Council Of Institute Of Chartered ... vs Y.K. Gupta, F.C.A.
2010 Latest Caselaw 5392 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI

                            Date of Decision: 29th November,2010

+       CHAT.A.REF.-4/2005

        COUNCIL OF INSTITUTE OF CHARTERED
        ACCOUNTANTS OF INDIA                   ..... Petitioner
                             Through:   Mr.Brijender Chahar,
                             Sr. Advocate with Mr.Rakesh
                             Aggarwal & Mr.Pulkit Aggarwal,
                             Advocates
                  versus

        Y.K. GUPTA, F.C.A.                            ..... Respondent

Through: Mr.Ashok Bhalla, Advocate AND R.S.A. No.180/2004

Y.K. GUPTA ..... Appellant Through: Mr.Ashok Bhalla, Advocate versus

THE INSTITUTE OF CHARTERED ACCOUNTANTS & Ors. ..... Respondents Through: Mr.Brijender Chahar, Sr. Advocate with Mr.Rakesh Aggarwal & Mr.Pulkit Aggarwal, Advocates for R-1-3 CORAM:

HON'BLE MR. JUSTICE A.K.SIKRI HON'BLE MR. JUSTICE SURESH KAIT

1. Whether the Reporters of local papers may be allowed to see the judgment? YES

2. To be referred to the Reporter or not? YES

3. Whether the judgment should be reported in the Digest? YES

SURESH KAIT, J.(Oral)

1. This reference is made under Section 21(5) of the

Chartered Accountants Act, 1949 (hereinafter to be referred as

Act) in pursuance of report dated 03.02.2002 of Disciplinary

Committee of the Institute of Chartered Accountants. The Council

of the Institute vide its decision dated 05.02.2004, under Section

21 of the Act, has recommended to this court that the

respondent be removed from the Register of Members for a

period of six months by confirming the punishment proposed by

the Council in respect of Sh.Y.K.Gupta, CA, New Delhi (hereinafter

referred to as Respondent). Simultaneously, the respondent has

also challenged the said decision of the Council by filing the suit

for declaration, mandatory injunction and perpetual injunction

which was dismissed by the learned Civil Judge vide order dated

12.08.2000. The same was also dismissed as infructuous vide

order dated 01.05.2004 when it went in for revision. By

challenging the same, the respondent has preferred RSA

No.180/2004 which is tagged with the Reference.

2. The Central Bureau of Investigation, Special Crime Branch,

New Delhi, through Sh.J.C.Dabas, the then Superintendent of

Police (hereinafter to be referred as the complainant) made the

following allegations against Sh.Y.K.Gupta:-

"The respondent issued a bogus certificate dated 15th February, 1984 certifying the value of the exports made by a fictitious firm, M/s Impex Services, Amritsar on the basis of which advance import licence dated 25th February, 1984 for Rs.26,08,522/- was issued by the

Chief Controller of Imports & Exports, Amritsar. Consequently, the Government of India was cheated to the tune of Rs.1,99,15,818/- against the import of polyester filament yarn."

3. The Respondent was duly served with the copy of the

complaint which was sent by the Council vide its letter dated

26.07.1989. In response thereto, the Respondent vide letter

dated 01.08.1989 requested for some documents to file his

written statement. However, the Council vide letter dated

15.11.1989 again advised him to file his written statement and

also informed him that the Institute was not empowered, under

the Chartered Accountants Regulations, 1988 to call for further

documents at that point of time. The respondent again

requested the Council to furnish documents vide his letter dated

17.11.1989 to which the Council again advised him to file the

written statement. The respondent vide letter dated 21.03.1990

expressed his inability to submit his written statement in the

absence of relevant documents. The request pertaining to stay of

proceedings was turned down by the Council vide its letter dated

17.05.1990 informing that the disciplinary proceedings against

the respondent could not be stayed and the matter would be

processed on the basis of his first letter dated 01.08.1989

treating the same as his written statement. The respondent

submitted his comments on 07.07.1990 to the rejoinder of the

complainant which was submitted on 13.06.1990. In accordance

with the provisions contained in Regulation 12(11) of the

Chartered Accountants Regulations, 1988 and taking into

consideration the complaint, the written statement, the rejoinder

and the comments in its 149th meeting held in June, 1991 the

Council was prima facie of the opinion that the Respondent was

guilty of professional and/or other misconduct and accordingly

referred the case to the Disciplinary Committee constituted

under the said Act for enquiry.

4. A bare perusal of the complaint reveals that Sh.Y.K.Gupta,

Chartered Accountant had issued a letter dated 15.02.1984

certifying that M/s Impex Services, 3 Rani Ka Bagh, Shopping

Complex, Amritsar exported readymade Hosiery Products for

value of `22.56 lacs during 1980-81, for `35.71 during 1981-82

and for `21.85 lacs during 1982-83. However, during the course

of investigation it transpired that there was no firm at the

aforementioned address. It was further revealed that the

aforesaid firm was fictitious and one room was taken on rent to

receive the letters. M/s Impex Services based on the aforesaid

address applied for an advance import licence and the same was

issued bearing NO. P/K/3071749 dated 25.02.1984 for `26.08

lacs on the basis of Certificates given by Sh. Y.K. Gupta which

stated that the aforesaid firm has exported "Hoisery Products"

during the years 1980-83 of `80.12 lacs. The Charted

Accountant certificate which was essential for issuance of an

advance import licence was alleged to be bogus. Further

interrogation revealed that Sh.Y.K.Gupta issued the said bogus

certificate on the basis of documents brought before him.

However, he could not tell as to who had brought the said

records before him, as he was not maintaining any books of

accounts. Further it was also transpired that Polyester filament

yarn was imported vide against this licence and the same was

sold in the open market and that the export order was also bogus

as alleged.

5 The Disciplinary Committee framed following specific issues

on which the further enquiry was to be made:-

a) To examine whether at the relevant time M/s Impex Services was registered firm or not and to examine the genuineness of the firm M/s Impex Services.

b) To summon the partners of M/s Impex Services along with the books of accounts and to verify the correctness of export figures certified by the Respondent in the certificates dated 15th February, 1984 and 22nd February, 1984 and also to verify about the correctness of the product mentioned in the certificate.

c) To summon the necessary documents from firm‟s bankers Bank of India and verify the genuineness of the certificate presented by the respondent before the Council as part of his working papers.

d) To examine the working papers produced by the Respondent before the Council.

6. On perusal of the documents placed on record and those

produced before the Disciplinary Committee and further

recording the evidence of the witnesses and after hearing the

submissions made by the parties, the Committee submitted its

report dated 15.01.1995 wherein the Committee was of the

opinion that the Respondent was guilty of professional

misconduct under Clauses (7) & (8) of Part I of the Second

Schedule to the Chartered Accountants Act, 1949 in terms of

Section 21 read with Section 22 of the Act. The respondent

submitted his written representation dated 23.04.1996. The

report of the Disciplinary Committee was considered by the

Council in its meeting held from 01st to 04th July, 1998 at New

Delhi. The parties were informed of consideration of the

decision made by the Council that, the report , written

representation of the Respondent and the osral submissions

made by the parties, the Council decided that a further inquiry

was necessary in the matter by the Disciplinary Committee and

vide Institute‟s letter dated 23.12.1998.

7. However, in between, aggrieved by the above decision of

the Council, the respondent filed suit for declaration, mandatory

injunction and perpetual injunction against the Institute before

the Civil Judge, Tis Hazari Courts, Delhi declaring that the report

dated 15.01.1995 of the Disciplinary Committee was illegal,

invalid and inoperative and that the order of the Council directing

further enquiry was illegal, invalid and without jurisdiction. The

matter was contested by the Institute and the ld. Trial Court

Judge vide his orders dated 12.08.2000 dismissed the suit of the

Respondent herein. Aggrieved by the above judgment, the

respondent filed an appeal before the Senior Civil Judge, Tis

Hazari Courts being RCA No.289/2000. Keeping in view the fact

that the enquiry against the respondent herein was completed

and pending as being referred to this court for final disposal, the

ld. Sr. Civil Judge vide his order dated 01.05.2004 dismissed the

appeal as having become infructuous. The respondent filed RSA.

However, the Disciplinary Committee decided to proceed with

further enquiry as there was no stay of the proceedings in the

said LPA, and gave its report to the council.

8. The respondent submitted before the Council that the firm

was not fictitious and was in existence firstly at Jalandhar and

then at Amritsar. The Respondent had not submitted the working

papers before the Disciplinary Committee as he was legally

advised not to part with the working papers to any authority

because the complaint belongs to Police and CBI and the criminal

cases are pending against many proprietary firms. The

complainant however, requested for an opportunity of being

heard after perusal of the working papers.

9. On consideration of the documents produced and the oral

submissions made by the parties, the Council decided that a

further enquiry was necessary to be made in the matter by the

Disciplinary Committee on certain specific issues. Accordingly

the case was listed for hearing on 08.08.2001. After the hearing

on 08.08.2001, the case was adjourned to 28.09.2001 for final

submissions of the Respondent and Complainant. On

28.09.2001, the counsel for the Respondent made a reference to

an application dated 07.08.2001 which was received in the

Institute‟s Office on 09.08.2001 i.e. after the hearing in which the

Respondent had requested to adjourn the matter till the disposal

of the matter pending before the learned Senior Civil Judge, Tis

Hazari Courts, Delhi. Since this application was received only on

09th August, 2001 and the Committee had already proceeded with

the matter and recorded the evidence of the Complainant on 08 th

August, 2001 a copy of the recorded evidence was provided to

the Respondent. Further, the Respondent has not availed

opportunity to cross-examine the witness by being present on

08th August, 2001, hence his request for re-examination of

witnesses was refused.

10. The first issue before the Disciplinary Committee was to

examine whether at the relevant time M/s Impex Services was a

registered firm or not and to examine the genuineness of the

firm. For this purpose summons were issued to Bank of India,

Jallandhar Branch and Sh.S.Karthik, Chief Manager, Bank of India

deposed before the Committee. Photocopies of the Certificates

were given to confirm whether they are genuine and whether the

signatures of the Bank personnel belonged to those persons who

were at that relevant time associated with the Bank and also

whether their signatures tallied with their signatures in the cyber

book. Sh.S.Karthick confirmed the signatures from the bank as

that of the signature of the Accountant. Based on the

Accountant‟s signature, the Chief Manager had also signed. He

was asked to furnish a confirmation within a period of 15 days i.e.

before 20th August, 2001. Subject to the furnishing of these

particulars, the witness was discharged. Vide his letter dated

23.08.2001, Sh.S.Karthick, Chief Manager, Bank of India,

Jalandhar, submitted as under:-

(i) The customer, M/s Impex Services does not have any account with us now and they are reported to have closed their account several years back, though the exact date of the closure of their account is not presently available with us.

(ii) As advised to you earlier in our communications to you and also, when the undersigned appeared in person before the Disciplinary Committee, the Bank has a system of destruction of old records at regular intervals of time and as such we do not have either the copy of account opening form nor statements of their accounts.

(iii) The signatures appearing on the certificates indicated above appear to tally with signature of Mr.E.Balakrishnan, an authorized official of the Bank at the time of issue of the certificate. However, Mr.Balakrishnan is no more in the services of the Bank and has retired long back.

(iv) The certificate per se does not indicate the item of commodity nor the quantity exported.

11. Sh. Harikesh, CBI Inspector in his deposition stated that the

firm M/s Impex Services was in existence and was registered with

Handloom Board. He stated that the firm was exporting some

other items and not readymade garments. In the certificate, RBI

Code Number of the firm is given and it implies that the firm was

registered with RBI. The CBI Inspector was unable to either

confirm or deny this fact. As regards the deposition given by the

owner of the premises at No.3, Ranika Bagh, Amritsar, it was

explained that the firm was originally located at Jalandhar and

shifted its base to Ranika Bagh, Amritsar in 1984.

12. Considering the deposition given by Mr.Karthick, Chief

Manager, Bank of India and also Sh.Harikesh, CBI Inspector on

behalf of the Complainant; the Disciplinary Committee, reiterated

its earlier opinion in its report dated 03.02.2002 and was of the

view that the Respondent was guilty of professional misconduct

falling within the meaning of Clause (7) and (8) of Part I of the

Second Schedule to the Chartered Accountants Act, 1949 in

terms of Section 21 read with Section 22 of the Act.

13. Considering the reports of the Disciplinary Committee

dated 03.02.2002 & 15.01.1995 and the written representations

submitted by both the parties along with the oral submissions

made by the representative from the Complainant department,

the Council decided to accept the reports of the Disciplinary

Committee and accordingly found the Respondent guilty of the

professional misconduct falling within the meaning of Clauses (7)

and (8) of Part-I and Second Schedule to the Chartered

Accountants Act, 1949 in terms of Section 21 read with Section

22 of the said Act. The Council further decided to recommend to

the High Court that the name of the Respondent be removed

from the Register of Members for a period of six months. Hence,

the present reference.

14. For our reference, we are reproducing the Section 22 of

the Chartered Accountants Act, 1949 as under:

"22. Professional misconduct defined - For the purposes 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 Council under sub- section (1) of section 21 to inquire into the conduct

of any member of the Institute under any other circumstances."

A Code of Ethics is a legally binding statement of conduct. The Code of Conduct issued by the Institute proclaimed as follows :

"Code of Conduct -

xxxxx

A client, before engaging the services of a professional man, requires to be assured: (i) that he has the required competence and (ii) that he is a man of character and integrity. As regards the first, evidence is available to the client in the form of a certificate that the accountant has undergone the training and passed the examination, and as regards the second, he would have an assurance only if the professional body to which he belongs has adopted a code of professional conduct. The noble traditions set up by the learned professions, such as, Ecclesiastics, Medicine and Law, have been followed by others, with a view to instil public trust and confidence. The over-riding motto has been `pride of service in preference to personal gain'. A code of professional conduct may have the force of law, as is the case in this country in some matters, as well as the result of discipline and established conventions voluntarily undertaken by the members, any breach whereof would result in the person being disentitled to continue as a member of the professional body. In any event, it has a great deal of practical value in so far as it proclaims to the public that the members of the profession will carry on their duties and responsibilities, having regard to the public interest. This, in turn, will give an assurance to the public that in the event of a member straying away from the path of duty, he would be suitably dealt with by the professional body.

Human nature being what it is, a man can be selfish

- to place his personal gain above service. Therefore, persons who as individuals and as a class are willing to place public good above their personal gain deserve praise and honour. This is the main

reason why professional men have enjoyed prestige and honour. But such a relationship can be maintained or enhanced only if the professional body would interpret the concept of public interest and the necessity for the professional man to watch it as broadly as possible. It is also necessary for it to guide and compel the members to live up to these high standards."

15. We deem it appropriate to mention the following judgments

which according to us closely relates to the facts and

circumstances of the case before us:-

a) The decision of the Supreme Court in Council of the Institute of Chartered Accountants v. B. Mukherjea, [1958] 1 SCR 371 , which was rendered in the context of the provisions of Sections 21 and 22 of the said Act and was cited for the proposition that the misconduct alleged on the part of the Chartered Accountants may not attract any of the provisions in the Schedule and may not, therefore, be regarded as falling within the first part of Section 22; but if the definition given by Section 22 itself purports to be an inclusive definition and as the section itself in its latter portion specifically preserves the larger powers and jurisdiction conferred upon the Council to hold inquiries by Section 21 sub-section (1), it would not be right to hold that such disciplinary jurisdiction can be invoked only in respect of conduct falling specifically and expressly within the inclusive definition given by section 22. Section 8 sub-sections (v) and (vi) support the argument that the disciplinary jurisdiction can be exercised against Chartered Accountants even in respect of conduct which may not fall expressly within the inclusive definition contained in

Section 22. It was held that if a member of the Institute was found, prima facie, guilty of conduct which, in the opinion of the Council, renders him unfit to be a member of the Institute, even though such conduct may not attract any of the provisions of the Schedule, it would still be open to the Council to hold an inquiry against the member in respect of such conduct and a finding against him in such an inquiry would justify appropriate action being taken by the High Court under Section 21(3).

b) There is yet another decision of the Supreme Court in the matter of Mr. "P", an Advocate, reported in AIR 1963 SC 1313, which was rendered in context of misconduct of an advocate to point out that the Supreme Court, in paragraphs 7 and 8 of its judgment, held that wherever conduct proved against an Advocate is contrary to honesty, or opposed to good morals, or is unethical, it may be safely be held that it involves moral turpitude. The Supreme Court observed that, in dealing with the matter of professional propriety, we cannot ignore the fact that the profession of law is an honourable profession and it occupies a place of pride in the liberal professions of the country. Any conduct which makes a person unworthy to belong to the noble fraternity of lawyers or makes an advocate unfit to be entrusted with the responsible task of looking after the interests of the litigant must be regarded as conduct involving moral turpitude. It was held that; "An Advocate invites disciplinary orders not only if he is guilty of professional misconduct; but also if he is guilty of other misconduct; and this other misconduct which may not be directly concerned with his professional activity, as such, may nevertheless be of such a dishonourable or infamous

character as to invite the punishment due to professional misconduct itself".

c) The decision of the Supreme Court in N.G. Dastane v. Shrikant S. Shivde, reported in [2001] 3 SCR 442, which was rendered in context of the provisions of Section 35 of the Advocates Act, 1961, by which the State Bar Council was empowered to refer the case for disposal to its disciplinary committee when it had reason to believe that any advocate on its roll has been guilty of "professional or other misconduct", was cited to point out that, it was held by the Supreme Court; "The collocation of the words "guilty of professional or other misconduct" has been used for the purpose of conferring power on the disciplinary committee of the State Bar Council. It is for equipping the Bar Council with the binocular as well as whip to be on the qui vive for trading out delinquent advocates who transgress the norms or standards expected of them in the discharge of their professional duties. The central function of the legal profession is to help promotion of administration of justice. Any misdemeanor or misdeed or misbehaviour can become an act of delinquency, if it infringes such norms or standards, and it can be regarded as misconduct". The Supreme court held that an advocate abusing the process of court is guilty of the misconduct.

d) The decision of the Mysore High Court in H.A.K. Rao v. Council of the Institute of Chartered Accountants of India, reported in AIR 1965 MYS 112 refers to the proposition that, failure to conform to the statutory requirements may lead to disciplinary action being taken against the concerned member, and that may result in interference with his right to carry on as a Chartered

Accountant; but this result is merely incidental to his being a member of the institute. If a member does not wish to conform to the requirements of the institute, it would be open to him to relinquish his membership of the institute.

16. The Code of Conduct issued by the Institute of Chartered

Accountants of India records that it is necessary for the Institute

"to guide and compel the members to live up to these high

standards. The prestige and confidence enjoyed by a profession,

to a great extent, is dependent on strictness and scrupulosity

with which such a Code is interpreted and not necessarily by

legislation or regulations as much by self-discipline". It is also

stated that the Council in addition to "professional misconduct"

as defined in Section 22 of the Act has been given power to

inquire into the conduct of any member of the institution under

circumstances other than those specified in the Schedules to the

Act. The Council is not debarred from inquiring into the conduct

of any member of the institute under any other circumstances, as

asserted in the Code. This aspect is fully borne out by the

expression "professional or other misconduct" occurring in

Section 21. The power of the Council to inquire into "other

misconduct" which is not mentioned in the Schedules is placed

beyond any pale of controversy by the decision of the Supreme

Court in Institute of Chartered Accountants v. B.

Mukharajea (supra) in which the Supreme Court has, in terms,

held that, if a member of the Institute is found, prima facie, guilty

of conduct which, in the opinion of the Council, renders him unfit

to be a member of the Institute, even though such conduct may

not attract any of the provisions of the schedule, it would still be

open to the Council to hold an inquiry against the member in

respect of such conduct and a finding against him in such an

inquiry would justify appropriate action being taken by the High

Court. It was held that though the definition of the material

expression used in Section 21(1) refers to the acts and omissions

specified in the schedule, the list of the said acts and omissions is

not exhaustive; and in any event, the said list does not purport to

limit the powers of the Council under Section 21(1), which may

otherwise flow from the words used in the said sub-section itself.

It was held that it would not be right to hold that such disciplinary

jurisdiction can be invoked only in respect of conduct falling

specifically and expressly within the inclusive definition given by

Section 15. Members of the Institute are bound to act in a

manner consistent with the good reputation of the profession.

They should refrain from any conduct which might bring discredit

to the institute. Members should be guided not merely by the

terms, but also by the spirit of the Code of Conduct and the fact

that particular conduct does not receive mention does not

prevent it from being unacceptable or discreditable conduct, thus

making a member liable to disciplinary action. After all, Code of

Ethics draws community ethics and moral principles into the

professional institutions. There is a need to arrive at a balance

between the interests of the member as a citizen in expressing

views in the matters of public concern and the interest of the

institution in preserving the status and dignity of the

professionals rendering service as Chartered Accountants.

17. After going through the pleadings of both the parties, the

fact remains that the signatures appearing on the certificates

appear to tally with the signatures of Mr.E.Balakrishnan, an

authorized official of Bank at the time of issuance of the

certificate.

18. Sh.Harikesh, CBI Inspector in his deposition states that the

firm M/s Impex Services was in existence and was registered with

Handloom Board. He further states that the firm was exporting

some other items and not "Readymade Garments". In the

certificate, RBI Code number of the firm is given and it implies

that the firm was registered with RBI. The CBI Inspector was

unable to either confirm or deny this fact.

19. As regards the deposition given by the owner of the

premises as No.3, Rani Ka Bagh, Amritsar, it was explained that

the firm was originally located at Jalandhar and shifted to Rani Ka

Bagh, Amritsar only in 1984.

20. The Committee observed that in the certificate dated

15.02.1984, the product "Readymade Garments" is mentioned

while in the certificate dated 22.02.1984 "Readymade Hosiery

Products" is mentioned. During the course of the deposition

before the Committee it was brought on record that export was

made to European countries which has not been refuted by the

respondent. The Committee observed that the export to these

countries can be executed only after obtaining the quota from

AEPC. In response to this, the respondent stated that the firm

had exported "Readymade Hosiery Garments" for which quota

from AEPC was not necessary. The word "Readymade Garments"

used in the first certificate will include "Readymade Hosiery

Garments". Similarly, the word "Readymade Hosiery Product"

used in second certificate will include "Readymade Garments".

The respondent asserted that there was no mistake on his part

and he had certified the correct product. Thus, according to him

the correct product was "Readymade Hosiery Garments".

21. We feel that there was utter confusion over the

„Readymade Hosiery Garments" and "Readymade Garments". At

a glance, "Readymade Garments" and "Readymade Hosiery

Garments" seems to be "Readymade Garments" whether that is

of Hosiery or otherwise. The Committee has not collected any

evidence on record or any expert opinion of the concerned

Ministry, whether the "Readymade Hosiery Product" used in the

second certificate would include "Readymade Garments" also.

Mr.Brijender Chahar, Sr. Advocate appearing on behalf of the

Council also could not show any material or evidence in this

regard.

22. The hard reality of the case is that the respondent has

been fighting for the last 25 years and the Council has suggested

to delete the name of the Respondent for a period of six months.

We are of the considered opinion that keeping the long and

multiple litigations into view and the age of the Respondent, we

feel it appropriate not to confirm the six months‟ punishment and

that is due to the sufferage caused by the time spent in litigation.

23. Accordingly, the present reference in question is dismissed

with no order as to costs. Consequently, the RSA No.180/2004

filed by the Respondent herein has now become infructuous and

stands disposed of accordingly.

SURESH KAIT, J.

A.K. SIKRI, J.

NOVEMBER 29, 2010 „nks‟/RS