Case Law Details

Case Name : Yogendra N. Thakkar Vs Board of Discipline (Appellate Authority)
Appeal Number : Appeal No. 05/ICAI/2019
Date of Judgement/Order : 01/06/2019
Related Assessment Year :

Yogendra N. Thakkar Vs Board of Discipline (Appellate Authority)

1. This appeal has been filed by the Appellant before this Authority against the Order dated 10th February, 2018 passed by the Board of Discipline (BOD) of the Institute of Chartered Accountants of India (Institute) wherein, the Appellant was held guilty of Professional Misconduct under item (11) of Part–I and Other Misconduct under Item (2) of Part–IV of the First Schedule to the Chartered Accountants Act, 1949, (“the Act”) and the order passed by the Board of Discipline under section 21A (3) of the Act whereby the Appellant was awarded punishment of removal of his name from the Register of Members for a period of one month and also imposed a penalty of Rs.1,00,000/- (Rupees One Lakh only) upon him.”

2. The facts giving rise to the present appeal are that one Mr. Vinay D. Balse, the Respondent No.2 herein, has filed a complaint against the Appellant alleging professional and other misconduct under various clauses of First Schedule vide his complaint in Form-I dated 22nd July, 2014. In his complaint, Mr.Vinay D. Balse alleged that the Appellant being a Chartered Accountant in practice was engaged in other business other than the profession of Chartered Accountant without the permission of the Council of the Institute of Chartered Accountants of India so to engage and further as a result of several of his actions against N M Raiji & Co (NMR), the CA Firm in which the Appellant, the Respondent–2 herein and some others are partners, brought disrepute to the profession and the Institute.

3. As is evident from the report of the Board of Discipline, the Appellant was held guilty of professional misconduct under Item (11) of Part-I of the First Schedule on account of his engagement as a Director of Mriyog Investments Private Limited, a company which was promoted by him along with his family members in which he was holding 90% of the equity, without taking the permission of the Council and was further held guilty of other misconduct under Item (2) of Part-IV of the First Schedule to the Act for his actions against NMR and against his other partners in the firm, which brought disrepute to the profession and institute at large.

4. The Appellant has assailed the order of the Board of Discipline on various grounds of appeal as stated in Para (6) of his appeal, which are reproduced below:

i) The impugned orders are grossly erroneous, arbitrary, unreasonable and contrary to law. The impugned orders show a premeditated conduct of the Respondents in order to prosecute the Appellant.

ii) The impugned orders are passed in violation of principles of natural justice and fairness. The impugned orders are unreasoned.

iii) The Appellant and Respondent No.2 are partners in NMR, a reputed firm of CAs. There have been long standing disputes and differences between the partners of NMR including the Appellant and Respondent No.2. The said complaint was filed only on account of the disputes and differences between the partners of NMR with the sole object to pressurize and harass the Appellant.

iv) The impugned orders interfere with and give findings on the disputes between the partners of NMR, several of which are pending adjudication before appropriate forums.

v) The impugned orders do not offer any reason and do not deal with the Appellant submissions and contentions. The impugned orders proceed with a premeditated approach designed to hold the Appellant guilty. The BOD has far exceeded its jurisdiction and dived into the civil disputes between the partners of NMR, that are pending adjudication before various forums. The impugned orders are liable to be set aside for this reason alone.

vi) The Appellant is not guilty of any misconduct and / or wrong doing under the First Schedule of the said Act. The allegations against the Appellant are false, bogus and unsustainable. Respondent No.2 has other disputes and legal proceedings with the Appellant that are pending and the said complaint is nothing but a backlash and attempt to harass and intimidate the Appellant. The BOD has without any basis or reason, far exceeded its jurisdiction and authority and rendered findings on issues (which are pending adjudication before other legal forums) without the relevant material.

5. In continuation of the above grounds of appeal and in response to various charges under which he was held guilty by the BOD, the Appellant filed further Written Submissions, which in brief are as under:

(i) 1st charge – The Appellant held NMR to ransom and demanded increase in his share in the profit of the firm:

The Appellant submitted that at the outset this charge is barred by law of limitation as the charge was raised after 7 years.

Without prejudice to the above, the Appellant further stated that this matter was before various arbitrators and finally reached the Bombay High Court and this being a civil matter, the charge of the BOD is unsustainable and he has every right to have recourse to legal remedies available which are being exploited by him in the appropriate forum.

(ii) 2nd charge– The Appellant manipulated the arbitration process and the Hon’ble Bombay High Court passed strictures and levied costs of Rs.2, 00,000/-on the Appellant.

The Appellant submitted that at the outset this charge as levied is barred by the law of limitation being more than 7 years under the Rules.

Without prejudice to the above, the Appellant further stated that the Bombay High Court has not held that the Appellant has manipulated the arbitration process. The Appellant cannot be blamed for the conduct of his nominee arbitrator. An Arbitrator, once appointed under the Arbitration and Conciliation Act, 1996, is independent and he is governed by the provisions thereof and his actions cannot be attributed to any party to the arbitration. This allegation also ought to have been rejected under Rule 12.

The Appellant further added that, the levy of costs on the Appellant by the Hon‟ble Bombay High Court is not indicative of or a finding on alleged manipulation of the arbitration process by the Appellant and there is no basis in law to reach such a conclusion. In view of this, the findings / decision of the BOD on this charge are unsustainable, illegal, perverse, incorrect and liable to be quashed and set aside.

(iii) 3rd charge The Appellant refused to sign the cheques for making salary to employees and other payments as per the consent order passed by the Hon’ble Bombay High Court.

The Appellant submitted that the Respondent No.2 in his Statement of Claim dt.17.03.2016 (filed before Sri. Jayanth Gokhale, Arbitrator) alleged refusal of signing of cheques by the Appellant and stated that the Respondent -2 had filed Arbitration Application No.244 of 2012 since the Appellant continued to refuse to sign the cheques stating that the matter was under arbitration due to which the claimant was forced to make payments towards expenses relating to practice.

The Respondent -2 also filed a contempt petition No.21 of 2017 on 9th December 2016 against the Appellant for refusal of the signing of cheques by the Appellant.

As a counterblast and as there was non-compliance by the Respondent No.2, the Appellant has also filed Contempt Petition No.60 of 2017.

By an order of 26th March 2019, the Appellant and the Respondent No.2 agreed to sign the cheques and abide by the order of Bombay High Court dt. 06-05-2013.

In these circumstances, findings arrived at by the BOD are required to be set aside.

(iv) 4thcharge The Appellant engaged in other business as a Director of M/S MRIYOG Investments Pvt. Ltd. and has signed the balance sheet for this company for F.Y. 2012-13.

The Appellant submitted that the BOD has come to the conclusion that the Appellant is a deemed Managing Director of the captioned company in terms of Sec.2 (26) of the companies Act, 1956, though there is no such concept in sec.2 (26). Further, the Respondent-2 has not been able to bring and/or show any cogent and positive evidence that the Appellant was not a “Director – simplicitor”. Further, the Code of Ethics does not prohibit a CA to be a Director and a signatory to the Memorandum and Articles of Association of any company. The finding arrived by the BOD was based on the documents which were referred to in paragraph 7 of its order, none of which conclusively proves that the Appellant was either a Managing Director or a whole-time Director or Auditor of Mriyog Investments Pvt. Ltd. Hence, the Board‟s conclusion is patently illegal and erroneous. In fact the DD has himself expressed his doubts stating that it appears to him that the Appellant is a Managing Director.

(v) 5th charge The Appellant brought disrepute to the profession as he published the resignation letter of CA. Jayesh M. Gandhi in the newspaper and wrote threatening letters to the clients of CA Jayesh M. Gandhi.

The Appellant submitted that a bare perusal of the public notice issued by the Appellant makes it evident that apart from communicating a mere fact of resignation of Jayesh M. Gandhi from the firm, no other information was divulged to the public. The records of Registrar of Firms and the ICAI would have to be consequently changed and hence, issuance of a public notice of a simple fact that is a part of the public record cannot bring disrepute to the profession. The Board has misconceived the explanation given by the Appellant and erroneously arrived at findings which cannot be sustainable.

In the circumstances, the Appellant submitted that the decision of the BOD dated 10th February 2018 and dated 12th January 2019 be set aside.

6. On the other hand, the Respondent No. 2, in addition to drawing the attention to the documents submitted before the Director (Discipline) and the BOD at the time of filing the complaint and thereafter in the course of hearings, a copy of which is already available with the Authority, submitted the following further information during the course of hearings of this appeal:

i) That the Appellant was admitted a partner of NMR w.e.f. 01-01-1999 and as per the latest amended deed of partnership dt.24-04-2000 (effective from 01-04-2000), the Appellant‟s share of profit in the firm was 5% only.

ii) That the Appellant, within a period of less than one year from the deed of partnership last executed, has demanded for increase of his share in the profit from 5% to 20% vide his letter dt.22-02-2001 followed by several other letters / mails and also disturbed the working atmosphere in the firm by raising many issues of irrelevance with partners.

iii) That the Appellant initiated arbitration proceedings within less than one year from the date o f last amended deed of partnership, vide his letter dt.19-3-2001 to Mr. Arun Jaswantlal, the arbitrator named in the partnership deed.

iv) When Mr. Arun Jaswantlal declined to act as the arbitrator, the Appellant initiated severa l other arbitration proceedings and appointed arbitrators of his choice for which the Partners of NMR did not agree. Finally, each of the partners of NMR appointed their own arbitrator on the Arbitral Tribunal. Thereafter, Mr. Deepak Sukhija, the last arbitrator appointed by the Appellant has resigned from the Tribunal.

Thereafter, the Appellant appointed one Mr. Gautam Ashra as his nominee arbitrator on the Arbitral Tribunal. In the process, though 2 of the other nominee arbitrators have resigned from the Tribunal, the Appellant wrote a letter to all the 9 arbitrators (including the resigned two members) to go ahead with the arbitration. Since many of the arbitrators have resigned, Mr. Gautam Ashra, the nominee of Appellant assumed the jurisdiction as a sole arbitrator and made an award dated 16-12-2004 in which he ordered expulsion of four of the partners of NMR including the respondent No.2 herein. Against this arbitration award, the respondent and other expelled partners moved the Bombay High Court which has struck down the arbitration award and passed strictures and levied costs of Rs.2.00 lakhs on the Appellant herein. The Appellant has not appealed against this order of Bombay High Court.

v) Further, in July 2001, the Appellant filed a complaint in Sion Police station, Mumbai but as the same was not entertained by the police as it was Civil in nature, he filed a complaint in July 2002 in the Metropolitan Court with several false and baseless allegations. The complaint filed by the Appellant was finally disposed off by the Bombay High Court on 13-08-2010, dismissing all his allegations as baseless.

vi) That the Appellant has not signed the cheques of the firm from May 2012 onwards, which were to be released to the staff and for other office expenses, which resulted in other partners making the payment from their own funds to the tune of Rs.1.71 crores.

The matter was taken to Bombay High Court which in its interim orders dt.06-11-2012 directed the Appellant to cooperate in releasing the payments. The court passed final orders on 06-05-2013 wherein the Appellant was directed to sign and release the cheques.

vii) The Appellant has initiated proceedings for dissolution of the firm NMR in August 2016 by filing an arbitration application in Bombay High Court, which is pending. The Appellant since July 2016, without any basis, stopped signing the cheques of the firm.

viii) The Appellant has written a threatening letter to some of the clients of the firm, who were handled by another partner, Mr. Jayesh M Gandhi, when Mr. Gandhi gave notice of his retirement from the firm. The Appellant also published a notice in newspapers about the retirement of the said partner from the firm NMR.

ix) The Respondent further stated that the Appellant by engaging himself as a Promoter and Director of a private limited company, “Mriyog Investments Pvt. Ltd” by holding 90% of equity, without obtaining the specific permission of ICAI, has committed professional misconduct under item (11) of Part I of First Schedule to the Act.

The respondent stated that all the above actions of the Appellant brought disrepute to the profession which is “other misconduct” under item (2) of Part-IV of First schedule and professional misconduct under item (11) of Part-I of the First Schedule to the Act and accordingly, the BOD held him Guilty under these two items of First Schedule. The Respondent No. 2 submitted that the orders of the BOD shall be upheld. The Respondent No. 1 also stated that the orders of the BOD shall be upheld.

7. We have heard the rival submissions of the parties, examined all the documents, pleadings and evidences produced before us and the lower authorities and noted the following:

(i) The Appellant has been creating several hurdles in the smooth functioning of the firm NMR’ right from the year in which the firm was reconstituted last, i.e. 2000 by demanding enhancement of his share of profit from 5% to 20%; initiating steps for dissolution of the firm, filing baseless and frivolous complaints against firm / partners in Police Stations, Civil Courts and High Court; not signing the cheques of the firm for many years etc.

(ii) The Appellant has written threatening letter to some of the clients of the firm who were handled by another partner, Mr. Jayesh M. Gandhi and also published a notice in newspaper when the said Mr. Gandhi served a retirement notice on the firm.

(iii) In the matter of arbitration award of the firm, the Hon’ble Bombay High Court passed strictures against the Appellant, struck down the arbitration award and levied costs on the Appellant and the Appellant paid the costs and not preferred any appeal against the said orders.

(iv) The Appellant has promoted a private limited company viz., “Mriyog Investments Pvt. Ltd” along with his son and was its director and held 90% of equity by himself and signed important documents of the company such as Directors Report and Financial Statements in his capacity as Director for which he has not taken the permission of ICAI.

8. Now, we examine the charges / grounds on which the BOD held the Appellant guilty of Professional and Other misconduct and the submissions of the Appellant and Respondent thereon:

(i) Professional misconduct:

The charge under which the Appellant was held guilty of professional misconduct was item (11) of Part I of First Schedule for his engagement in business without obtaining the prior permission of ICAI.

As narrated above, the Appellant promoted a company with his son; was its first Director and held 90% of the equity.

Though the Appellant has vehemently argued that he was never a MD/Whole-time Director of the company to attract the provisions of item (11) of Part-I of the First Schedule, from the documentary evidences available on record, it is clear that the Appellant cannot claim that he was a “Director – Simplicitor”. The facts coming on record in support of this view are that the Appellant:

√ has promoted and incorporated the company with his son as the 2nd subscriber & director.

√ was the first Director of the company and continued on the Board.

√ held 90% of equity in the company.

√ signed all the important documents of the company as Director.

It is a known fact that most of the private limited companies are nothing but proprietary concerns of the promoters and in all such cases the Directors though at times are not designated as MD/whole-time Director, involve and run these companies as MD / Whole-time Director.

The contention of the Appellant is that he was merely a Director on the Board of the company and he was not engaged in its business activities, which was the requirement to invoke of Clause 11 of the Part I of the First Schedule to the Act and he was wrongly held guilty for misconduct. He submitted that the term “engaged in business” was not defined in the Act‟ or Code of Ethics‟ or elsewhere.

It is a fact on record that though the Appellant was not appointed MD/Whole-time Director, he has not brought any positive evidence on record that the company was run and managed by other Directors of the company and he was not engaged in that business. Moreover, in this case, the other Directors are his young children who were still students and cannot be expected to run an investment company on their own. It was also a fact on record that the Appellant has never approached the ICAI for its specific permission to hold this Directorship, even belatedly.

The Appellant did not deny that he occupied the position of a Director of the company from the inception. However, he submitted that being a Director of the company in itself did not tantamount to misconduct more so when Clause 11 of the First Schedule to the Act allows a Chartered Accountant to be a Director of a company. He submitted that whatever documents he had signed during his Directorship as a Director, they do not reflect that he was engaged in the day-to-day business activities of the company and he was, therefore, merely a Simplicitor Director on the Board of the Company.

Item (11) of the First Schedule to the Act reads as under:

“A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he –

(11) engages in any business or occupation other than the profession of chartered accountant unless permitted by the Council so to engage:

Provided that nothing contained herein shall disentitle a Chartered Accountant from being a Director of a Company (not being a Managing Director or a whole time Director) unless he or any of his partners is interested in such company as an auditor;”

A perusal of the above provision clearly shows that in case a Chartered Accountant wants to engage in the business simultaneously with the profession of Chartered Accountant, he has to seek permission of the Council. However, proviso to Item (11) specifies that no approval is required for a Chartered Accountant from being a Director of a company (not being a Managing Director or a whole time Director) unless he or any of his partners is interested in such company as an Auditor. Thus, what we have to examine is under what circumstances, a Director of a company can be said to be engaged in its business and under what circumstances he simply remains a Director without being engaged in the business.

The intention of the legislature is reflected in item (11) of Part I of First Schedule to the Act. While the proviso permits a Chartered Accountant to be a Director of a company without the permission of the Council, it specifically provides that such a Director should not be a Managing Director or a whole-time Director. A Managing Director or a whole-time Director is the one who, on behalf of the company, discharges all day-to-day functions of the company and is authorized by the Board of Directors to act for and on behalf of the Board and the company. Section 269 of Companies Act, 1956 provides for mandatory appointment of a Managing Director or whole-time Director in case of such companies which have a specified paid-up-share-capital.

Thus, the Legislature envisaged two kinds of directors- those who were involved in the day to day business affairs of the company and those who were not involved in day-to-day business affairs of the company but were on Board of the company in order to ensure that the company moves in right direction. The Board of Directors collectively has to take decisions for the benefit of the company to be implemented by the Managing Director or whole time Director or other executives of the company. We, therefore, consider that a Director who is not involved in day to day business of the company but who participates in the Board meetings and even receives remuneration for such participation and takes part in policy decisions but does not execute the decisions, is a Director not doing the business of the Company, but is a Director simplicitor. Such a Director would not be said to be involved in the business of the company. However, a person being a Director of the Company if operates the accounts of the company and executes the business of the company or participates in other activities of the company apart from attending Board Meetings and signing the statutory documents as required to be signed by a Director, then such a Director shall be considered as a Director involved in the business of the Company.

In the case on hand, Mriyog Investments Pvt. Ltd was incorporated with two shareholders including the Appellant herein. The Appellant subscribed to 90% share capital of the company right at the time of incorporation. He was appointed director of the company at its inception. No Managing Director or whole-time Director was appointed for the company. The documents on record show that the Appellant had signed the Memorandum of Association and Annual Reports of the company. All these documents and connected activities and the fact that the other directors are his own children and students and not having adequate experience in running the company show that the Appellant was actively involved in the business activities of the company. Further, the very fact that the Appellant has taken initiative to promote the company with himself as the main promoter and Director of the company with 90% of shareholding, goes to confirm beyond any doubt that the company was promoted by him as his new business. Hence, he should have taken the permission of ICAI.

It is settled law that what cannot be done directly, cannot be done indirectly. If a CA cannot indulge in business directly, he cannot indulge in business indirectly through a company. The sole purpose of prohibiting a CA from indulging in business activities simultaneously with carrying on his profession of CA shall stand defeated if it is considered that a CA can form a company, can become director of a company and can do all activities as a director without being designated as a Managing Director or Whole-time Director. If it is held that a director having invested 90% of the capital and authorized to sign the Accounts, Directors Report etc., without there being a full time MD/ Whole-time Director and without any experienced Directors to run the company, was not actively involved in the business of the company, that would be travesty of justice. In that eventuality, any CA can indulge safely into the business by creating several companies and be a director of such companies and continue to do the business himself without designating anyone as a Managing director or a whole-time director. A line has to be drawn between a director simplicitor and a director actively involved in the business activities of a company and we consider that a Director who attends Board Meetings for taking policy decisions, advising a company on the issue of compliance of laws and even signs only those statutory documents which he is duty bound to sign as a director, would not be a director involved in the business of the company but would be a director performing statutory duties but not a Director who has incorporated the company with 90% of equity held by himself, authority to act on behalf of the company as a signatory to Annual Reports, resulting into promotion of the business of the company and corresponds with different persons on behalf of the company, would be a director involved in the business affairs of the company, even if he was not a whole time director or managing director. We, therefore, of the view that the Appellant in this case was actually involved in the business of the company and he formed this company along with his family members in order to venture into a new business apart from the profession of chartered accountancy.

The Appellant did indulge in the business without the permission of the Council. He was, therefore, rightly held guilty of professional misconduct by the Board of Discipline.

Under these circumstances, we firmly believe that the company was promoted and run by the Appellant as his business though he was not designated as MD/Whole-time Director in terms of Sec.2 (26) of the Companies Act, 1956 and thus engaged in business and since he has not taken the prior permission of the ICAI for engaging in such business, is guilty of professional misconduct under item (11) of Part I of First Schedule. Thus, we affirm the decision of the BOD in holding the Appellant guilty of professional misconduct under Item (11) of Part I of First Schedule.

(i) Other Misconduct:

In respect of charges (i) & (iii) stated in Para 5 above, the Appellant raised a ground for the first time in his written submission that these charges are barred by law of limitation under Rule 12 of the Chartered Accountants (Procedure of investigation of professional and other misconduct and conduct of cases) Rules, 2007 (“Rules”). The Appellant stated that as the allegations were raised after 7 years of the occurrence, the same is barred by limitation law.

With regard to this submission, it is noted that the Appellant has not raised this ground i.e. law of limitation before the Director of Discipline and BOD. Even while filing the appeal before this authority, this ground was not raised. As this ground was not raised before the lower authorities, the same is not maintainable at this stage.

Further, various submissions of the Appellant against the charges levied on him such as the litigations filed by him before courts / arbitrators are civil in nature; the High Court awarded only costs and not penalty; refusal to sign the cheques was on account of civil dispute and publishing of notice of retirement of one of the partner in a newspaper does not bring any disrepute to the profession does not augur well on his part. It is noted that while all these items can be said to be civil disputes, the conduct and actions of the Appellant in all these matters towards his firm and other partners have undoubtedly brought disrepute to the profession and the Appellant has not conducted himself as a respectable professional and as such he is unbecoming of a Chartered Accountant.

Among various evidences brought on record, in support of the decision of the BOD in holding the Appellant guilty of other misconduct, the threatening letter written by the Appellant to various clients of the firm handled by Mr. Jayesh Gandhi, one of the Partner of NMR is worth noting, which in our view, clearly brings dispute to the profession. The letter reads as under:

“11.05.2013

TO THE BOARD OF DIRECTORS

Dear Gentlemen

Re: Mr. Jayesh M. Gandhi Resigning as Partner w.e.f. 06-08-
2013.

Sub: Concrete and Vital Information about him.

I am given to understand that Jayesh is joining as a Partner with S.R. Batllboi & Co, LLP, (SRB) after resigning from the firm w.e.f. 06-08-2013. I am also given to understand that he has given a commitment to SRB to bring large clients of NMR when he joins SRB in conspiracy with you and the SRB, which all of you have started/will be starting.

I am attaching herewith a list of cases against Jayesh, which has finally led to his resignation. Now even while leaving the firm he wants to cheat, commit fraud, misappropriation, mischief, criminal conspiracy, etc., in collusion with you and SRB.

In view of above, I reserve my rights to proceed against Jayesh, all of you and SRB for the above criminal and civil offences including initiating misconduct proceedings before ICAI.

Yours faithfully,

(Y.N.Thakkar)
Partner

Encl: As above.

CC: ICAI/CLB/SEBI/ROC/CJBHC/MGKURLACOURT/MGBALLARDPIERCOURT/CLIENTS HANDLED BY JAYESH ”

A plain reading of the above letter, which was sent to the clients of the firm handled by Mr. Jayesh M. Gandhi with copy to ICAI, CLB, SEBI and various Courts clearly indicate the malafide intentions of the Appellant. Writing of this kind of letters by a CA certainly brings disrepute to the profession of Chartered Accountancy and its body, ICAI. A letter of this kind written by a Chartered Accountant makes him unbecoming of a Chartered Accountant. Therefore, we are of the opinion, that the BOD has rightly held the Appellant guilty of other misconduct under item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

9. Accordingly, we find no infirmity in the decision of the BOD in holding the Appellant guilty of professional misconduct and other misconduct under item (11) of Part-I and Item (2) of Part-IV of First Schedule respectively. We find that the punishment of removal of the membership of the Appellant from the Register of Members of the Institute for a period of 30 days and levy of penalty of Rupees one lakh was a justified punishment. We, therefore, find no infirmity or perversity in the impugned order. Accordingly, the appeal stands dismissed.

10. Interim orders, if any, are vacated. No order as to costs.

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