Council Of The Institute Of ... vs Ved Prakash Verma And Anr.
2014 Latest Caselaw 3026 Del

           *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                            Date of decision: 10th July, 2014

+                         CHAT.A.REF. 5/2012

        COUNCIL OF THE INSTITUTE OF CHARTERED
        ACCOUNTANTS OF INDIA                      ..... Petitioner
                     Through: Mr. Rakesh Agarwal and Mr. Pulkit
                              Agarwal, Advocate.

                                    Versus

    VED PRAKASH VERMA AND ANR.                 ..... Respondents
                  Through: None for respondent No.1
                           Mr. Anuj Aggarwal and Ms. Niti Jain,
                           Advocates for respondent No.2.
CORAM :-
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

RAJIV SAHAI ENDLAW, J.

1. The petitioner, having found the respondent No.1 Chartered Accountant

guilty of misconduct other than any such misconduct as is referred to in Section

21(4) of The Chartered Accountants Act, 1949 (hereinafter referred to as 'the

Act') as it stood prior to the amendment with effect from 17th November, 2006,

has forwarded the case to this Court with its recommendations thereon.

2. This Court, in accordance with Section 21(6) of the Act fixed the date of

hearing on 3rd December, 2012 and issued notice of the date so fixed to the

respondent No.1 as well as to respondent No.2-Central Government, affording

them an opportunity of being heard. The notice issued to the respondent No.1

remained unserved with the report that the premises, of which address was

given, was found locked. Fresh notice was ordered to be issued to the

respondent No.1, which also remained unserved with the further report that the

respondent No.1 had sold the property and shifted to some other place. The

petitioner filed an affidavit before this Court that it was not in possession of any

other address of respondent No.1 and applied for substituted service of the

respondent No.1 at his last known address. This Court, after recording its

satisfaction that the respondent No.1 could not be served by ordinary process,

directed service of the respondent No.1 by publication in the newspaper

Statesman, Delhi Edition. The said publication stands affected. None has

appeared for the respondent No.1 despite that also. The respondent No.1 is

accordingly proceeded against ex-parte. We have heard counsel for the

petitioner and have perused the record.

3. The petitioner has made this reference, pleading as follows:-

(i) that the Managing Director of M/s Anghaila Housing Private

Limited, Delhi filed a complaint dated 2nd September, 2004 with the

petitioner with the following allegations against the respondent No.1

having Membership No. 009806 of the petitioner-Institute:

(a) that the respondent No.1 was the Auditor of the complainant

company and in possession of the records of the complainant

company;

(b) that the earlier Managing Director of the complainant

company had filed a petition before the Institute highlighting the

misconduct and unprofessional activities being carried out by the

respondent No.1;

(c) the hearing of the said complaint was fixed by the

Disciplinary Committee for 27th April, 1989 when the respondent

No.1 approached the former Managing Director of the

complainant company and pleaded for withdrawal of the complaint

and assured that he would refrain from carrying on any such

activity against the complainant company in future. Believing the

said representation of the respondent No.1, the complaint was

withdrawn.

(d) however, the respondent No.1 continued to engage himself

in unprofessional activities against the complainant company, by

retaining the records even after he tendered No Objection

Certificate dated 26th September, 1992;

(e) that upon the former Managing Director of the complainant

company approaching the respondent No.1, he demanded money

in return for the books of accounts and statutory records of the

complainant company in his possession and also threatened that if

the said consideration was not paid, the complainant company

would have to suffer dire consequences. A complaint dated 21st

January, 1995 was filed by the complainant company with the

police in this regard, but the respondent No.1 managed to dodge

the said complaint and did not return the books of accounts and

other records of the complainant company;

(f) that the respondent No.1, thereafter started to falsify the

records of the complainant company and managed to file bogus

Form 2, 32, etc. in the office of Registrar of Companies

appointing Sh. Sanjay Daksha, Sh. Sofi-ur-rehman, Sh. Binod

Rajhans as Directors of the complainant company and signed the

balance sheets as Auditor of the company from 1995-2003 and

filed the balance sheets and annual returns of the complainant

company in the office of the Registrar of Companies for the years

1995-2003, altogether on 8th March, 2004;

(g) the respondent No.1 also got opened accounts in the name

of the complainant company in a nationalized bank and to which

none of the Directors of the complainant company were signatory;

(h) the respondent No.1 also falsely represented the

complainant company and made false attempts to dispose off the

assets of the complainant company;

(i) that the complainant company also filed a petition before the

Company Law Board challenging the filing of the documents and

appointment of the aforesaid persons as Directors and the

Company Law Board passed an order against the Directors so

appointed by the respondent No.1;

(j) that the respondent No.1 appeared before the Company Law

Board on behalf of the Directors appointed by him and whose

appointment was challenged in the said proceedings;

(ii) that since the aforesaid charges made by the complainant company

against the respondent No.1, if proved, would have rendered the

respondent No.1 guilty of other misconduct under Section 22 read with

Section 21 of the Act and Clause (7) of Part I and Clause (1) of Part II of

Second Schedule to the Act, a copy of the complaint was forwarded by

the petitioner Institute under cover of its letter dated 5th May, 2005 to the

respondent No.1, eliciting the response of the respondent No.1 thereto, as

required by Regulation 12(7) of the Chartered Accountant Regulations,

1988;

(iii) the respondent No.1 submitted his response dated 21st May, 2005

and to which a rejoinder dated 22nd August, 2005 was filed by the

complainant company; the respondent No.1, however despite repeated

opportunities did not submit its comments to the said rejoinder;

(iv) that the petitioner Council, in accordance with Regulation 12(11),

in its meeting held in August, 2008, considered the complaint, response,

rejoinder aforesaid and formed a prima facie opinion that the respondent

No.1 was guilty of professional and/or other misconduct and decided to

initiate an inquiry to be made in the matter by the Disciplinary

Committee;

(v) the Disciplinary Committee of the petitioner Institute heard the

complainant company as well as the respondent No.1; the respondent

No.1 pleaded not guilty; the matter was inquired into and the disciplinary

proceedings concluded; the Disciplinary Committee vide its report dated

10th February, 2001 was of the opinion that the respondent No.1 was

guilty of professional misconduct on the charges of:-

A. filing of bogus Form 2, 32, etc. in the office Registrar of

Companies appointing Sh. Sanjay Daksha, Sh. Sofi-ur-rehman, Sh.

Binod Rajhans as Directors of the complainant company and of

taking undue and false interest in the matters of the complainant

company after his resignation as Auditor thereof in the year 1992,

as is evident from his appearance aforesaid before the Company

Law Board; and

B. having audited the books of accounts of the complainant

company after 1992 and having signed the balance sheets as

Auditor of the complainant company from the year 1995-2003 and

which were filed with the Registrar of Companies on 8th March,

2004.

the Disciplinary Committee, however held the respondent

No.1 not guilty of professional and/or other misconduct on the

charges of, (a) having demanded consideration for return of books

of accounts and statutory records of the company; (b) having

opened accounts in the Nationalized Banks in the name of the

complainant company; and (c) having made attempt to dispose all

the assets of the complainant company;

(vi) a copy of the report of the Disciplinary Committee of the

petitioner was forwarded to the respondent No.1 and the respondent No.1

was given an opportunity to send his written representation, if any,

thereagainst and to also appear before the petitioner Council at the time

when the said report of the Disciplinary Committee was to be considered;

(vii) no representation was received from respondent No.1 against the

report of the Disciplinary Committee;

(viii) the petitioner Council on a consideration of the report of the

Disciplinary Committee and the representation made by the complainant

company accepted the report of the Disciplinary Committee and held the

respondent No.1 guilty of professional misconduct as aforesaid within

the meaning of Clause (7) of Part I and Clause (1) of Part II of Second

Schedule to the Chartered Accountants Act, 1949;

(ix) the petitioner Council has recommended to this Court that the

name of the respondent No.1 be removed from the register of members

maintained by the petitioner Council for a period of six months.

4. The complaint against the respondent No.1 having been made prior to the

coming into force on 17th November, 2006 of the amendment of the Act, vide

Section 21(D) of the Act, is to be governed by the Act as it stood prior to the

said amendment.

5. The Disciplinary Committee of the petitioner gave the following reasons

for holding respondent No.1 guilty as aforesaid:-

(I) that the Economic Offences Wing of the Delhi Police, on the

complaint of the complainant company had found that Sh. Sanjay

Daksha, Sh. Sofi-ur-rehman, Sh. Binod Rajhans did not figure in the

complainant company records before 8th March, 2004, on which date

many anti-dated documents were filed in the Registrar of Companies

Office claiming that they were Directors of the complainant company

since 1993-94; however, the concerned Form 32 was filed in the office of

Registrar of Companies only on 8th March, 2004.

(II) that on 8th March, 2004, the respondent No.1 being the former

Chartered Accountant and Auditor of the complainant company, in

collusion with Sh. Sanjay Daksha, Sh. Sofi-ur-rehman, Sh. Binod

Rajhans filed a series of documents in the office of Registrar of

Companies and on the basis whereof Sh. Sanjay Daksha, Sh. Sofi-ur-

rehman, Sh. Binod Rajhans were claimed to be the shareholders and

Directors of the complainant company since the year 1993.

(III) no additional fees, as required to be paid for late filing of Form 32,

had also been paid.

(IV) The Company Law Board had also taken cognizance of the

aforesaid facts.

(V) Sh. Sanjay Daksha, Sh. Sofi-ur-rehman, Sh. Binod Rajhans

claimed to have become the shareholders of the complainant company on

transfer of shares in their favour, but were unable to produce Form No.2

and there were other discrepancies also in relation to the said transfer and

there were other omissions in the share certificates.

(VI) Sh. Sanjay Daksha, Sh. Sofi-ur-rehman, Sh. Binod Rajhans had

before the Company Law Board admitted that Sh. Sudhir Gupta was a

Director of the complainant company till 4th October, 1999; the said Sh.

Sudhir Gupta had deposed that Ms. Mausumi Bhattacharjee was in total

control of the affairs of the complainant company holding 94% shares in

the company and that the said Sh. Sanjay Daksha, Sh. Sofi-ur-rehman,

Sh. Binod Rajhans were not connected with the affairs of the company in

any manner whatsoever; Sh. Sudhir Gupta had also denied sending any

resignation letter of Ms. Mausumi Bhattacharjee to the Registrar of

Companies; Company Law Board had also taken note of the fact that said

Ms. Mausumi Bhattacharjee had been filing balance sheets, audit reports

and annual returns etc. and had been appearing in the Court cases of the

company in Dehradun / Uttaranchal and that the Bank of Baroda, Bhikaji

Cama Place, Delhi had issued a certificate that Ms. Mausumi

Bhattacharjee was maintaining and operating a current account of the

complainant company as authorized signatory thereof. The Company

Law Board had further taken note of the fact that the shareholding of Ms.

Mausumi Bhattacharjee of 1680 shares out of 3226 shares as per Form

No.2 dated 17th November, 2000 filed with the Registrar of Companies

had not been disputed. The Company Law Board had thus declared that

Ms. Mausumi Bhattacharjee continued to be the Director of the

complainant company and her purported resignation letter dated 1 st

August, 2001 and Form No.32 filed with the Registrar of Companies was

null and void.

(VII) The respondent no.1 has appended his signatures at various places

on the Shareholders Register where the names of aforesaid Sh. Sanjay

Daksha, Sh. Sofi-ur-rehman, Sh. Binod Rajhans appeared and the names

of all the said three persons appeared to have been entered in the said

Register at one time in the same hand; the appearance of the respondent

no.1's signature on the Shareholders Register could not be co-related

with the position of the respondent no.1 as Statutory Auditor of the

company and the respondent no.1 was unable to explain the same.

(VIII) That the Company Law Board had also concluded that the

respondent no.1 was involved with mala fide intention to assist the

aforesaid Sh. Sanjay Daksha, Sh. Sofi-ur-rehman, Sh. Binod Rajhans in

filing Form No.2 and Form No.32 in the office of the Registrar of

Companies appointing them as Directors of the company and that the

said act of the respondent No.1 was unbecoming of a Chartered

Accountant.

(IX) That the respondent No.1 had signed the balance sheets of the

complainant company for the years 1995 to 2003 as auditor in the name

of a Chartered Accountants firm which was closed with effect from 1st

October, 1995.

(X) That the respondent no.1 filed all the aforesaid balance sheets

together with the Registrar of Companies on 8th March, 2004.

(XI) The respondent no.1 had failed to bring any evidence on record to

establish himself as having been duly appointed by the company for the

purpose of statutory audit.

(XII) That during the period when the respondent no.1 filed the balance

sheets of the complainant company as Statutory Auditor in the name of a

closed Chartered Accountants firm V.S. Verma & Sood, he was the

proprietor of the firm V.P. Verma & Company.

(XIII) The respondent No.1 was not eligible to use the name of the closed

Chartered Accountants firm V.S. Verma & Sood and which he was not

entitled to and the respondent No.1 was thus guilty of contravention of

Regulation 190(1) of the Chartered Accounts Regulation, 1988.

(XIV) That the respondent no.1 inspite of repeated opportunity failed to

produce the document of his appointment as auditor of the complainant

company and from which it was evident that the respondent no.1 had

signed the balance sheets of the complainant company for the years 1995

to 2003 without a valid appointment.

(XV) That from the aforesaid conduct of signing of balance sheets of the

company without authority in the name of a closed chartered accounts

firm, the respondent no.1's integrity becomes doubtful.

(XVI) That the aforesaid balance sheets for the years 1995 to 2003 were

authenticated on behalf of the complainant company by Sh. Sanjay

Daksha as Director and whose appointment as Director had not been

proved before the Company Law Board. The signing of the said balance

sheets by the respondent No.1 as auditor also showed that the respondent

No.1, while signing the balance sheets failed to verify that Sh. Sanjay

Daksha was actually the Director of the company or not.

(XVII) That the respondent No.1 while signing the aforesaid balance

sheets had also not commented on the fact that the company had not filed

annual accounts and annual returns for continuous three financial years.

(XVIII) That the respondent No.1 had failed to furnish any explanation

for the aforesaid lapses.

(XIX) That the respondent No.1 had thus failed to comply with Section

215(1) of the Companies Act, 1956 and was grossly negligent in conduct

of his duties and of professional misconduct.

6. The petitioner Council accepted the aforesaid reasoning of the

Disciplinary Committee and held the respondent No.1 guilty of professional

misconduct as aforesaid and has recommended that the name of the respondent

no.1 be removed from the register of members for a period of six months.

7. We are satisfied that the prescribed procedure has been followed in the

conduct of the complaint of professional misconduct against the respondent

no.1. We, on perusal of the material placed before us, are also satisfied with

the reasoning aforesaid recorded by the Disciplinary Committee of the

petitioner institute for holding the respondent No.1 guilty as aforesaid. We also

find the punishment recommended by the petitioner Council to be proportionate

to the misconduct of which the respondent No.1 has been found guilty of.

8. Though the jurisdiction of this Court under Section 21(6) of the Act is

wide, without any restriction but in our opinion, the findings of the members of

the Disciplinary Committee of the petitioner and the views of the petitioner

Council are entitled to great weight in light of the fact that they are the experts

with regard to the matters pertaining to profession of chartered accountants and

know the intricacies of the profession on account of their personal experience.

Moreover, the said bodies have been created to maintain a high standard of

conduct and discipline amongst the members of the petitioner institute. Thus,

unless gross violation or disregard of the provisions of the Act or the

Regulations made thereunder or of the principles of natural justice and fairness

is to be found, this Court would be slow to interfere with the finding of such

professional bodies. Reliance in this regard can be placed on Chief Controller

of Exports, New Delhi Vs. G.P. Acharya AIR 1964 Cal. 174, Council of the

Institute of Chartered Accountants of India Vs. C.H. Padliya

MANU/MP/0139/1976 and The Council of the Institute of Chartered

Accountants of India Vs. B. Mukherjea AIR 1958 SC 72 (though under the

old Section 21).

9. We accordingly accept the recommendation of the petitioner institute and

remove the respondent No.1 from the membership of the petitioner institute for

a period of six months effective from this date.

10. Reference is disposed of.

RAJIV SAHAI ENDLAW, J.

CHIEF JUSTICE

JULY 10, 2014 Ak/gsr