Institute Of Chartered ... vs B.L. Khanna & Another
2000 Latest Caselaw 905 Del

ORDER

Arijit Pasayat, CJ.

1. This is a reference under Section 21(5) of the Chartered Accountants Act, 1949 (for short the Act) by The Institute of Chartered Accountants of India (hereinafter referred to as the Institute). Factual position is almost undisputed and is as follows:

2. B.L. Khanna (hereinafter referred to as the respondent) as a Chartered Accountant had certified an application by Aero Traders Private Limited in accordance with the requirements of Import and Export Policy, certifying the F.O.B. value of exports at Rs. 4,44,77,996/- which was wrong. Chief Controller of Imports and Exports gave information to the Institute that figures certified by the respondent in the report were not correct. Re- spondent certified the FOB value of exports at Rs. 4,44,77,996/-, whereas the correct figure was Rs. 4,14,69,925/-. On getting information from the Chief Controller of Imports and Exports, matter was referred to Discipli- nary Committee. Said Committee concluded that respondent was guilty of professional misconduct within the meaning of Section 21 read with Section 22 of the Act and clauses (6) and (7) of Part-I of Second Schedule to the Act. When matter came up before the Council, benefit of doubt was given in respect of charge under clause (6) of Part-I of Second Schedule. However, it was held that respondent had not exercised due care and skill which he should have done while discharging his professional duties and should have indicated the correct figure. Council recommended reprimand.

3. Learned counsel for the Institute submitted that care and caution which respondent was required to exercise while discharging his profession- al duties was not done and, therefore, he has been rightly found to have misconducted himself and committed professional misconduct.

4. Learned counsel for respondent, on the other hand, submitted that the moment respondent found that there was a typographical error, concerned party was immediately informed. It was pointed out that instead of FOB value CIF value was indicated. This is a bona fide mistake and there is no dispute that the FOB value and the CIF value as indicated by the respondent are not in order.

5. Sections 21, 22 of the Act, and clauses (6) and (7) of Part-I of Second Schedule to the Act read as follows:

"21. Procedure in inquiries relating to misconduct of members of Institute: (1) Where on receipt of information by, or of a com- plaint made to it, the Council is prima facie of opinion that any member of the Institute has been guilty of any professional or other misconduct, the Council shall refer the case to the Disciplinary Committee, and the Disciplinary Committee shall thereupon hold such inquiry and in such manner as may be prescribed, and shall report the result of its inquiry to the Council.

   (2) If on receipt of such report the Council finds that the    member of the Institute is not guilty of any professional or    other misconduct, it shall record its finding accordingly and    direct that the proceedings shall be filed or the complaint shall    be dismissed, as the case may be. 
 

   (3) If on receipt of such report the Council finds that the    member of the Institute is guilty of any professional or other    misconduct, it shall record a finding accordingly and shall    proceed in the manner laid down in the succeeding sub-sections. 
 

   (4) Where the finding is that a member of the Institute has been    guilty of a professional misconduct specified in the First Sched-   ule, 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 recommenda-   tions 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 recommendations    thereon. 
 

   (6) On receipt of any case under sub-section (4) or sub-section    (5), the High Court shall fix a date for the hearing of the case    and shall cause notice of the date so fixed to be given to the    member of the Institute concerned, the Council and to the Central    Government, and shall afford such member, the Council and the    Central Government an opportunity of being heard, and may there-   after make any of the following orders, namely:- 
 

   (a) direct that the proceeding be filed, or dismiss the com-   plaint, as the case may be ; 
 

   (b) reprimand the member ; 
 

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

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

   22. Professional misconduct defined:- For the purpose of this    Act, the expression "professional misconduct" shall be deemed to    include any act or omission specified in any of the Schedules,    but nothing in this section shall be construed to limit or    abridge in any way the power conferred or duty cast on the Coun-   cil under sub-section (1) of Section 21 to inquire into the    conduct of any member of the Institute under any other circum-   stances. 
 

   "Part I of the Second Schedule
 

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

   (6) fails to report a material misstatement known to him to    appear in a financial statement with which he is concerned in a    professional capacity; 
 

   (7) is grossly negligent in the conduct of his professional    duties
 

   ......................................................."    

6. As noted above, respondent has not been found to have contravened clause (6), but clause (7). Latter clause relates to grossly negligent action in the conduct of professional duties. On the background facts, it has to be seen whether failure of respondent to notice the mistake would constitute an act of negligence. It depends upon the fact whether the concerned person had applied his mind diligently to the job entrusted to him, and whether due care and caution, as is required to be adopted, was taken. Respondent took the stand that by mistake CIF value was typed out instead of FOB value. When a certificate is given, arithmetical accuracy has to be ensured. That is the minimum requirement to be done by a Char- tered Accountant. The test, according to us, is whether in addition to the failure to do the duty, there was failure to act honestly and reasonably. Word 'negligence' is associated in the provision with the word 'misconduct' and involves some element of moral culpability. Mere imprudence or want of judgment or grave error in judgment is not enough. 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. But error or misinterpretation of law and specially one view or another over a debatable construction cannot be ground for the allegation and finding of professional misconduct against a Chartered Accountant. Negli- gence is the omission to do something which a reasonable man, guided upon those considerations, which ordinarily regulate the conduct of human af- fairs, would do, or doing something which a prudent and reasonable man would not do. It is not absolute or intrinsic, but relative to some circum- stances of time, place of persons, imposing a duty to take care. In dealing with matters of professional propriety, one cannot ignore the fact that the profession of Chartered Accountancy occupies the place of nobility, pride and honour and is a profession of trust. Expertise in the field of account- ing and auditing is the hallmark of Chartered Accountant's profession. When a Chartered Accountant signs certificates, minimum that is expected to do is to verify the accuracy of the figures certified. As part of his profes- sional duty and responsibility, he was required to take reasonable steps to satisfy himself that the figures were correct. Elementary verification would have been sufficient to notice the mistake. Failure to carry out such elementary verification amounts to gross negligence and carelessness. Skill, care and caution, which a reasonably competent and cautious auditor was expected to exercise, was not done. Lack of it has affected veracity of his competence. The intendment and object of the Act is to maintain the standard of the profession at a high level.

7. In Re Kingston Cotton Mill Co., (1896-2 Ch. 279) Lopes L.J. observed: "It is the duty of an Auditor to bring to bear on the work he has to perform that skill and care and caution which a reasonably competent, careful, and cautious auditor would use, what is reasonable skill, care, and caution must depend on the particular circumstances of each case. An auditor is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound. If there is anything calculated to excite suspicion he should probe it to the bottom; but in the absence of anything of that kind he is only bound to be reasonably cautious and careful."

8. It was observed by the Apex Court in the context of an Advocates' professional misconduct that 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, ]. Decisions of the Privy Council in George Frier Grahame Vs. Attorney General, Fiji, AIR 1936 P.C. 224 and the Apex Court in the matter of P. An Advocate, were referred to in Pandurang's case (supra). It may be noted here that in Allinson Vs. General Council of Medical Education and Registration, (1894) 1 O.B. 750 it was observed as follows: "If it is shown that a medical man, in the pursuit of his profes- sion, has done something with regard to it which would be reason- ably 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".

Said definition of "infamous conduct in a professional respect" was reiterated by Darling J. in: In re A Solicitor Ex parte the Law Society (1912) 1 KB 302, and referred to in Pandurang, George Frier Grahame and P. An Advocate's cases(supra).

9. Though it cannot be said that due care and caution has been exercised by the respondent, we feel that respondent was acting bona fide. This conduct is borne out from the fact that respondent himself had issued a letter to concerned party pointing out the mistake. He had indicated that had he known the authorities before whom the certified application was to be filed, he would have intimated the said authorities also. That being the position, we feel that a word of caution to the respondent that he should have been more careful would suffice instead of reprimanding him as recom- mended by the Council. The case be closed accordingly.

The reference is disposed of.