Council Of Institute Of Chartered ... vs B. Ram Goel
2000 Latest Caselaw 1070 Del

ORDER

Arijit Pasayat, C.J.

1. This is a reference under Section 21(5) of the Chartered Accountants Act, 1949 (in short, the 'Act'), made by the Institute of Chartered Accountants of India (in short, the `Institute').

2. Background in which the reference has been made is as follows.

A complaint was made by Shri C.R. Irani, Managing Director, the Statesman Limited to the effect that Shri B.R. Goel (hereinafter referred to as respondent) had written a letter dated 01.11.1987 to the shareholders of the company for sale of their shares in the said company. Respondent acted dishonestly as he disclosed information which came within his knowledge because of professional engagement. Not only that he gave an erroneous and distorted picture of certain financial aspects but also the infraction was done when respondent was employed as auditor. On the basis of allegation made, the respondent was charged with the following:-

(i) The respondent has been grossly negligent in the conduct of his professional duties and had failed to obtain sufficient information to warrant the expression of the opinion that he had expressed on the worth of the assets of the complainant company being Rs.320 million. Thus, violating Clauses 7 & 8 of Part 1 of the 2nd Schedule of the Chartered Accountants Act, 1949.

(ii) The respondent used his position to act more like a broker than a Chartered Accountant.

(iii) The respondent certified and submitted in his name and in the name of his firm M/s. K.N.Gutgutia & Company, a report of examination of Financial Statement of The Statesman Limited including the valuation of assets. Whereas, examination of these statement had not been done either by him or his firm, thus violating Clause [2] of Part I of 2nd Schedule of the Chartered Accountants Act, 1949.

(iv) By making false statements knowing them to be false the respondent in his letter dated 01.11.1987 signed by him on behalf of the firm, copies whereof were sent to the Chairman and the members of CBDT and CITs, Calcutta and Delhi failed to act honestly and reasonably and brought into disrepute his position as a Chartered Accountant.

3. The respondent submitted that his engagement was made by M/s. Arth Udyog Limited not for valuation of shares or properties, but for the purpose of inviting offer for shares within the ambit of financial management. Since the respondent had rendered financial management services to invite offer from various shareholders and whatever the shareholders might propose, they would analyse and give their recommendations. However, it was admitted that there was a technical fault by disclosing the value of assets at 320 million rupees. But it was stated that there was no mala fide involved. So far as his conduct in informing the CBDT is concerned, respondent took the stand that it was not a professional misconduct, since sometimes CBDT, are concerned about such transactions and as a matter of precaution the information was given. He stated that the information was given to CBDT because the offer of the client was more than the apparent value of the shares of the complainant's company. It was further stated that whatever action was taken was in national interest.

4. After considering the rival stands, Disciplinary Committee of the Institute came to the following conclusions:-

"(i) The 1st part of the 1st charge that he had been grossly negligent in the conduct of his professional duties in the matter of writing letter dated 01.11.1987 giving the worth of the assets of the complainant's company was not proved as the complainant company, namely, the Statesman Limited never appointed the respondent to carry out any professional work.

As regards the 2nd part of the 1st charge that the respondent had failed to obtain sufficient information to warrant expression of the opinion when he expressed the worth of assets of the complainant company vide letter dated 01.11.1987 violated the provisions of Clause 8 Part 1 of the 2nd Schedule.

(ii) As regards the 2nd charge, it was found that the respondent was not guilty of acting as a broker than a Chartered Accountant and, therefore, the said charge was not proved.

(iii) As regards the 3rd charge regarding the report of the Examination of the Financial Statements of The Statesman Limited, the Committee was of the opinion that the letter dated 01.11.1987 could not be construed as a Certificate or a Report on the Financial Statement. Accordingly, it was held that the respondent did not violate Clause [2] of Part I of the 2nd Schedule of the Act.

(iv) As regards the 4th charge, that by making false statement, knowing them to be false the respondent in his letter dated 01.11.1987 signed by him on behalf of his firm, copies of which were sent to the Chairman CBDT and CITs, Calcutta, Bombay and Delhi, failed to act honestly and reasonably and brought into disrepute his position as Chartered Accountant. The Committee was of the opinion that the respondent was guilty of other misconduct within the meaning of Section 22 of the Act."

5. Report of the Disciplinary Committee was given to the Council of the Institute. A copy of the report was forwarded to the parties by the Council and they were requested to make representations, if any, in respect thereof. Personal hearing was also granted. The complainant and the respondent submitted their representations on 05.08.1991 and 07.10.1991 respectively. After considering the report of the Disciplinary Committee and after taking into consideration the representations, the Council accepted the report, except the view that the respondent was not guilty of gross negligence under Clause 7 of Part I of the 2nd Schedule of the Act. However, keeping in view the totality of facts and circumstances, the Council gave the following findings:-

"(i) The respondent was guilty of professional misconduct within the meaning of Section 21 read with Section 22 of the Chartered Accountants Act, 1949 and Clause 8 of Part I of the 2nd Schedule of the Act.

(ii) The respondent was guilty of other misconduct under Section 22 of the said Act."

Recommendations were made to remove the respondent's name from the Register of Members for a period of 15 days and the reference has been made.

6. We have heard learned counsel for the parties. In view of the detailed analysis of the factual position done, we find that the Council was correct in its views about the respondent being guilty of professional misconduct as well as other misconduct. It is to be noted that learned counsel for the respondent submitted that there was no misconduct involved and even if there was an omission to act in a particular manner, it cannot attract penal consequences, unless it is mala fide. Learned counsel for the Institute, on the other hand, submitted that action of the respondent amounted to breach of trust imposed and clearly amounted to professional misconduct. Learned counsel for the respondent also submitted in reply that the punishment awarded was disproportionate to the alleged infraction.

7. Chapter V of the Act deals with "misconduct". Section 21 deals with procedure in inquiries relating to misconduct of members of the Institute. Section 21 of the Act, so far as relevant reads as follows:

"21. Procedure in inquiries relating to misconduct of members of the Institute:-

XXX XXX XXX

(4) Where the finding is that a member of the Institute has been guilty of a professional misconduct specified in the 1st Schedule, the Council shall afford to the member an opportunity of being heard before orders are passed against him on the case, and may thereafter make any of the following orders, namely:-

(a) reprimand the member;

(b) Remove the name of the member from the Register for such period, not exceeding five years, as the Council thinks fit;

Provided that where it appears to the Council that the case is one in which the name of the member ought to be removed from the Register for a period exceeding five years or permanently, it shall not make any order referred to in clause (a) or clause(b), but shall forward the case to the High Court with its recommendations thereon.

(5) Where the misconduct in respect of which the Council has found any member of the Institute guilty is misconduct other than any such misconduct as is referred to in sub-Section (4), it shall forward the case to the High Court with its recommendation thereon."

8. We are concerned with sub-Sections (4) and (5). This appears to be a case which is covered by sub-Section (5), as the Council has found the respondent to be guilty of misconduct of a category other than those referred to in sub-Section (4). On reference, the High Court has power under sub-Section (6) to pass any of the following orders:-

"(a) direct that the proceeding be filed, or dismiss the complaint, as the case may be;

(b) reprimand the member;

(c) remove him from membership of the Institute either permanently or for such period as the High Court thinks fit;

(d) refer the case to the Council for further inquiry and report."

9. "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 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. Sections 126 and 129 of the Indian Evidence Act, 1872 (in short, the `Evidence Act') throws beacon light on the importance of professional communications. As observed in Mc.Kelvery's Evidence (Page 236), at common law, in very early times, a privilege war recognized as to matters between an attorney and his client, and this privilege has continued in the strictest form to the present day. The privileges mentioned in Sections 126 and 129 are designed to secure the clients confidence in the secrecy of his communication. Any breach of the confidence is a stigma not only on the individual concerned, but is also likely to have effect on credibility of the profession as a whole. That is why the anxiety of the legislature to punish the erring individual. It is to be noted that for breach of trust by a person entrusted with property or dominion over it, action under criminal law can be taken. When considered in that background, disclosure of information which would not have otherwise come within his knowledge, but for his professional appointment, without consent of his client is an act of grave professional misconduct. As observed by the Apex Court in the context of professional misconduct of an Advocate, an act which is done otherwise than with utmost good faith is unprofessional. (See Pandurang Dattatreya Khandekar Vs. The Bar Council of Maharashtra, Bombay & Ors. ). The test of what constitutes "grossly improper conduct in the discharge of professional duties" has been laid down in many cases. In the case of a Solicitor Ex Parte the Law Society (1912) I KB 302, Darling, J. adopted the definition of "infamous conduct in a professional respect", on the part of a medical man as stated in Allinson Vs. General Council of Medical Education and Registration (1894) 1 QB 750, and applied to the same professional misconduct on the part of Solicitor, and observed:-

"If it is shown that a medical man, in the pursuit of his profession, has done something with regard to it which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency, then it is open to the General Medical Council to say that he has been guilty of "infamous conduct in a professional respect".

The Privy Council approved of the definition in George Frier Grahame Vs. Attorney General, Fiji, AIR 1936 PC 224 and Apex Court in the matter of P.An. Advocate has followed the same.

10. Judged in the aforesaid background, respondent was clearly guilty of professional misconduct, and has been held to be so by the Disciplinary Committee and the Council. So far as the proposed removal of the respondent's name for a period of 15 days is concerned, we feel that it appears to be slightly disproportionate considering the background highlighted above. Additionally, the occurrence took place more than a decade back. Though in all cases, long passage of time cannot be a mitigating factor, while considering the appropriate punishment to be awarded, in the peculiar circumstances of the case, reprimand to the respondent would meet the ends of justice Reference is accordingly disposed of.