Council Of The Institute Of ... vs Awadhesh Kumar & Anr.
2012 Latest Caselaw 4036 Del

         *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Date of decision: 10th July, 2012

+                             CHAT.A.REF. No.4/2011

      COUNCIL OF THE INSTITUTE OF CHARTERED
      ACCOUNTANTS OF INDIA                       ..... Petitioner
                   Through: Mr. Pulkit Agarwal, Adv.

                                 Versus

    AWADHESH KUMAR & ANR.               ..... Respondents

Through: Mr. Rohan Thawani, Adv. for Complainant.

CORAM :-

HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW RAJIV SAHAI ENDLAW, J

1. The petitioner, on the complaint of one Dr. Raj Kachroo against the

respondent, called for the response of the respondent and in accordance

with Regulation 12(11) of the Chartered Accountants Regulations, 1988

placed the complaint, response/written statement of the respondent and

rejoinder of the complainant before its Council in the meeting held in

April, 2008. The Council, being prima facie of the opinion that the

respondent was guilty of professional and/or other misconduct, caused an

inquiry to be made in the matter by the Disciplinary Committee. The

respondent defended the case before the Disciplinary Committee. The

Disciplinary Committee after examining the witnesses, perusing the

documents submitted and hearing the complainant and the respondent, in

its report dated 3rd February, 2010 found the respondent guilty of

professional misconduct falling within the meaning of Clauses (8)&(9) of

Part-I of the First Schedule with respect to some of the charges and guilty

of professional misconduct falling within the meaning of Clauses

(7),(8)&(9) of Part-I of the Second Schedule with respect to some of the

other charges. The report of the Disciplinary Committee was forwarded by

the petitioner to the complainant as well as the respondent. Representations

were again submitted by the complainant as well as the respondent with

respect thereto and the respondent also made oral submissions before the

Council of the petitioner. The Council, in its meeting held on 29th & 30th

June and 1st July, 2010 accepted the report of the Disciplinary Committee

and recommended punishment of removal of the name of the respondent

from the Register of Members for a period of three months for professional

misconduct falling within the meaning of Clauses (8)&(9) of Part-I of the

First Schedule and of removal of name from the Register of Members for a

period of one year for professional misconduct falling within the meaning

of Clauses (7) (8)&(9) of Part-I of the Second Schedule, with two

punishments to run concurrently. In terms of Section 21(5) of the Chartered

Accountants Act, 1949, the case is forwarded to this Court for necessary

order in accordance with Section 21(6) of the said Act.

2. Notice of this reference was issued to the respondent. Though the

respondent was duly served for 16th January, 2012 but none appeared on

his behalf. However adverse orders against the respondent were deferred

and the case adjourned giving opportunity to the respondent to file reply.

The complainant applied for being impleaded; though he was not

impleaded but was allowed to be heard. On the next date i.e. 10 th April,

2012 the respondent appeared in person and sought further time for

replying. The said request was acceded to.

3. However no reply has been filed. Today none has appeared for the

respondent inspite of the matter having been passed over. Need is not felt

to await the respondent any further. We have perused the records.

4. The complainant Dr. Raj Kachroo was having a dispute with one Sh.

Sumer Misri qua the management of M/s DSM Healthcare Ltd.; one Sh.

Rohit Dhar was the Auditor of the said company. It was the complaint of

the said Dr. Raj Kachroo that the said Sh. Sumer Misri, to avoid adverse

audit report and to further consolidate his hold over the company, caused

the removal in an unlawful manner of the said Sh. Rohit Dhar as Auditor

and further caused the appointment, without following the procedure

prescribed in law, of the respondent as Auditor. It was further the

complaint against the respondent that the respondent proceeded to conduct

audit of the said company for the year 2003-04, without confirming that his

appointment was in accordance with law, without communicating with the

outgoing auditor and without having any documents or Books of Account

of the company which were necessary for such audit. It was thus the

complaint of the said Dr. Raj Kachroo that the respondent illegally

prepared the audit report validating the acts of the said Sh. Sumer Misri and

gave a clean chit without even looking at the Books of Account and

verifying any transaction of the company.

5. It was the defence of the respondent that the said Sh. Sumer Misri

and his family members were the promoters of the company and though

Sh. Rohit Dhar had been the auditor of the company for several years but

refused to conduct the audit for the year 2003-04; that the complainant Dr.

Raj Kachroo was related to the said Sh. Rohit Dhar and the complainant

had become Additional Director in the company for the reason of having

invested money therein; however since the company suffered losses in its

business in the year 2002-03, the relationship between Sh. Sumer Misri and

the complainant strained and Sh. Sumer Misri upon refusal of Sh. Rohit

Dhar to audit the company approached the respondent and the respondent

accepted the appointment after verifying compliance of the procedure

under Section 225 of the Companies Act, 1956.

6. The Disciplinary Committee in its report has noted that, though the

respondent in the course of inquiry on 01.12.2008 pleaded guilty to the

charge of non communication with the previous auditor and non

verification of the compliance of Sections 224/225 of the Companies Act

but at the subsequent hearing on 07.07.2009 denied the charge of non

communication. The Disciplinary Committee has further recorded that

though the respondent claimed to have sent a letter dated 05.08.2004

seeking No Object Certificate (NOC) of the previous auditor but was

unable to explain as to how the letter could have been sent prior to the

meeting on 04.09.2004 in which his appointment was stated to have been

approved. The Disciplinary Committee has further recorded that the

respondent has not placed on record and also admitted ignorance of the said

notice under Section 225 of the Companies Act to the earlier auditor Sh.

Rohit Dhar; that Sh. Rohit Dhar during the inquiry denied receipt of any

such notice from the company or any letter from the respondent seeking

NOC. The Disciplinary Committee thus held the respondent guilty of

professional misconduct within the meaning of Clauses (8) and (9) of Part-I

of the First Schedule of the Act to verify compliance with Section 225 of

the Companies Act prior to accepting the appointment as the Auditor.

7. The Disciplinary Committee has further found that though the

respondent in the EGM of the company had been requested to re-construct,

prepare and audit the accounts of the company but only carried out the

audit and certified the financial statements for the year 2003-04 on

06.09.2004; that the audit of a company having a turn over of around `2.62

crores could not have been completed within two days; that from the

complaint of Sh. Sumer Misri against Dr. Raj Kachroo, it was evident that

the Books of Accounts of the company were alleged to be in the possession

of Dr. Raj Kachroo and in the absence whereof the respondent could not

have carried out the audit of the company; that the respondent could also

not produce the copies of his working papers to show that he had carried

out the audit with due diligence; that the accounts signed and approved in

the AGM of the company had not been accepted by the Company Law

Board also in the proceedings pending before it. The Disciplinary

Committee thus concluded that the respondent had not verified the original

documents and only verified carbon copies of sale invoices and failed to

mention in his report that the said accounts were reconstructed only on the

basis of records available and thus failed to disclose the material facts

known to him to make the accounts not misleading. It further concluded

that the respondent failed to adhere to the procedure laid down for carrying

out the audit and was grossly negligent in his duty as auditor of the

company. He was accordingly held guilty of professional misconduct

falling within the meaning of Clauses (7), (8) & (9) of Part-I of the Second

Schedule read with Sections 21 and 22 of the Act.

8. The Council as aforesaid accepted the report of the Disciplinary

Committee.

9. The respondent, as aforesaid, has chosen not to contest. We have no

reason to disagree with the findings of fact arrived at by the Disciplinary

Committee and the Council comprising of experts and considering the

nature of the misconduct, also have no reason to not accept the

recommendation made by the petitioner. The provisions of Section 225

Companies Act underscore that statutory Auditors cannot be lightly

removed. The Auditors are expected to function as independent

professionals and not simply toe the line of the management of the

company. The respondent, by colliding with the management of the

company, has betrayed his duty as a professional. We accordingly accept

the said recommendation and remove the respondent Sh. Awadhesh Kumar

from the Register of Members of the petitioner for a period of three months

for professional misconduct within the meaning of clauses (8) and (9) of

Part-I of the First Schedule of the Act and for a period of one year for

professional misconduct within the meaning of Clauses (7), (8) and (9) of

Part-I of the Second Schedule of the Act, with the two punishments to run

concurrently.

10. The counsel for the complainant though has sought to argue that

considering the gravity of the misconduct, the punishment is insufficient

and ought to have been enhanced but we are unable to agree.

No costs.

RAJIV SAHAI ENDLAW, J

ACTING CHIEF JUSTICE

JULY 10, 2012 Pp/gsr