Telangana High Court
The Council Of The Institute Of ... vs Shri V.Rama Chandra Rao Vemuri on 26 April, 2024
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE LAXMI NARAYANA
ALISHETTY
REFERENCE CASE No.2 of 2013
ORDER:
(per the Hon'ble Sri Justice P.SAM KOSHY) The present is a Reference Case under Section 21(5) of the Chartered Accountants Act, 1949 (herein after referred to as 'the Act'). The reference has been made by the Institute of Chartered Accountants of India (for short, 'ICAI'). Vide the said Reference Case, the petitioner had sought for an appropriate direction by the High Court under Section 21(5) of the Act so far as the disciplinary case initiated against the respondent Sri Rama Chandra Rao Vemuri, Chartered Accountant, is concerned.
2. Heard Mr. C.V.Rajeeva Reddy, learned counsel for the petitioner and Sri Prabhakar Sripada, learned senior counsel for Mr. Setty Ravi Teja, learned counsel for the respondent.
3. According to the petitioner, considering the factual matrix which was ascertained in the teeth of an enquiry conducted upon receipt of a complaint in respect of the acts 2 committed by the respondent/Chartered Accountant, he had been found guilty of professional misconduct within the meaning of Clauses (5), (6), (7) and (8) of Part-I of Second Schedule and also "misconduct" under Section 22 read with Section 21 of the Act.
4. Learned counsel for the petitioner while making a reference has recommended for the respondent to be removed from the register of members as a Chartered Accountant for a period of two years. The recommendation has been made based upon the nature of allegations levelled against the respondent of which he has been found guilty by the disciplinary committee are that:
a. The complainant's Bank i.e. Syndicate Bank extended a credit facility of Rs.9,75,000/- at the first instance on 26.12.2001 and thereafter, this amount got enhanced to Rs.40,00,000/- on 07.09.2002. For the purpose of carrying out work orders Rs.7.50 crores were received from the Department of BSNL. The said credit facility and the enhancement thereto is said to have been on fake financial statements, balance sheets etc., submitted along with the loan application of 3 M/s.Mayuri Engineers Private Ltd. It is said that the aforesaid documents were all prepared by the respondent on the basis of which the Golconda branch of the complainant's Bank extended the credit facility.
b. The same Golconda Branch of the complainant's Bank arranged for thirty-one (31) housing loans to a group of Grade C and Grade D employees of the BSNL totalling Rs.122.71 lakhs. It was alleged that it was the respondent who was instrumental in making available the housing loans to this group of employees of BSNL and for the purpose of ensuring that the employees get enhanced loan amounts, the respondent said to have prepared fake documents suggesting the income of the spouse/sons which were created only for the purpose of getting the enhanced loan. The respondent also prepared inflated valuation of the flats which were supposed to be purchased by the employees from the said housing loan amount sanctioned. 75% of the amount is said to have been released to one M/s.Viz Constructions. It is alleged that it is the respondent who is the managing partner of the said company. 4 c. It is also the allegation against the respondent that he had got loan documents prepared for one Sri R.Satyanarayana, another employee of BSNL. In the course of preparation of the said documents, the respondent is said to have prepared fictitious income statements in the name of the wife of the aforesaid Sri R.Satyanarayana enabling him to fetch higher amount of loan from the complainant's Bank from their Golconda branch. However, the said Sri R. Satyanarayana in fact was not a married person, but was a bachelor.
d. In addition to the aforesaid misconduct on his part, the complainant's Bank found that the income tax return submitted in respect of various loan accounts by the respondent were fraudulent statements, particularly, in respect of the loan accounts of I) Smt. V.Jaldurga (wife of Sri Rama Chandra Rao Vemuri), II) Smt. Antiya, III) Sri K.Ramesh Kumar, IV) Again Sri K.Ramesh Kumar and V) Ms. Ch.Radha.
e. The respondent is also said to have availed a demand loan (Account No.86/2002) of Rs.1,50,000/- on 5 05.06.2002 from the Golconda Branch of the complainant's Bank. He also stood as a surety for the demand loan (Account No.48/2002) for an amount of Rs.1,00,000/- and again as a surety for the housing loan No.1/2002 for an amount of Rs.4,95,000/- dated 27.03.2002. All of which were availed by his wife Smt. V.Jaldurga and all these loan transactions were in the name of Smt. V. Jaldurga. The income statements and other documents for the loan were got prepared by the respondent.
5. Based on the aforesaid allegations, the ICAI levelled three charges against the petitioner which were as under:
i. The first charge involves the respondent's alleged creation of dubious balance sheets for a client company. The Committee's investigation revealed numerous inconsistencies and errors within these balance sheets. For instance, they found discrepancies in reported turnover and stock increases, along with unexplained figures in the Profit & Loss account. Moreover, there was no evidence placed on record to prove that the reported turnover of Rs.1,65,61,137/- in 6 the year 2001-02 was correct. Despite repeated requests from the Committee, the respondent did not provide necessary documents, such as copies of his IT returns and his business firm Balance Sheet. Even more concerning was the discovery of two differing sets of balance sheets for the same year (2001-02), both of which were certified by the respondent. This raised serious doubts about the preparation and veracity of the financial statements. The Committee concluded that either the financial statements were not prepared based on the books of account, or the books of account did not exist in the company at all. This conclusion was based on the glaring errors found in the balance sheets and the respondent's failure to provide a satisfactory explanation.
ii. The second charge focused on the respondent's role as a managing partner in a construction firm, M/s.Viz Constructions. This firm had received loans sanctioned by the bank to 31 employees of BSNL for the purpose of construction or renovation of houses. However, these loans were defaulted, leading to the bank resorting to 7 sell the flats for recovery of the loans. The respondent was asked to provide documentary evidence to prove that his business firm had carried out the construction work for which the borrowers had taken the loans. But the respondent failed to submit any such evidence. This led the Committee to believe that the respondent's firm was used as an entity to draw additional loans from the bank for construction/renovation of houses, without actually carrying out the promised construction work. iii. The third charge was related to a personal loan taken by the respondent and his wife which they did not repay within the stipulated time. The respondent, however, contended that this loan had been repaid in full, a claim that the complainant did not dispute. The Committee, therefore, regarded this transaction as more of a civil case and since the loans had been repaid, they did not find the respondent guilty of professional misconduct on this charge.
6. Upon examination of the council's proceedings regarding alleged professional misconduct of the respondent, Mr. V.Rama Chandra Rao, the proceedings unfolded 8 chronologically, beginning with a focus on the substantial variance in reported turnover figures in the backdrop of the complainant bank's assertion that the accounts of M/s.Mayuri Engineers Private Limited (MEPL) in the complainant's bank did not reflect such a significant amount of money. The council's astute inquiry raised essential questions regarding financial transparency and accuracy in reported figures, underlining the gravity of potential discrepancies. Subsequently, the council delved into accusations of forgery and fraud related to BSNL contracts and documents associated with MEPL, aiming to uncover the extent of the respondent's involvement in potentially misleading financial information.
7. Upon receiving the said complaint from the complainant's Bank, a copy of the same was sent to the respondent vide correspondence dated 12.01.2005 seeking his explanation under regulations 12(7) of the Chartered Accountants Regulations, 1988 (in short 'the regulations'). Upon receiving the said notice of the complainant, the respondent entered appearance and submitted his reply on 10.03.2005. On due scrutiny of the reply and rejoinder 9 submitted by the respondent and the complainant's Bank in terms of regulation 12(11) of the regulations, the matter was scrutinized by the ICAI. The ICAI prima facie was of the view that the respondent was found guilty of professional misconduct and other misconduct. Thereby, decided to get the subject matter enquired by the disciplinary committee in terms of Chartered Accountants of India Act and the regulations framed therein.
8. The respondent having not pleaded guilty, the committee decided to proceed with the enquiry and in the process, the officers of the complainant's Bank and the respondent were examined. Thereafter, the committee felt that some more witnesses needs to be called for their examination. The committee decided to issue summons to the officers of the BSNL and also to few employees of BSNL. After conclusion of the enquiry by the disciplinary committee, report in this regard was submitted on 02.02.2002 to the petitioner's counsel. The committee in the course of submitting its report, reached to the conclusion that charge Nos.1 and 2 were proved against the respondent and charge 10 No.3 stands decided in favour of the respondent, as the said charge could not be proved.
9. The committee's report was forwarded by the petitioner to the respondent vide correspondence dated 28.08.2009 seeking for his explanation and written submissions if any. The respondent submitted his written submissions on 30.10.2009. The complainant's Bank also submitted their written submissions on 11.04.2006. Additional submissions were also made by both the parties. Thereafter, written submissions were submitted by the petitioner on couple of occasions and finally the ICAI in its special meeting convened on 14.11.2011 and 15.11.2011 decided to accept the report of the disciplinary committee and accordingly, held that for the charge Nos.1 and 2, the respondent was found guilty of professional misconduct within the meaning of Clauses (5), (6), (7) and (8) of Part-I of Second schedule and "other misconduct" under Section 22 read with Section 21 of the Act.
10. The ICAI further accepted the report of the disciplinary committee so far as the respondent not being guilty of professional or other misconduct, as regards the charge No.3. 11 Reaching to the aforesaid conclusion, accepting the report of the disciplinary committee, the learned counsel for the petitioner decided to refer the matter to the High Court with a recommendation of removing the name of the respondent/ Chartered Accountant from the register of members of Chartered Accountants for a period of two years.
11. The respondent defended himself by stating that the audit was carried out based on the books of accounts, information supplied and explanations given by MEPL. He refuted the Bank's claim of fraudulent financial statements, arguing that the Bank failed to provide substantial evidence to support the allegation.
12. The respondent also criticized the Bank's investigation methods, accusing the vigilance officer of incompetence. He pointed out similarities in the language and content of the complaints lodged against him, suggesting they were engineered by the vigilance officer. He questioned the timing of the loan arrangements which is between April, 2002 and December, 2002 and the subsequent investigations which is from August, 2002 to August, 2003. Noting a discrepancy 12 between when loans were sanctioned and released, and when the investigations were conducted.
13. In addition, the respondent refuted the Bank's allegations that 75% of housing loan amount, which equates to Rs.91.5 Lakhs, was dispersed to his construction firm, M/s.Viz Constructions. The respondent pointed out a significant inconsistency in the Bank's account statements, which showed a total credit of approximately Rs.42 Lakhs, which was far less than the claimed 75% of the released sum of Rs.122 Lakhs.
14. Despite the allegations, the respondent reaffirmed his commitment in fulfilling loan repayments and emphasized that the sanctioned loans were in accordance with his eligibility and complied with the requisite Bank's norms.
15. Furthermore, the respondent has admitted of his being a partner in M/s.Viz Constructions was noted in the excerpts of the Proceedings Titled "QUESTIONS PUT TO THE PARTIES AND THEIR REPLIES THERETO" 1 Chief Vigilance Officer, Syndicate Bank, Manipal vs. V.Rama Chandra Rao, 1 25-CA(191)/2004 13 Hyderabad Venue: ICAI, Chennai (Date: 28th & 29th November, 2008):-
"Vice-President: (Shri Uttam Prakash Agrawal, Member Present of the Committee) What was the total turnover of M/s. Viz Constructions? Respondent: (Shri V.Rama Chander Rao, Chartered Accountant) Initially it was more.
Shri J. Venkateswarlu: (Member Present of the Committee) Have you filed income tax return for that firm? Respondent:
Yes.
Shri J. Venkateswarlu: (Member Present of the Committee) Where you have shown as managing partner?
Respondent:
Yes. Later on I withdrawn another partner Purna Chandra Rao has taken over.
President: (Shri Ved Jain, Member Present of the Committee) If you agree with the true story it will take two minutes' job.
Respondent:
Sir, I am telling you the true story. I have done a mistake. Sir, I am telling you l am guilty."
"Vice-President:
You have taken permission for being partner in the firm Respondent:
I have not taken.
Vice-President:
Any other complaint you have received earlier to this from same Builders?
President:
Do you have the bank statement how the money is moving from those borrowers to the Vijay Bhaskar?14
Complainant:
Sir, what he did is he placed on behalf of M/s. Viz Constructions it is part of the entire thing. The builder said I am constructing it to the extent of 3 lakhs and he says I am putting rose wood, I am putting marvel flooring.
President:
Money was directly credited to him.
Complainant:
Yes.
President:
Again you are telling lie. The loan of the borrower were transferred in your bank account directly.
Respondent:
The main builder and certain part..."
"President:
If you twist the fact the things will be difficult. You please answer my question. I am getting the things you know but you are not coming out. You are Mr. V. Rama Chandra Rao.
Respondent:
Yes, Sir.
President:
You admit that you are partner in M/s. Viz Constructions? You are partner in that.
Respondent:
Yes."
16. The transcript of the meeting above 2 as it exists in the proceedings clearly demonstrate the admission made by the respondent before the committee of his involvement in the 2 Titled "QUESTIONS PUT TO THE PARTIES AND THEIR REPLIES THERETO" Chief Vigilance Officer, Syndicate Bank, Manipal Vs. V. Rama Chandra Rao, Hyderabad Venue: ICAI, Chennai 15 firm M/s.Viz Constructions as managing partner/partner and that of receiving sums directly into his account.
17. Learned counsel for petitioner made submissions in detail with regard to the professional misconduct of the respondent as Chartered Accountant while discharging his services as professional, which comes within the meaning and ambit of Clauses (5), (6), (7) and (8) of Part-I of Second Schedule and 'other misconduct' under Section 22 read with Section 21 of the Chartered Account Act, 1949. Learned counsel further submitted that detailed enquiry was conducted by the disciplinary committee constituted to look into the misconduct, irregularities committed by the respondent. The disciplinary committee after due enquiry and examination of the complainant as well as respondent and scrutiny of the documents placed on record submitted the report dated 02.02.2009 and opined that respondent was guilty of professional misconduct. He further submitted that report of the disciplinary was provided to the respondent and the respondent submitted his written representations to the said report.
16
18. Learned counsel further submitted that the disciplinary committee report along with written representations of the complainant-bank as well as respondent were placed before the council. The council, on due consideration of the report, written and oral submissions made on behalf of the respondent, had decided to accept the report of the disciplinary committee and held that respondent was guilty of professional misconduct in respect of charges 1 and 2 falling within the meaning of clauses (5), (6), (7) & (8) of Part-I of Second Schedule and other misconduct under section 22 read with Section 21 of the Chartered Accountants Act, 1949. It is also decided that the respondent was not guilty of professional or other misconduct under the charge 3. Thus, the council decided to recommend for removal of name of the respondent from the Register of Members for a period of two years.
19. Learned counsel further submitted that the respondent, in fact, admitted his guilt before the committee of his involvement in the process of extending credit facility as Managing Partner and that of receiving amounts directly into the account of firm. He would further submit that charges 1 17 and 2 levelled against the respondent are proved and therefore, petitioner-council is justified in recommending for removal of the name of the respondent from the Register of Members for a period of two years and prayed this Bench to answer the reference accordingly.
20. The learned counsel for petitioner placed reliance on the following decisions:
i) Shashi Bhushan Prasad vs. Inspector General, Central Industrial Security Force and others 3;
ii) Institute of Chartered Accounts of India, New Delhi
vs. Mukesh Gang, Chartered Acountant,
Hyderabad 4;
iii) In the matter of matter of the Institute of hartered
Accountants of India, New Delhi vs. CA Ashish Maheshwari, Managing Director, M/s. Appy Overseas Pvt.Ltd., Hyderabad 5;
iv) Union of India and others vs. M.Duraisamy 6;
v) State of Karnataka and another vs. Umesh 7;
vi) Shri V.I. Oommen, Parnter, M/s. Oommen & Mouli, Chartered Accounts In Re 8;
vii) Decision of Division Bench of this Court in Referene case No.1 of 2013 dated 20.02.2017 3 (2019) 7 SCC 797 4 2016 6) ALT 606 (DB) 5 2019 (2) ALT 319 (D.B.) 6 (2022) 7 SCC 475 7 (2022) 6 SCC 563 8 1995 (3) ALD 843 (D.B.) 18
21. Learned counsel for the respondent referring to the proceedings drawn by the ICAI pointed out there were serious flaws in conducting the enquiry, as the procedure normally required has not been adhered to. There was no examination in chief, no cross-examination done, no charges were framed, no witnesses from the Bank were examined, no presenting Officer was appointed and no evidence was led. Thus, the entire finding given by the ICAI enquiring into the matter is a perverse finding of fact. All the complaints and the charges levelled were totally vague.
22. It was also the contention of the learned counsel for the respondent that from the plain reading of the charges itself would clearly indicate that no offence as such is made out and that none of the charges or the Clauses under which the misconduct has been alleged stands proved. It was further contended that for the same set of allegations, he was also prosecuted in a criminal case wherein total acquittal given by the trial Court and on that ground also, the ICAI should have dropped the further proceedings.
23. In addition to this, the learned counsel for the respondent contended that now that considerable period of 19 time has passed and much water has since been flown, the respondent also has reached an advanced age in his life and therefore, at this juncture taking into consideration the overall factual matrix, the punishment proposed may be set aside.
24. Learned counsel for the respondent had relied upon the following decisions:
i. Institute of Chartered Accountants vs. Price Waterhouse and Another 9;
ii. The Institute of Chartered Accountants of India, New Delhi vs. Mukesh Gang, Chartered Accountant 10;
iii. Union of India and Others vs. Ram Lakhan Sharma 11';
iv. State of Uttar Pradesh and Others vs. Saroj Kumar Sinha 12;
v. A.K.Kraipak and Others vs. Union of India and Others 13;
vi. Capt. M.Paul Anthony vs. Bharat Gold Mines Ltd.
and another 14;
vii. Central Bank of India Ltd. vs. Prakash Chand Jain 15 9 (1997) 6 Supreme Court Cases 312 10 2016 SCC OnLine Hyd 327 : (2016) 6 ALT 606 (DB) 11 (2018) 7 Supreme Court Cases 670 12 (2010) 2 Supreme Court Cases 772 13 (1969) 2 Supreme Court Cases 262 14 (1999) 3 Supreme Court Cases 679 15 (1969) 1 SCR 735 20
25. As regards the contention of the learned counsel for the respondent that the respondent having been acquitted in the criminal case, the departmental enquiry initiated by the ICAI should had been dropped. It would be relevant at this juncture to take note of a decision of the Hon'ble Supreme Court. Though under the service law jurisprudence which has been referred to the judicial precedents on the said subject in the case of Shashi Bhushan Prasad vs. Inspector General, Central Industrial Security Force and Others 16 in paragraph Nos.17 to 19 it has been held as under:
"17. The scope of departmental enquiry and judicial proceedings and the effect of acquittal by a criminal court has been examined by a three-Judge Bench of this Court in APSRTC vs. Mohd.Yousuf Miya [A.P.S.R.T.C v. Mohd. Yousuf Miya, (1997) 2 SCC 699:
1997 SCC (L&S) 548] . The relevant paragraph is as under: (SCC pp. 704-05, para 8) "8. ... The purpose of departmental enquiry and of prosecution are two different and distinct aspects. The criminal prosecution is launched for an offence for violation of a duty, the offender owes to the society or for breach of which law has provided that the offender shall make satisfaction to the public. So crime is an act of commission in violation of law or of omission of public duty. The departmental enquiry is to maintain discipline in the service and efficiency of public service. It would, therefore, be expedient that the disciplinary proceedings are conducted and completed as expeditiously as possible. It is not, therefore, desirable to lay down any guidelines as inflexible rules in which the departmental proceedings may or may 16 (2019) 7 Supreme Court Cases 797 21 not be stayed pending trial in criminal case against the delinquent officer. Each case requires to be considered in the backdrop of its own facts and circumstances. There would be no bar to proceed simultaneously with departmental enquiry and trial of a criminal case unless the charge in the criminal trial is of grave nature involving complicated questions of fact and law. Offence generally implies infringement of public (sic duty), as distinguished from mere private rights punishable under criminal law. When trial for criminal offence is conducted it should be in accordance with proof of the offence as per the evidence defined under the provisions of the Evidence Act. Converse is the case of departmental enquiry. The enquiry in a departmental proceeding relates to conduct or breach of duty of the delinquent officer to punish him for his misconduct defined under the relevant statutory rules or law. That the strict standard of proof or applicability of the Evidence Act stands excluded is a settled legal position. The enquiry in the departmental proceedings relates to the conduct of the delinquent officer and proof in that behalf is not as high as in an offence in criminal charge. It is seen that invariably the departmental enquiry has to be conducted expeditiously so as to effectuate efficiency in public administration and the criminal trial will take its own course. The nature of evidence in criminal trial is entirely different from the departmental proceedings. In the former, prosecution is to prove its case beyond reasonable doubt on the touchstone of human conduct. The standard of proof in the departmental proceedings is not the same as of the criminal trial. The evidence also is different from the standard point of the Evidence Act. The evidence required in the departmental enquiry is not regulated by the Evidence Act. Under these circumstances, what is required to be seen is whether the departmental enquiry would seriously prejudice the delinquent in his defence at the trial in a criminal case. It is always a question of fact to be considered in each case depending on its own facts and circumstances. In this case, we have seen that the charge is failure to anticipate the accident and prevention thereof. It has nothing to do with the culpability of the offence under Sections 304-A and 338 IPC. Under these circumstances, the High Court was not right in staying the proceedings." (emphasis supplied)
18. The exposition has been further affirmed by a three-Judge Bench of this Court in Ajit Kumar 22 Nag v. Indian Oil Corpn. Ltd. [Ajit Kumar Nag v. Indian Oil Corpn. Ltd., (2005) 7 SCC 764: 2005 SCC (L&S) 1020] This Court held as under: (SCC p. 776, para 11) "11. As far as acquittal of the appellant by a criminal court is concerned, in our opinion, the said order does not preclude the Corporation from taking an action if it is otherwise permissible. In our judgment, the law is fairly well settled. Acquittal by a criminal court would not debar an employer from exercising power in accordance with the Rules and Regulations in force. The two proceedings, criminal and departmental, are entirely different. They operate in different fields and have different objectives. Whereas the object of criminal trial is to inflict appropriate punishment on the offender, the purpose of enquiry proceedings is to deal with the delinquent departmentally and to impose penalty in accordance with the service rules. In a criminal trial, incriminating statement made by the accused in certain circumstances or before certain officers is totally inadmissible in evidence. Such strict rules of evidence and procedure would not apply to departmental proceedings. The degree of proof which is necessary to order a conviction is different from the degree of proof necessary to record the commission of delinquency. The rule relating to appreciation of evidence in the two proceedings is also not similar. In criminal law, burden of proof is on the prosecution and unless the prosecution is able to prove the guilt of the accused "beyond reasonable doubt", he cannot be convicted by a court of law. In a departmental enquiry, on the other hand, penalty can be imposed on the delinquent officer on a finding recorded on the basis of "preponderance of probability". Acquittal of the appellant by a Judicial Magistrate, therefore, does not ipso facto absolve him from the liability under the disciplinary jurisdiction of the Corporation.
We are, therefore, unable to uphold the contention of the appellant that since he was acquitted by a criminal court, the impugned order [Ajit Kumar Nag v. Indian Oil Corpn. Ltd., 2004 SCC OnLine Cal 59 : (2004) 4 LLN 512] dismissing him from service deserves to be quashed and set aside."
19. We are in full agreement with the exposition of law laid down by this Court and it is fairly well settled that two proceedings criminal and departmental are entirely different. They operate in different fields and have different objectives. Whereas 23 the object of criminal trial is to inflict appropriate punishment on an offender, the purpose of enquiry proceedings is to deal with the delinquent departmentally and to impose penalty in accordance with the service rules. The degree of proof which is necessary to order a conviction is different from the degree of proof necessary to record the commission of delinquency. Even the rule relating to appreciation of evidence in the two proceedings is also not similar. In criminal law, burden of proof is on the prosecution and unless the prosecution is able to prove the guilt of the accused beyond reasonable doubt, he cannot be convicted by a court of law whereas in the departmental enquiry, penalty can be imposed on the delinquent on a finding recorded on the basis of "preponderance of probability". Acquittal by the court of competent jurisdiction in a judicial proceeding does not ipso facto absolve the delinquent from the liability under the disciplinary jurisdiction of the authority. This what has been considered by the High Court in the impugned judgment [Shashi Bhusan Prasad v. CISF, 2008 SCC OnLine Ori 544:
2008 Lab IC 3733] in detail and needs no interference by this Court."
26. From a plain reading of the aforegiven authoritative decision of the Hon'ble Supreme Court, what is apparent is the fact that, the standard of proof required to establish the charges in the two proceedings being entirely different, the two proceedings can go on and the departmental enquiry need not be quashed only on the ground of an acquittal in the criminal case where the standard of proof required is beyond all reasonable doubts. Whereas, in a departmental enquiry, the standard of proof required is the preponderance of probability. So far as the procedure having been followed or 24 not, it is relevant to refer to the judgment of the erstwhile High Court of Hyderabad in the case of Institute of Chartered Accountants of India, New Delhi (supra) upon the powers of the disciplinary committee of the applicant council. In paragraph Nos.37, 38, 40 and 41 of the judgement, it has been held as under:
"37. The respondent did not complain about non- compliance of any mandatory provisions, which caused him prejudice, either before the Council or the Disciplinary Committee. For the first time before us is a such contention urged. In view of the material available on record, regarding compliance with Regulation Nos.16 (2) and (5) of the Regulations, we are satisfied that the proceedings are not vitiated.
38. There is nothing in the Act, or in the Regulations, which disables the Committee from evolving its own procedure in conducting an enquiry into the misconduct alleged to have been committed by a member of the Institute.
40. the provisions of the CPC are applicable only to the limited extent specified in Section 21 (8) of the Act i.e. summoning and enforcing the attendance of any person and examining him on oath; the discovery and production of any document; and receiving evidence on affidavit. While the Disciplinary Committee is required to follow the procedure prescribed under Section 21 (8) of the Act, it cannot exercise the powers of a Civil Court.
41. After considering the entire material on record, we are satisfied that the Disciplinary Committee, and the Council, have not violated any of the Regulations, more particularly Regulation 16 (2) and (5) thereof. Therefore, this point is held against the respondent and in favour of the petitioner."
27. Dealing with the aspect of what would amount to a professional misconduct, the aforesaid judgment is Institute of Chartered Accountants of India, New Delhi (supra) 25 wherein in paragraph Nos.118, 119, 121 and 147 of the judgment, it was held as under:
"118. The judgment of the Madhya Pradesh, in "Council of the Institute of Chartered Accountants of India v. C.H.Padliya" is merely of persuasive value and does not constitute a precedent binding on this court. In "Institute of Chartered Accountants of India v. S.K. Jain (40) 2000 (56) DRJ 671" the Division Bench of the Delhi High Court, while dealing with misconduct under Section 22 of the Act, held as follows:
""Professional misconduct" has been defined in Section 22 of the Act. Intendment and object of the Act is to maintain standard of the profession at a high level, and consequently a code of conduct has been prescribed. Misconduct implies failure to act honestly and reasonable either according to the ordinary and normal standard, or according to the standard of a particular profession. Authenticity and sanctity is attached to certification done by a Chartered Accountant. Hallmark of the profession is the expertise possessed by its members, in the matters of accountancy and auditing amongst others. Correctness is a matter of rule in a certificate issued by a Chartered Accountant. He is supposed to have tested correctness of the figures certified. If he puts his signature, without proper verification, in any certificate, it certainly is a serious matter. Such conduct does not befit a Chartered Accountant, and is unbecoming of him. In such a case, he fails to do what is the minimum required to be done by him. He does something in the pursuit of his profession which is not only unethical, but also disgraceful or dishonourable."
119. In "Council of Institute of Chartered Accountants of India v. B. Ram Goel (41) 2000 (57) DRJ 27" the Delhi High Court defined the expression 'professional misconduct' as follows:
""Professional misconduct" has been defined in Section 22 of the Act. Intendment and object of 26 the Act is to maintain standard of the profession at a high level, and consequently a code of conduct has been prescribed. Misconduct implies failure to act honestly and reasonably either according to the ordinary and natural standard, or according to the standard of a particular profession. Chartered Accountants' profession occupies a place of pride amongst various professions of the world. That makes observance of the professional duties and propriety more imperative. When conduct of a member of the profession is contrary to honesty, or opposed to good morals, or is unethical, it is misconduct- warranting consequences indicated in the Statute. An Auditor holds a position of trust. That is why disclosure of information has been made a ground for imputing misconduct. By betrayal of the trust, the conduct becomes one which is unbecoming of the professional."
121. In "State of Punjab v. Ram Singh Ex.Constable (42) (1992) 4 SCC 54" the Supreme Court relied upon the definition of "misconduct" as defined in Black's Law Dictionary, 6th Edition at page 999 and P. Ramanatha Aiyar's Law Lexicon, Reprint Edition 1987 at page No.821, which are as follows:
"Misconduct has been defined in Black's Law Dictionary, Sixth Edition at page 999 thus:
A transgression of some established and definite rule of action, a forbidden act, a dereliction from duty, unlawful behaviour, wilful in character, improper or wrong behaviour, its synonyms are misdemeanour, misdeed, misbehaviour, delinquency, impropriety, mismanagement, offence, but not negligence or carelessness. Misconduct in office has been defined as: Any unlawful behaviour by a public officer in relation to the duties of his office, wilful in character. The term embraces acts which the office holder had no right to perform, acts performed improperly, and failure to act in the face of an affirmative duty to act.
P.Ramanatha Aiyar's the Law Lexicon, Reprint Edition 1987 at p.821 'misconduct' defines thus:27
The term misconduct implies a wrongful intention, and not a mere error of judgment. Misconduct is not necessarily the same thing as conduct involving moral turpitude. The word misconduct is a relative term, and has to be construed with reference to the subject-matter and the context wherein the term occurs, having regard to the scope of the Act or statute which is being construed. Misconduct literally means wrong conduct or improper conduct. In usual parlance,. misconduct means a transgression of some established and definite rule of action, where no discretion if left, except what necessity may demand and carelessness, negligence and unskillfulness are transgressions of some established, but indefinite, rule of action, where some discretion is necessarily left to the actor. Misconduct is a violation of definite law; carelessness or abuse of discretion under an indefinite law. Misconduct is a forbidden act; carelessness, a forbidden quality of an act, and is necessarily indefinite. Misconduct in office may be defined as unlawful behaviour or neglect by a public officer, by which the rights of a party have been affected."
147. The professional misconduct attributed to the respondent is grave and serious in nature which affects public confidence, and their faith in the integrity and impartiality of the Chartered Accountants and the Institute of which they are members. A false certification by the respondent has enabled the promoters of the company to squander public money, on inducing the general public to subscribe to the share capital of the company. Taking a lenient view, or exonerating such professionals, would encourage others to indulge in similar acts, and completely erode the faith of the general public in the impartiality and integrity of the members of the Institute, and bring the Institute itself into disrepute."
28. Further as to whether the delinquent granted the permission to cross-examine the witnesses or not and also 28 where the charge sheet was vague or not, in paragraph Nos.144 and 145 it has been held as under:
"144. In "Sarva Uttar Pradesh Gramin Bank v. Manoj Kumar Sinha (53) (2010) 3 SCC 566" the Supreme Court observed that the respondent did not protest before the enquiry officer for not being permitted to cross examine the witness, the enquiry proceedings were conducted in accordance with principles of natural justice, and the grievance was subsequently aired just to influence the proceedings in Court. In case the respondent felt genuinely aggrieved he would have raised the issue at the earliest possible stage.
145. In "Om Prakash Mann v. Director of Education (Basic) (54) (2006) 7 SCC 558 = 2007 (2) ALT 9.4 (DN SC)", while deciding the case of misconduct of a Headmaster in a departmental enquiry, it was held that when the delinquent was called upon to submit a reply and no ground was taken by the delinquent that the charge sheet was vague or that he was unable to give an effective reply to the charges, and he had participated in the disciplinary proceedings without demur, he was estopped from later raising such a plea of vagueness in the charges.
The said judgment of the Supreme Court is a direct answer to the contention urged by the learned counsel for the respondent, and the respondent cannot claim that he should be exonerated on this ground."
29. The decisions referred to and relied upon by the learned counsel for petitioner relates to initiation of disciplinary proceedings, framing of charges and awarding punishment to the member of the petitioner-organization, who is guilty of 29 professional misconduct and thus, there is no need to refer to the said decisions in detail.
30. Learned counsel for respondent contended that the disciplinary committee did not adopt proper procedure, no evidence was let-in, no cross-examination was conducted and that no documents were marked. A perusal of record would show that this contention/objection is being urged for the first time in the present proceedings. It is evident from the record that the respondent participated in the disciplinary proceedings conducted by the petitioner-council, however, respondent has not raised any objection with regard to the procedure adopted or any irregularity on the part of the petitioner.
31. This Hon'ble Court in Institute of Chartered Accountants of India, New Delhi (supra) at paragraphs-42 and 45 held as under:
"42. The respondent did not complain about non-compliance of any mandatory provisions, which caused him prejudice, either before the Council or the Disciplinary Committee. For the first time before us is a such contention urged. In view of the material available on record, regarding compliance with Regulation Nos. 16 (2) and (5) of the Regulations, we are satisfied that the proceedings are not vitiated. xxx 30
45. The Disciplinary Committee has been conferred the power to enquire into the matter. In causing such an enquiry, the provisions of the CPC are applicable only to the limited extent specified in Section 21(8) of the Act i.e. summoning and enforcing the attendance of any person and examining him on oath; the discovery and production of any document; and receiving evidence on affidavit. While the Disciplinary Committee is required to follow the procedure prescribed under Section 21(8) of the Act, it cannot exercise the powers of a Civil Court."
32. From the above legal position, the objections raised by the learned counsel for the respondent cannot be considered at this stage.
33. The decisions referred to and relied upon by the learned counsel for respondent relates to the enquiry conducted by the disciplinary committee, affording opportunity to the member at every stage, examination of entire material on record before the council and to reach finding whether or not the delinquent member committed professional or other misconduct and that the proceeding is akin to though not in fact a criminal prosecution and awarding punishment. Therefore, there is no quarrel with ratio laid down by the Hon'ble Apex Court as well as High Courts and thus, there is no need to refer to the said decisions in detail. 31
34. Despite the respondent's explanations, concerns persisted regarding potential conflicts of interest and the direct crediting of funds to the respondent's account, signifying the ICAI's commitment to an unbiased and thorough investigation of financial transactions. In addition, the ICAI extensively questioned the respondent about signing inaccurate financial statements for the years 2000-2001 and 2001-2002. Balance sheet discrepancies, including a substantial mismatch between Schedule VI and Profit and Loss Account figures, were pointed out. The respondent's struggle to provide satisfactory explanations for these inconsistencies heightened doubts about the authenticity of the financial statements. Throughout these inquiries, relevant figures, such as the reported turnover, the amount involved in M/s.Viz Constructions loan transactions, and discrepancies in reported figures, were scrutinized. Key names, including Mr. V.Rama Chandra Rao, M/s.Viz Constructions and MEPL were central to the discussions. The allegations ranged from forgery and fraud to potential conflicts of interest, all contributing to a comprehensive evaluation of the respondent's conduct. This Court thus 32 acknowledges the ICAI's systematic and thorough approach and finds no perversity in its inquiry.
35. After thoroughly considering the Disciplinary Committee's Report and the oral/written submissions from both the complainant and the respondent, the ICAI agreed with the Committee's conclusions. The respondent was found guilty of professional misconduct falling within the meaning of Clauses (5), (6), (7) and (8) of Part I of the Second Schedule and "Other Misconduct" under Section 22 read with Section 21 of the Act with respect to the first two charges.
36. On careful review of the proceedings involving the respondent Mr. V.Rama Chandra Rao, this Court acknowledges the ICAI's determination to deal with professional misconduct, with a focus on the application of its faculties and adherence to the principles of natural justice. The proceedings unfolded with an examination of reported turnover figures and concerns about financial transparency, leading to a comprehensive assessment of potential discrepancies in financial statements.
37. Throughout its inquiry, the ICAI ensured that the respondent had ample opportunities to present both oral and 33 written submissions in response to the allegations. The ICAI analyzed the respondent's explanations along with a scrutiny of concerns related to potential conflicts of interest, financial statement incongruities, and the direct crediting of funds to the respondent's account. Crucially, the ICAI's judicious application of mind is evident in its discerning questioning and meticulous scrutiny of relevant financial transactions and figures. The respondent's admission of involvement in M/s.Viz Constructions and the ICAI's exploration of potential conflicts of interest are indicative of the thoroughness inherent in the inquiry.
38. The observations hitherto lead this Court to align with the ICAI's determination insofar as the finding of guilt of the respondent's professional misconduct in accordance with the relevant provisions of the Act.
39. Coming to the quantum of punishment, having given a considerable thought so far as the proposed punishment is concerned, certain facts which need to be considered are that the whole issue originally started in the year 2005. As such, it is by now nineteen (19) years have already lapsed. Today the respondent is roughly seventy (70) years of age, as such, 34 he is a septuagenarian. At this juncture, if the proposed punishment of imposition of ban on practice has recommended by the ICAI, in the opinion of this Bench would be too harsh a punishment, however, as the guilt has been established, the respondent as such cannot be let off without any punishment.
40. Considering the long lapse of time that has transpired in conclusion of the proceedings and the respondent having been undergone the agony of facing these proceedings all through this period including the time spent before the High Court in the present case and also considering the age that the respondent has now reached, we are of the considered opinion that it would be more appropriate, just and proper if the punishment proposed by the ICAI is reduced to some extent. In considered opinion of this Bench if punishment is reduced from two (02) years to six (06) months, it would meet the ends of justice.
41. Accordingly, invoking the powers conferred upon the High Court under Section 21(6C) of the Act, we reduce the punishment proposed to six (06) months instead of two (02) years, as has been proposed by the ICAI. Accordingly, the 35 Reference Case is disposed of directing the respondent's membership with the ICAI shall stand suspended for six (06) months starting from 01.05.2024 till 31.10.2024, and as a result, during that period he shall not practice or function as a Chartered Accountant. No costs.
42. Consequently, miscellaneous petitions pending if any in this Reference Case, shall stand closed.
____________________________________ P.SAM KOSHY, J ___________________________________ LAXMI NARAYANA ALISHETTY, J Date: 26.04.2024 GSD/KKM 36 THE HON'BLE SRI JUSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY REFERENCE CASE No.2 of 2013 Date: 26.04.2024 GSD/KKM