Council Of The Institute Of ... vs Tarun Goyal & Anr
2014 Latest Caselaw 5582 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI

                                    Date of decision: 10th November, 2014.

+                                 CHAT.A.REF. No.4/2014

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

                                       Versus

        TARUN GOYAL & ANR                                 ..... Respondents
                    Through:           None.

                                       AND

+                                 CHAT.A.REF. No.6/2014

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

                                  Versus

    TARUN GOYAL & ANR.                 ..... Respondents
                  Through: None.
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

RAJIV SAHAI ENDLAW, J.

1. Chartered Accountant (CA) Mr. Tarun Goyal, a member of the

petitioner Institute of Chartered Accountants of India and having

membership No.085813, respondent No.1 in both the petitions (respondent

No.2 in both the petitions is the Union of India, a proforma party) having

been found guilty of "other misconduct" falling under Section 22 read with

Section 21 of The Chartered Accountants Act, 1949, as it stood prior to the

amendment with effect from 17th November, 2006, in pursuance to two

separate and distinct complaints respectively (subject matter of the two

petitions), against him, the petitioner Institute has made these two

references, both under Section 21(5) of the Act, forwarding the cases to this

Court with its recommendation of removal of the name of the respondent

No.1 from the Register of Members for a period of five years in each of the

two cases.

2. Notice of each of the petitions was issued. None appears for the

respondent No.1 in either of the two petitions. We may notice that the

respondent No.1 remained ex-parte throughout the proceedings before the

petitioner Institute including before the Disciplinary Committee of the

petitioner Institute insofar as the complaint subject matter of Chat.A.Ref.

No.4/2014 is concerned. However, the respondent No.1 in the complaint

subject matter of Chat.A.Ref. No.6/2014, though replied to the initial show

cause notice but did not participate in the disciplinary proceedings or submit

any representation on the report of the Disciplinary Committee, despite

opportunity. On our enquiry it is informed that the respondent No.1 is alive.

In these circumstances, we do not deem it necessary to await the respondent

No.1 any further and have heard the counsel for the petitioner Institute.

3. The complaint (dated 17th September, 1998) subject matter of

Chat.A.Ref. No.4/2014 was made to the petitioner Institute by the Delhi

Stock Exchange (DSE). The same related to the affairs of M/s. Karan

Finance Limited. A letter dated 9th October, 1998 in this regard was also

received from the Securities Exchange Board of India (SEBI). The

respondent No.1 as aforesaid failed to respond. The complaint (dated 22 nd

March, 2001) subject matter of Chat.A.Ref. No.6/2014 was made to the

petitioner Institute by SEBI. The same related to fraudulent public issue of

M/s. Zed Investments Limited. The respondent No.1 inspite of opportunity

failed to respond thereto also.

4. The petitioner Institute in its 280th meeting held from 7th to 9th

August, 2008 and continued on 28th and 29th August, 2008, with respect to

the complaint subject matter of Chat.A.Ref. No.6/2014 formed a prima facie

opinion that the respondent No.1 was guilty of professional and / or other

misconduct and referred the matter to the Disciplinary Committee for

enquiry. Similarly, with respect to the complaint subject matter of

Chat.A.Ref. No.4/2014 the petitioner Institute in its 284th meeting held on

12th and 13th January, 2009 formed a prima facie opinion that the respondent

No.1 was guilty of professional and / or other misconduct and referred the

matter to the Disciplinary Committee for enquiry.

5. We may clarify that though the complaint subject matter of

Chat.A.Ref. No.4/2014 was of 17th September, 1998 as aforesaid, but it

appears that the response of the respondent No.1 thereto was invited only on

10th September, 2004 and repeated opportunities till December, 2008 were

given to the respondent No.1. Though there is no explanation for the long

delay from 17th September, 1998 till 10th September, 2004 in inviting the

response of the respondent No.1 to the complaint but the respondent No.1

having throughout remained ex-parte vis-a-vis the said complaint, we do not

deem it necessary to consider the said aspect, though are of the prima facie

view that such long delay in dealing with the complaints of professional

misconduct may itself be fatal. There was a delay from 22nd March, 2001 to

22nd December, 2003 in inviting response of the respondent No.1 to the

complaint, subject matter of Chat.A.Ref. No.6/2014 also. In fact, we are

prima facie of the opinion that even after the respondent No.1 had failed to

respond to both the complaints, inordinately long time was taken in forming

the prima facie opinion also. However, as aforesaid, we in these cases are

not going into the said aspect, though would call upon the petitioner

Institute to bestow consideration on the said aspect and to in future ensure

that such complaints are handled expeditiously.

6. The Disciplinary Committee constituted qua complaint subject matter

of Chat.A.Ref. No.4/2014 in its report dated 10th February, 2012, found:

(i) that certain persons namely Mr. Surinder Malik, Mr. Virender

Kumar, Mr. Ashok Verma, Mr. Subhash Kumar Malik, Mr. Anil

Sehrawat, Mr. Harpal Rathi and Mr. Rajender Singh were desirous of

starting a lucky draw / chit company and contacted the respondent

No.1 who advised them to incorporate a private limited company;

(ii) that the requisite memorandum was stamped at Chandigarh and

the documents pertaining to incorporation were handed over to the

respondent No.1 in March, 1990;

(iii) that however the plans of the aforesaid persons to start the

company ran into rough weather and they informed the respondent

No.1 that he should not act further in getting the company

incorporated;

(iv) that however on 24th October, 1997 it was discovered that the

respondent No.1, contrary to the instructions of the aforesaid persons

and by forging their signatures, went ahead to incorporate the

company in the name of M/s. Karan Finance Limited on 21 st May,

1990;

(v) that the respondent No.1 acted in breach of faith and contrary

to his professional instructions and misused the incomplete signed

papers lying with him;

(vi) that the respondent no.1 also fabricated resolutions of the said

company; though Mr. Harpal Rathi died on 5th February, 1993 but he

was shown to have signed the papers for converting the said company

from a private limited company to a limited company on 4 th August,

1994;

(vii) that the respondent No.1 initially acted as the Auditor of the

said company and was also the signatory of all the bank accounts of

the company;

(viii) that in the account opening form of the company purportedly

signed by Mr. Harpal Rathi, the photograph of an aged man more

than 60 was given, while the age of Mr. Harpal Rathi at the time of

incorporation was shown as 29 years;

(ix) that subsequently Mr. R.K. Sharma & Co., Chartered

Accountants, a fake accountants firm was shown as Auditor of the

company;

(x) that the address given of the registered office of the company

of Q-309, South City, Gurgaon, Haryana was merely a plot owned by

the respondent No.1 with no construction thereon;

(xi) that the other addresses of the company given at other places

were also of properties owned / controlled by the respondent No.1, his

wife and close relatives.

The Disciplinary Committee thus concluded that the acts of the

respondent No.1 have tarnished the reputation of the profession and

brought the profession to bad light in the eyes of general public and

found the respondent No.1 guilty of professional and /or other

misconduct under Section 22 read with Section 21 of the Act.

7. The Disciplinary Committee constituted qua complaint subject matter

of Chat.A.Ref. No.6/2014 also submitted report dated 10 th February, 2012,

finding:

(a) that the respondent No.1 was the Lead Manager (working as

Head--Merchant Banking of M/s. Geefcee Finance Limited) in the

public issue of Zed Investments Limited;

(b) that the said public issue of Zed Investments Limited was

found to be fraudulent with a number of mis-statements and

concealment of material facts in the prospectus, besides a number of

irregularities committed in the issue process;

(c) that SEBI had found the respondent No.1 to be instrumental in

all acts of omission and commission of the affairs of the said

company including its fraudulent incorporation, fraudulent public

issue and fraudulent operations;

(d) that the addresses of all the three Directors of the said company

were found to be fictitious and the respondent No.1 inspite of being

called upon could not prove their identity;

(e) that in fact the company was never found to have existed on the

address filed of its registered office;

(f) that Central Bureau of Investigation (CBI) also prosecuted the

respondent No.1 on the same grounds and allegations in the Court of

ACMM, Karkardooma, Delhi but the respondent No.1 was

acquitted pursuant to entering into the compromise with the investors

and consequent lack of evidence;

(g) that the undertaking given by the respondent No.1 as Lead

Manager to SEBI was totally false and just to cheat the general public

and to induce them to invest their money in the public issue of such a

company which was fake and bogus and the Directors shown of

which itself were also not in existence;

(h) that the respondent No.1 had failed to prove that the

information given to SEBI in the prospectus was true.

The Disciplinary Committee thus concluded that the

respondent No.1 is guilty of „other misconduct‟ falling under Section

22 read with Section 21 of the Act.

8. The respondent No.1 despite opportunity failed to represent against

the report of the either of the two Disciplinary Committees and also failed to

participate in the 324th meeting of the petitioner Institute held on 10th and

11th April, 2013 in which both the reports were taken up for consideration.

The petitioner Institute, on consideration of both the reports decided to

accept the same and held the respondent No.1 guilty of „other misconduct‟

falling under Section 22 read with Section 21 of the Act vis.-a-vis. both the

complaints and has in each case recommended that the name of the

respondent No.1 be removed from the Register of members for a period of

five years.

9. We have perused the records and are satisfied of the proceedings

aforesaid having been held in accordance with the prescribed procedure and

the principles of natural justice having been followed. We are further

satisfied with the reasoning 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 Institute to be

proportionate to the misconduct of which the respondent No.1 has been

found guilty of.

10. 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).

11. We have however enquired from the counsel for the petitioner

Institute, whether the punishment imposed in each of the case of removal of

name from the Register for a period of five years is to run concurrently.

12. The counsel for the petitioner Institute has replied in the negative.

13. We however do not find any indication to the said effect in the

minutes of the 324th meeting of the petitioner Institute held on 10 th and 11th

April, 2013. Since the recommendation qua both the complaints has been

made in the same meeting, it would have been appropriate for the petitioner

Institute to, when at the same time dealing with the two complaints against

the same member and recommending the same punishment in both i.e. of

removal of the name from the Register, to at least clarify, whether the said

punishment is to run concurrently or not. However, the misconduct of

which the respondent No.1 has been found guilty being gross in both the

complaints, we this time around, accept the statement of the Advocate for

the petitioner Institute and clarify that the punishment in both the cases is

not to run concurrently.

14. Before parting with the matters, we wish to highlight another aspect.

Besides the delays as aforesaid at the very initial stage in inviting response

of the respondent No.1 to the complaint and thereafter in forming a prima

facie opinion to refer the complaint to the Disciplinary Committee, even

after the petitioner Institute had accepted the reports of the Disciplinary

Committee and recommended punishment in both cases on 11th April, 2013,

there was long delay in filing these references. Chat.A.Ref. No.4/2014

came up first before this Court on 28th July, 2014 i.e. after nearly one year

and three months of 11th April, 2013 and the Chat.A.Ref. No.6/2014 came

first before us only on 11th August, 2014 i.e. after a delay of one year and

four months. We had at the time of issuing notice of both the petitions had

brought the said fact to the notice of the Advocate for the petitioner

Institute. We also find that other references are also being filed after such

long delay and without any explanation given therefor. Recently, in two of

the cases, we have before considering issuance of notice, asked the

petitioner Institute to file an affidavit explaining such delay. Though no

limitation appears to have been prescribed for filing such reference (though

a perusal of The Chartered Accountants (Procedure of Investigation of

Professional and Other Misconduct and Conduct of Cases) Rules, 2007 and

the Chartered Accountants Regulations, 1988 brought into force since then

contain some tentative time limits) but the petitioner Institute which is a

professional body also empowered to discipline its members ought not to so

delay dealing with the complaints against its members and which delay not

only enables the erring members to continue with their erring activities, to

the prejudice of the persons dealing with them, but we are of the opinion

that such delays on the part of the petitioner Institute is also prejudicial to

the members against whom complaints are directed. Such members of the

petitioner Institute in the interregnum continue to grow and build their

reputations. A punishment at an early stage in the career can have vitally

different consequence than a punishment at a time when the professional is

at the peak. In fact this Court in Council of the Institute of Accountants of

India Vs. Dinesh Kumar MANU/DE/0322/1991 and Council of the

Institute of Chartered Accountants of India Vs. S.N. Sachdeva

MANU/DE/0440/2011 already rejected the recommendations made by the

Institute only for the reason of such delays. Inspite thereof the delays

continue and which can lead to an inference that the petitioner Institute is

not serious about punishing its guilty members. We therefore call upon the

petitioner Institute to introspect into the said aspect and to in future ensure

that the complaints are dealt with in a time bound manner.

15. We accordingly accept the recommendation of the petitioner Institute

in both the cases and remove the respondent No.1 from the membership of

the petitioner Institute for a period of five years in each of the two cases and

which period shall run separately, in accordance with law.

16. The references are disposed of.

No costs.

RAJIV SAHAI ENDLAW, J.

CHIEF JUSTICE NOVEMBER 10, 2014 bs..