNMENT NOMINEE
Sd/-
(SHRI ARUN KUMAR, IAS RETD.)
GOVERNMENT NOMINEE
Sd/-
(SANJAY KUMAR AGARWAL)
MEMBER
Sd/-
(CA. COTHA S SRINIVAS)
MEMBER
