Telangana High Court
The Council Of The Institute Of ... vs Shri V.Rama Chandra Rao Vemuri on 26 April, 2024
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE LAXMI NARAYANA
ALISHETTY
REFERENCE CASE No.2 of 2013
ORDER:
(per the Hon'ble Sri Justice P.SAM KOSHY)
The present is a Reference Case under Section 21(5) of
the Chartered Accountants Act, 1949 (herein after referred to
as 'the Act'). The reference has been made by the Institute of
Chartered Accountants of India (for short, 'ICAI'). Vide the
said Reference Case, the petitioner had sought for an
appropriate direction by the High Court under Section 21(5)
of the Act so far as the disciplinary case initiated against the
respondent Sri Rama Chandra Rao Vemuri, Chartered
Accountant, is concerned.
2. Heard Mr. C.V.Rajeeva Reddy, learned counsel for the
petitioner and Sri Prabhakar Sripada, learned senior counsel
for Mr. Setty Ravi Teja, learned counsel for the respondent.
3. According to the petitioner, considering the factual
matrix which was ascertained in the teeth of an enquiry
conducted upon receipt of a complaint in respect of the acts
committed by the respondent/Chartered Accountant, he had
been found guilty of professional misconduct within the
meaning of Clauses (5), (6), (7) and (8) of Part-I of Second
Schedule and also "misconduct" under Section 22 read with
Section 21 of the Act.
4. Learned counsel for the petitioner while making a
reference has recommended for the respondent to be removed
from the register of members as a Chartered Accountant for a
period of two years. The recommendation has been made
based upon the nature of allegations levelled against the
respondent of which he has been found guilty by the
disciplinary committee are that:
a. The complainant's Bank i.e. Syndicate Bank extended a
credit facility of Rs.9,75,000/- at the first instance on
26.12.2001 and thereafter, this amount got enhanced
to Rs.40,00,000/- on 07.09.2002. For the purpose of
carrying out work orders Rs.7.50 crores were received
from the Department of BSNL. The said credit facility
and the enhancement thereto is said to have been on
fake financial statements, balance sheets etc.,
submitted along with the loan application of
M/s.Mayuri Engineers Private Ltd. It is said that the
aforesaid documents were all prepared by the
respondent on the basis of which the Golconda branch
of the complainant's Bank extended the credit facility.
b. The same Golconda Branch of the complainant's Bank
arranged for thirty-one (31) housing loans to a group of
Grade C and Grade D employees of the BSNL totalling
Rs.122.71 lakhs. It was alleged that it was the
respondent who was instrumental in making available
the housing loans to this group of employees of BSNL
and for the purpose of ensuring that the employees get
enhanced loan amounts, the respondent said to have
prepared fake documents suggesting the income of the
spouse/sons which were created only for the purpose of
getting the enhanced loan. The respondent also
prepared inflated valuation of the flats which were
supposed to be purchased by the employees from the
said housing loan amount sanctioned. 75% of the
amount is said to have been released to one M/s.Viz
Constructions. It is alleged that it is the respondent
who is the managing partner of the said company.
c. It is also the allegation against the respondent that he
had got loan documents prepared for one Sri
R.Satyanarayana, another employee of BSNL. In the
course of preparation of the said documents, the
respondent is said to have prepared fictitious income
statements in the name of the wife of the aforesaid Sri
R.Satyanarayana enabling him to fetch higher amount
of loan from the complainant's Bank from their
Golconda branch. However, the said Sri R.
Satyanarayana in fact was not a married person, but
was a bachelor.
d. In addition to the aforesaid misconduct on his part, the
complainant's Bank found that the income tax return
submitted in respect of various loan accounts by the
respondent were fraudulent statements, particularly, in
respect of the loan accounts of I) Smt. V.Jaldurga (wife
of Sri Rama Chandra Rao Vemuri), II) Smt. Antiya, III)
Sri K.Ramesh Kumar, IV) Again Sri K.Ramesh Kumar
and V) Ms. Ch.Radha.
e. The respondent is also said to have availed a demand
loan (Account No.86/2002) of Rs.1,50,000/- on
05.06.2002 from the Golconda Branch of the
complainant's Bank. He also stood as a surety for the
demand loan (Account No.48/2002) for an amount of
Rs.1,00,000/- and again as a surety for the housing
loan No.1/2002 for an amount of Rs.4,95,000/- dated
27.03.2002. All of which were availed by his wife
Smt. V.Jaldurga and all these loan transactions were in
the name of Smt. V. Jaldurga. The income statements
and other documents for the loan were got prepared by
the respondent.
5. Based on the aforesaid allegations, the ICAI levelled
three charges against the petitioner which were as under:
i. The first charge involves the respondent's alleged
creation of dubious balance sheets for a client
company. The Committee's investigation revealed
numerous inconsistencies and errors within these
balance sheets. For instance, they found discrepancies
in reported turnover and stock increases, along with
unexplained figures in the Profit & Loss account.
Moreover, there was no evidence placed on record to
prove that the reported turnover of Rs.1,65,61,137/- in
the year 2001-02 was correct. Despite repeated
requests from the Committee, the respondent did not
provide necessary documents, such as copies of his IT
returns and his business firm Balance Sheet. Even
more concerning was the discovery of two differing sets
of balance sheets for the same year (2001-02), both of
which were certified by the respondent. This raised
serious doubts about the preparation and veracity of
the financial statements. The Committee concluded
that either the financial statements were not prepared
based on the books of account, or the books of account
did not exist in the company at all. This conclusion was
based on the glaring errors found in the balance sheets
and the respondent's failure to provide a satisfactory
explanation.
ii. The second charge focused on the respondent's role as
a managing partner in a construction firm, M/s.Viz
Constructions. This firm had received loans sanctioned
by the bank to 31 employees of BSNL for the purpose of
construction or renovation of houses. However, these
loans were defaulted, leading to the bank resorting to
sell the flats for recovery of the loans. The respondent
was asked to provide documentary evidence to prove
that his business firm had carried out the construction
work for which the borrowers had taken the loans. But
the respondent failed to submit any such evidence. This
led the Committee to believe that the respondent's firm
was used as an entity to draw additional loans from the
bank for construction/renovation of houses, without
actually carrying out the promised construction work.
iii. The third charge was related to a personal loan taken
by the respondent and his wife which they did not
repay within the stipulated time. The respondent,
however, contended that this loan had been repaid in
full, a claim that the complainant did not dispute. The
Committee, therefore, regarded this transaction as
more of a civil case and since the loans had been
repaid, they did not find the respondent guilty of
professional misconduct on this charge.
6. Upon examination of the council's proceedings
regarding alleged professional misconduct of the respondent,
Mr. V.Rama Chandra Rao, the proceedings unfolded
chronologically, beginning with a focus on the substantial
variance in reported turnover figures in the backdrop of the
complainant bank's assertion that the accounts of
M/s.Mayuri Engineers Private Limited (MEPL) in the
complainant's bank did not reflect such a significant amount
of money. The council's astute inquiry raised essential
questions regarding financial transparency and accuracy in
reported figures, underlining the gravity of potential
discrepancies. Subsequently, the council delved into
accusations of forgery and fraud related to BSNL contracts
and documents associated with MEPL, aiming to uncover the
extent of the respondent's involvement in potentially
misleading financial information.
7. Upon receiving the said complaint from the
complainant's Bank, a copy of the same was sent to the
respondent vide correspondence dated 12.01.2005 seeking
his explanation under regulations 12(7) of the Chartered
Accountants Regulations, 1988 (in short 'the regulations').
Upon receiving the said notice of the complainant, the
respondent entered appearance and submitted his reply on
10.03.2005. On due scrutiny of the reply and rejoinder
submitted by the respondent and the complainant's Bank in
terms of regulation 12(11) of the regulations, the matter was
scrutinized by the ICAI. The ICAI prima facie was of the view
that the respondent was found guilty of professional
misconduct and other misconduct. Thereby, decided to get
the subject matter enquired by the disciplinary committee in
terms of Chartered Accountants of India Act and the
regulations framed therein.
8. The respondent having not pleaded guilty, the
committee decided to proceed with the enquiry and in the
process, the officers of the complainant's Bank and the
respondent were examined. Thereafter, the committee felt
that some more witnesses needs to be called for their
examination. The committee decided to issue summons to the
officers of the BSNL and also to few employees of BSNL. After
conclusion of the enquiry by the disciplinary committee,
report in this regard was submitted on 02.02.2002 to the
petitioner's counsel. The committee in the course of
submitting its report, reached to the conclusion that charge
Nos.1 and 2 were proved against the respondent and charge
No.3 stands decided in favour of the respondent, as the said
charge could not be proved.
9. The committee's report was forwarded by the petitioner
to the respondent vide correspondence dated 28.08.2009
seeking for his explanation and written submissions if any.
The respondent submitted his written submissions on
30.10.2009. The complainant's Bank also submitted their
written submissions on 11.04.2006. Additional submissions
were also made by both the parties. Thereafter, written
submissions were submitted by the petitioner on couple of
occasions and finally the ICAI in its special meeting convened
on 14.11.2011 and 15.11.2011 decided to accept the report
of the disciplinary committee and accordingly, held that for
the charge Nos.1 and 2, the respondent was found guilty of
professional misconduct within the meaning of Clauses (5),
(6), (7) and (8) of Part-I of Second schedule and "other
misconduct" under Section 22 read with Section 21 of the
Act.
10. The ICAI further accepted the report of the disciplinary
committee so far as the respondent not being guilty of
professional or other misconduct, as regards the charge No.3.
Reaching to the aforesaid conclusion, accepting the report of
the disciplinary committee, the learned counsel for the
petitioner decided to refer the matter to the High Court with a
recommendation of removing the name of the respondent/
Chartered Accountant from the register of members of
Chartered Accountants for a period of two years.
11. The respondent defended himself by stating that the
audit was carried out based on the books of accounts,
information supplied and explanations given by MEPL. He
refuted the Bank's claim of fraudulent financial statements,
arguing that the Bank failed to provide substantial evidence
to support the allegation.
12. The respondent also criticized the Bank's investigation
methods, accusing the vigilance officer of incompetence. He
pointed out similarities in the language and content of the
complaints lodged against him, suggesting they were
engineered by the vigilance officer. He questioned the timing
of the loan arrangements which is between April, 2002 and
December, 2002 and the subsequent investigations which is
from August, 2002 to August, 2003. Noting a discrepancy
between when loans were sanctioned and released, and when
the investigations were conducted.
13. In addition, the respondent refuted the Bank's
allegations that 75% of housing loan amount, which equates
to Rs.91.5 Lakhs, was dispersed to his construction firm,
M/s.Viz Constructions. The respondent pointed out a
significant inconsistency in the Bank's account statements,
which showed a total credit of approximately Rs.42 Lakhs,
which was far less than the claimed 75% of the released sum
of Rs.122 Lakhs.
14. Despite the allegations, the respondent reaffirmed his
commitment in fulfilling loan repayments and emphasized
that the sanctioned loans were in accordance with his
eligibility and complied with the requisite Bank's norms.
15. Furthermore, the respondent has admitted of his being
a partner in M/s.Viz Constructions was noted in the excerpts
of the Proceedings Titled "QUESTIONS PUT TO THE PARTIES
AND THEIR REPLIES THERETO" 1 Chief Vigilance Officer,
Syndicate Bank, Manipal vs. V.Rama Chandra Rao,
25-CA(191)/2004
Hyderabad Venue: ICAI, Chennai (Date: 28th & 29th
November, 2008):-
"Vice-President: (Shri Uttam Prakash Agrawal, Member Present
of the Committee)
What was the total turnover of M/s. Viz Constructions?
Respondent: (Shri V.Rama Chander Rao, Chartered
Accountant)
Initially it was more.
Shri J. Venkateswarlu: (Member Present of the Committee)
Have you filed income tax return for that firm?
Respondent:
Yes.
Shri J. Venkateswarlu: (Member Present of the Committee)
Where you have shown as managing partner?
Respondent:
Yes. Later on I withdrawn another partner Purna Chandra Rao has
taken over.
President: (Shri Ved Jain, Member Present of the Committee)
If you agree with the true story it will take two minutes' job.
Respondent:
Sir, I am telling you the true story. I have done a mistake. Sir, I am
telling you l am guilty."
"Vice-President:
You have taken permission for being partner in the firm
Respondent:
I have not taken.
Vice-President:
Any other complaint you have received earlier to this from same
Builders?
President:
Do you have the bank statement how the money is moving from
those borrowers to the Vijay Bhaskar?
Complainant:
Sir, what he did is he placed on behalf of M/s. Viz Constructions it
is part of the entire thing. The builder said I am constructing it to
the extent of 3 lakhs and he says I am putting rose wood, I am
putting marvel flooring.
President:
Money was directly credited to him.
Complainant:
Yes.
President:
Again you are telling lie. The loan of the borrower were transferred
in your bank account directly.
Respondent:
The main builder and certain part..."
"President:
If you twist the fact the things will be difficult. You please answer
my question. I am getting the things you know but you are not
coming out. You are Mr. V. Rama Chandra Rao.
Respondent:
Yes, Sir.
President:
You admit that you are partner in M/s. Viz Constructions? You are
partner in that.
Respondent:
Yes."
16. The transcript of the meeting above 2 as it exists in the
proceedings clearly demonstrate the admission made by the
respondent before the committee of his involvement in the
Titled "QUESTIONS PUT TO THE PARTIES AND THEIR REPLIES THERETO" Chief Vigilance
Officer, Syndicate Bank, Manipal Vs. V. Rama Chandra Rao, Hyderabad Venue: ICAI, Chennai
firm M/s.Viz Constructions as managing partner/partner and
that of receiving sums directly into his account.
17. Learned counsel for petitioner made submissions in
detail with regard to the professional misconduct of the
respondent as Chartered Accountant while discharging his
services as professional, which comes within the meaning and
ambit of Clauses (5), (6), (7) and (8) of Part-I of Second
Schedule and 'other misconduct' under Section 22 read with
Section 21 of the Chartered Account Act, 1949. Learned
counsel further submitted that detailed enquiry was
conducted by the disciplinary committee constituted to look
into the misconduct, irregularities committed by the
respondent. The disciplinary committee after due enquiry
and examination of the complainant as well as respondent
and scrutiny of the documents placed on record submitted
the report dated 02.02.2009 and opined that respondent was
guilty of professional misconduct. He further submitted that
report of the disciplinary was provided to the respondent and
the respondent submitted his written representations to the
said report.
18. Learned counsel further submitted that the disciplinary
committee report along with written representations of the
complainant-bank as well as respondent were placed before
the council. The council, on due consideration of the report,
written and oral submissions made on behalf of the
respondent, had decided to accept the report of the
disciplinary committee and held that respondent was guilty of
professional misconduct in respect of charges 1 and 2 falling
within the meaning of clauses (5), (6), (7) & (8) of Part-I of
Second Schedule and other misconduct under section 22
read with Section 21 of the Chartered Accountants Act, 1949.
It is also decided that the respondent was not guilty of
professional or other misconduct under the charge 3. Thus,
the council decided to recommend for removal of name of the
respondent from the Register of Members for a period of two
years.
19. Learned counsel further submitted that the respondent,
in fact, admitted his guilt before the committee of his
involvement in the process of extending credit facility as
Managing Partner and that of receiving amounts directly into
the account of firm. He would further submit that charges 1
and 2 levelled against the respondent are proved and
therefore, petitioner-council is justified in recommending for
removal of the name of the respondent from the Register of
Members for a period of two years and prayed this Bench to
answer the reference accordingly.
20. The learned counsel for petitioner placed reliance on the
following decisions:
i) Shashi Bhushan Prasad vs. Inspector General,
Central Industrial Security Force and others 3;
ii) Institute of Chartered Accounts of India, New Delhi
vs. Mukesh Gang, Chartered Acountant,
Hyderabad 4;
iii) In the matter of matter of the Institute of hartered
Accountants of India, New Delhi vs. CA Ashish
Maheshwari, Managing Director, M/s. Appy
Overseas Pvt.Ltd., Hyderabad 5;
iv) Union of India and others vs. M.Duraisamy 6;
v) State of Karnataka and another vs. Umesh 7;
vi) Shri V.I. Oommen, Parnter, M/s. Oommen & Mouli,
Chartered Accounts In Re 8;
vii) Decision of Division Bench of this Court in
Referene case No.1 of 2013 dated 20.02.2017
(2019) 7 SCC 797
2016 6) ALT 606 (DB)
2019 (2) ALT 319 (D.B.)
(2022) 7 SCC 475
(2022) 6 SCC 563
1995 (3) ALD 843 (D.B.)
21. Learned counsel for the respondent referring to the
proceedings drawn by the ICAI pointed out there were serious
flaws in conducting the enquiry, as the procedure normally
required has not been adhered to. There was no examination
in chief, no cross-examination done, no charges were framed,
no witnesses from the Bank were examined, no presenting
Officer was appointed and no evidence was led. Thus, the
entire finding given by the ICAI enquiring into the matter is a
perverse finding of fact. All the complaints and the charges
levelled were totally vague.
22. It was also the contention of the learned counsel for the
respondent that from the plain reading of the charges itself
would clearly indicate that no offence as such is made out
and that none of the charges or the Clauses under which the
misconduct has been alleged stands proved. It was further
contended that for the same set of allegations, he was also
prosecuted in a criminal case wherein total acquittal given by
the trial Court and on that ground also, the ICAI should have
dropped the further proceedings.
23. In addition to this, the learned counsel for the
respondent contended that now that considerable period of
time has passed and much water has since been flown, the
respondent also has reached an advanced age in his life and
therefore, at this juncture taking into consideration the
overall factual matrix, the punishment proposed may be set
aside.
24. Learned counsel for the respondent had relied upon the
following decisions:
i. Institute of Chartered Accountants vs. Price
Waterhouse and Another 9;
ii. The Institute of Chartered Accountants of India,
New Delhi vs. Mukesh Gang, Chartered
Accountant 10;
iii. Union of India and Others vs. Ram Lakhan
Sharma 11';
iv. State of Uttar Pradesh and Others vs. Saroj Kumar
Sinha 12;
v. A.K.Kraipak and Others vs. Union of India and
Others 13;
vi. Capt. M.Paul Anthony vs. Bharat Gold Mines Ltd.
and another 14;
vii. Central Bank of India Ltd. vs. Prakash Chand Jain 15
(1997) 6 Supreme Court Cases 312
2016 SCC OnLine Hyd 327 : (2016) 6 ALT 606 (DB)
(2018) 7 Supreme Court Cases 670
(2010) 2 Supreme Court Cases 772
(1969) 2 Supreme Court Cases 262
(1999) 3 Supreme Court Cases 679
(1969) 1 SCR 735
25. As regards the contention of the learned counsel for the
respondent that the respondent having been acquitted in the
criminal case, the departmental enquiry initiated by the ICAI
should had been dropped. It would be relevant at this
juncture to take note of a decision of the Hon'ble Supreme
Court. Though under the service law jurisprudence which has
been referred to the judicial precedents on the said subject in
the case of Shashi Bhushan Prasad vs. Inspector General,
Central Industrial Security Force and Others 16 in
paragraph Nos.17 to 19 it has been held as under:
"17. The scope of departmental enquiry and judicial
proceedings and the effect of acquittal by a criminal
court has been examined by a three-Judge Bench
of this Court in APSRTC vs. Mohd.Yousuf Miya
[A.P.S.R.T.C v. Mohd. Yousuf Miya, (1997) 2 SCC 699:
1997 SCC (L&S) 548] . The relevant paragraph is as
under: (SCC pp. 704-05, para 8)
"8. ... The purpose of departmental enquiry and of
prosecution are two different and distinct aspects. The
criminal prosecution is launched for an offence for
violation of a duty, the offender owes to the society or
for breach of which law has provided that the offender
shall make satisfaction to the public. So crime is an
act of commission in violation of law or of omission of
public duty. The departmental enquiry is to maintain
discipline in the service and efficiency of public
service. It would, therefore, be expedient that the
disciplinary proceedings are conducted and completed
as expeditiously as possible. It is not, therefore,
desirable to lay down any guidelines as inflexible rules
in which the departmental proceedings may or may
16 (2019) 7 Supreme Court Cases 797
not be stayed pending trial in criminal case against
the delinquent officer. Each case requires to be
considered in the backdrop of its own facts and
circumstances. There would be no bar to proceed
simultaneously with departmental enquiry and trial of
a criminal case unless the charge in the criminal trial is
of grave nature involving complicated questions of fact
and law. Offence generally implies infringement of
public (sic duty), as distinguished from mere private
rights punishable under criminal law. When trial for
criminal offence is conducted it should be in
accordance with proof of the offence as per the
evidence defined under the provisions of the Evidence
Act. Converse is the case of departmental enquiry. The
enquiry in a departmental proceeding relates to
conduct or breach of duty of the delinquent officer to
punish him for his misconduct defined under the
relevant statutory rules or law. That the strict
standard of proof or applicability of the Evidence Act
stands excluded is a settled legal position. The enquiry
in the departmental proceedings relates to the conduct
of the delinquent officer and proof in that behalf is not
as high as in an offence in criminal charge. It is seen
that invariably the departmental enquiry has to be
conducted expeditiously so as to effectuate efficiency
in public administration and the criminal trial will
take its own course. The nature of evidence in criminal
trial is entirely different from the departmental
proceedings. In the former, prosecution is to prove its
case beyond reasonable doubt on the touchstone of
human conduct. The standard of proof in the
departmental proceedings is not the same as of the
criminal trial. The evidence also is different from the
standard point of the Evidence Act. The evidence
required in the departmental enquiry is not regulated
by the Evidence Act. Under these circumstances, what
is required to be seen is whether the departmental
enquiry would seriously prejudice the delinquent in
his defence at the trial in a criminal case. It is always
a question of fact to be considered in each case
depending on its own facts and circumstances. In this
case, we have seen that the charge is failure to
anticipate the accident and prevention thereof. It has
nothing to do with the culpability of the offence under
Sections 304-A and 338 IPC. Under these
circumstances, the High Court was not right in
staying the proceedings." (emphasis supplied)
18. The exposition has been further affirmed by a
three-Judge Bench of this Court in Ajit Kumar
Nag v. Indian Oil Corpn. Ltd. [Ajit Kumar Nag v. Indian
Oil Corpn. Ltd., (2005) 7 SCC 764: 2005 SCC (L&S)
1020] This Court held as under: (SCC p. 776, para 11)
"11. As far as acquittal of the appellant by a criminal
court is concerned, in our opinion, the said order
does not preclude the Corporation from taking an
action if it is otherwise permissible. In our
judgment, the law is fairly well settled. Acquittal by
a criminal court would not debar an employer from
exercising power in accordance with the Rules and
Regulations in force. The two proceedings, criminal
and departmental, are entirely different. They
operate in different fields and have different
objectives. Whereas the object of criminal trial is to
inflict appropriate punishment on the offender, the
purpose of enquiry proceedings is to deal with the
delinquent departmentally and to impose penalty in
accordance with the service rules. In a criminal trial,
incriminating statement made by the accused in
certain circumstances or before certain officers is
totally inadmissible in evidence. Such strict rules of
evidence and procedure would not apply to
departmental proceedings. The degree of proof which
is necessary to order a conviction is different from the
degree of proof necessary to record the commission of
delinquency. The rule relating to appreciation of
evidence in the two proceedings is also not similar. In
criminal law, burden of proof is on the prosecution
and unless the prosecution is able to prove the guilt of
the accused "beyond reasonable doubt", he cannot be
convicted by a court of law. In a departmental
enquiry, on the other hand, penalty can be imposed
on the delinquent officer on a finding recorded on the
basis of "preponderance of probability". Acquittal of
the appellant by a Judicial Magistrate, therefore,
does not ipso facto absolve him from the liability
under the disciplinary jurisdiction of the Corporation.
We are, therefore, unable to uphold the contention
of the appellant that since he was acquitted by a
criminal court, the impugned order [Ajit Kumar
Nag v. Indian Oil Corpn. Ltd., 2004 SCC OnLine Cal
59 : (2004) 4 LLN 512] dismissing him from service
deserves to be quashed and set aside."
19. We are in full agreement with the exposition of
law laid down by this Court and it is fairly well
settled that two proceedings criminal and
departmental are entirely different. They operate in
different fields and have different objectives. Whereas
the object of criminal trial is to inflict appropriate
punishment on an offender, the purpose of enquiry
proceedings is to deal with the delinquent
departmentally and to impose penalty in accordance
with the service rules. The degree of proof which is
necessary to order a conviction is different from the
degree of proof necessary to record the commission of
delinquency. Even the rule relating to appreciation of
evidence in the two proceedings is also not similar. In
criminal law, burden of proof is on the prosecution
and unless the prosecution is able to prove the guilt
of the accused beyond reasonable doubt, he cannot
be convicted by a court of law whereas in the
departmental enquiry, penalty can be imposed on the
delinquent on a finding recorded on the basis of
"preponderance of probability". Acquittal by the court
of competent jurisdiction in a judicial proceeding
does not ipso facto absolve the delinquent from the
liability under the disciplinary jurisdiction of the
authority. This what has been considered by the
High Court in the impugned judgment [Shashi
Bhusan Prasad v. CISF, 2008 SCC OnLine Ori 544:
2008 Lab IC 3733] in detail and needs no
interference by this Court."
26. From a plain reading of the aforegiven authoritative
decision of the Hon'ble Supreme Court, what is apparent is
the fact that, the standard of proof required to establish the
charges in the two proceedings being entirely different, the
two proceedings can go on and the departmental enquiry
need not be quashed only on the ground of an acquittal in the
criminal case where the standard of proof required is beyond
all reasonable doubts. Whereas, in a departmental enquiry,
the standard of proof required is the preponderance of
probability. So far as the procedure having been followed or
not, it is relevant to refer to the judgment of the erstwhile
High Court of Hyderabad in the case of Institute of
Chartered Accountants of India, New Delhi (supra) upon
the powers of the disciplinary committee of the applicant
council. In paragraph Nos.37, 38, 40 and 41 of the
judgement, it has been held as under:
"37. The respondent did not complain about non-
compliance of any mandatory provisions, which caused
him prejudice, either before the Council or the
Disciplinary Committee. For the first time before us is a
such contention urged. In view of the material available
on record, regarding compliance with Regulation Nos.16
(2) and (5) of the Regulations, we are satisfied that the
proceedings are not vitiated.
38. There is nothing in the Act, or in the Regulations,
which disables the Committee from evolving its own
procedure in conducting an enquiry into the misconduct
alleged to have been committed by a member of the
Institute.
40. the provisions of the CPC are applicable only to the
limited extent specified in Section 21 (8) of the Act i.e.
summoning and enforcing the attendance of any person
and examining him on oath; the discovery and
production of any document; and receiving evidence on
affidavit. While the Disciplinary Committee is required to
follow the procedure prescribed under Section 21 (8) of
the Act, it cannot exercise the powers of a Civil Court.
41. After considering the entire material on record, we
are satisfied that the Disciplinary Committee, and the
Council, have not violated any of the Regulations, more
particularly Regulation 16 (2) and (5) thereof. Therefore,
this point is held against the respondent and in favour of
the petitioner."
27. Dealing with the aspect of what would amount to a
professional misconduct, the aforesaid judgment is Institute
of Chartered Accountants of India, New Delhi (supra)
wherein in paragraph Nos.118, 119, 121 and 147 of the
judgment, it was held as under:
"118. The judgment of the Madhya Pradesh, in
"Council of the Institute of Chartered Accountants
of India v. C.H.Padliya" is merely of persuasive
value and does not constitute a precedent binding
on this court. In "Institute of Chartered
Accountants of India v. S.K. Jain (40) 2000 (56)
DRJ 671" the Division Bench of the Delhi High
Court, while dealing with misconduct under Section
22 of the Act, held as follows:
""Professional misconduct" has been defined in
Section 22 of the Act. Intendment and object of
the Act is to maintain standard of the profession
at a high level, and consequently a code of
conduct has been prescribed. Misconduct implies
failure to act honestly and reasonable either
according to the ordinary and normal standard,
or according to the standard of a particular
profession. Authenticity and sanctity is attached
to certification done by a Chartered Accountant.
Hallmark of the profession is the expertise
possessed by its members, in the matters of
accountancy and auditing amongst others.
Correctness is a matter of rule in a certificate
issued by a Chartered Accountant. He is
supposed to have tested correctness of the figures
certified. If he puts his signature, without proper
verification, in any certificate, it certainly is a
serious matter. Such conduct does not befit a
Chartered Accountant, and is unbecoming of him.
In such a case, he fails to do what is the
minimum required to be done by him. He does
something in the pursuit of his profession which
is not only unethical, but also disgraceful or
dishonourable."
119. In "Council of Institute of Chartered
Accountants of India v. B. Ram Goel (41) 2000 (57)
DRJ 27" the Delhi High Court defined the
expression 'professional misconduct' as follows:
""Professional misconduct" has been defined in
Section 22 of the Act. Intendment and object of
the Act is to maintain standard of the profession
at a high level, and consequently a code of
conduct has been prescribed. 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. Chartered Accountants' profession
occupies a place of pride amongst various
professions of the world. That makes observance
of the professional duties and propriety more
imperative. When conduct of a member of the
profession is contrary to honesty, or opposed to
good morals, or is unethical, it is misconduct-
warranting consequences indicated in the
Statute. An Auditor holds a position of trust. That
is why disclosure of information has been made a
ground for imputing misconduct. By betrayal of
the trust, the conduct becomes one which is
unbecoming of the professional."
121. In "State of Punjab v. Ram Singh Ex.Constable
(42) (1992) 4 SCC 54" the Supreme Court relied
upon the definition of "misconduct" as defined in
Black's Law Dictionary, 6th Edition at page 999 and
P. Ramanatha Aiyar's Law Lexicon, Reprint Edition
1987 at page No.821, which are as follows:
"Misconduct has been defined in Black's
Law Dictionary, Sixth Edition at page 999
thus:
A transgression of some established and definite
rule of action, a forbidden act, a dereliction from
duty, unlawful behaviour, wilful in character,
improper or wrong behaviour, its synonyms are
misdemeanour, misdeed, misbehaviour,
delinquency, impropriety, mismanagement,
offence, but not negligence or carelessness.
Misconduct in office has been defined as:
Any unlawful behaviour by a public officer in
relation to the duties of his office, wilful in
character. The term embraces acts which the
office holder had no right to perform, acts
performed improperly, and failure to act in the
face of an affirmative duty to act.
P.Ramanatha Aiyar's the Law Lexicon, Reprint
Edition 1987 at p.821 'misconduct' defines thus:
The term misconduct implies a wrongful
intention, and not a mere error of judgment.
Misconduct is not necessarily the same thing as
conduct involving moral turpitude. The word
misconduct is a relative term, and has to be
construed with reference to the subject-matter
and the context wherein the term occurs, having
regard to the scope of the Act or statute which is
being construed. Misconduct literally means
wrong conduct or improper conduct. In usual
parlance,. misconduct means a transgression of
some established and definite rule of action,
where no discretion if left, except what necessity
may demand and carelessness, negligence and
unskillfulness are transgressions of some
established, but indefinite, rule of action, where
some discretion is necessarily left to the actor.
Misconduct is a violation of definite law;
carelessness or abuse of discretion under an
indefinite law. Misconduct is a forbidden act;
carelessness, a forbidden quality of an act, and is
necessarily indefinite. Misconduct in office may
be defined as unlawful behaviour or neglect by a
public officer, by which the rights of a party have
been affected."
147. The professional misconduct attributed to the
respondent is grave and serious in nature which
affects public confidence, and their faith in the
integrity and impartiality of the Chartered
Accountants and the Institute of which they are
members. A false certification by the respondent
has enabled the promoters of the company to
squander public money, on inducing the general
public to subscribe to the share capital of the
company. Taking a lenient view, or exonerating
such professionals, would encourage others to
indulge in similar acts, and completely erode the
faith of the general public in the impartiality and
integrity of the members of the Institute, and bring
the Institute itself into disrepute."
28. Further as to whether the delinquent granted the
permission to cross-examine the witnesses or not and also
where the charge sheet was vague or not, in paragraph
Nos.144 and 145 it has been held as under:
"144. In "Sarva Uttar Pradesh Gramin Bank v. Manoj
Kumar Sinha (53) (2010) 3 SCC 566" the Supreme
Court observed that the respondent did not protest
before the enquiry officer for not being permitted to
cross examine the witness, the enquiry proceedings
were conducted in accordance with principles of
natural justice, and the grievance was subsequently
aired just to influence the proceedings in Court. In
case the respondent felt genuinely aggrieved he
would have raised the issue at the earliest possible
stage.
145. In "Om Prakash Mann v. Director of Education
(Basic) (54) (2006) 7 SCC 558 = 2007 (2) ALT 9.4 (DN
SC)", while deciding the case of misconduct of a
Headmaster in a departmental enquiry, it was held
that when the delinquent was called upon to submit
a reply and no ground was taken by the delinquent
that the charge sheet was vague or that he was
unable to give an effective reply to the charges, and
he had participated in the disciplinary proceedings
without demur, he was estopped from later raising
such a plea of vagueness in the charges.
The said judgment of the Supreme Court is a direct answer
to the contention urged by the learned counsel for the respondent,
and the respondent cannot claim that he should be exonerated on
this ground."
29. The decisions referred to and relied upon by the learned
counsel for petitioner relates to initiation of disciplinary
proceedings, framing of charges and awarding punishment to
the member of the petitioner-organization, who is guilty of
professional misconduct and thus, there is no need to refer to
the said decisions in detail.
30. Learned counsel for respondent contended that the
disciplinary committee did not adopt proper procedure, no
evidence was let-in, no cross-examination was conducted and
that no documents were marked. A perusal of record would
show that this contention/objection is being urged for the
first time in the present proceedings. It is evident from the
record that the respondent participated in the disciplinary
proceedings conducted by the petitioner-council, however,
respondent has not raised any objection with regard to the
procedure adopted or any irregularity on the part of the
petitioner.
31. This Hon'ble Court in Institute of Chartered
Accountants of India, New Delhi (supra) at paragraphs-42
and 45 held as under:
"42. The respondent did not complain about non-compliance
of any mandatory provisions, which caused him prejudice,
either before the Council or the Disciplinary Committee. For
the first time before us is a such contention urged. In view of
the material available on record, regarding compliance with
Regulation Nos. 16 (2) and (5) of the Regulations, we are
satisfied that the proceedings are not vitiated.
xxx
45. The Disciplinary Committee has been conferred the power
to enquire into the matter. In causing such an enquiry, the
provisions of the CPC are applicable only to the limited extent
specified in Section 21(8) of the Act i.e. summoning and
enforcing the attendance of any person and examining him on
oath; the discovery and production of any document; and
receiving evidence on affidavit. While the Disciplinary
Committee is required to follow the procedure prescribed
under Section 21(8) of the Act, it cannot exercise the powers
of a Civil Court."
32. From the above legal position, the objections raised by
the learned counsel for the respondent cannot be considered
at this stage.
33. The decisions referred to and relied upon by the learned
counsel for respondent relates to the enquiry conducted by
the disciplinary committee, affording opportunity to the
member at every stage, examination of entire material on
record before the council and to reach finding whether or not
the delinquent member committed professional or other
misconduct and that the proceeding is akin to though not in
fact a criminal prosecution and awarding punishment.
Therefore, there is no quarrel with ratio laid down by the
Hon'ble Apex Court as well as High Courts and thus, there is
no need to refer to the said decisions in detail.
34. Despite the respondent's explanations, concerns
persisted regarding potential conflicts of interest and the
direct crediting of funds to the respondent's account,
signifying the ICAI's commitment to an unbiased and
thorough investigation of financial transactions. In addition,
the ICAI extensively questioned the respondent about signing
inaccurate financial statements for the years 2000-2001 and
2001-2002. Balance sheet discrepancies, including a
substantial mismatch between Schedule VI and Profit and
Loss Account figures, were pointed out. The respondent's
struggle to provide satisfactory explanations for these
inconsistencies heightened doubts about the authenticity of
the financial statements. Throughout these inquiries, relevant
figures, such as the reported turnover, the amount involved
in M/s.Viz Constructions loan transactions, and
discrepancies in reported figures, were scrutinized. Key
names, including Mr. V.Rama Chandra Rao, M/s.Viz
Constructions and MEPL were central to the discussions. The
allegations ranged from forgery and fraud to potential
conflicts of interest, all contributing to a comprehensive
evaluation of the respondent's conduct. This Court thus
acknowledges the ICAI's systematic and thorough approach
and finds no perversity in its inquiry.
35. After thoroughly considering the Disciplinary
Committee's Report and the oral/written submissions from
both the complainant and the respondent, the ICAI agreed
with the Committee's conclusions. The respondent was found
guilty of professional misconduct falling within the meaning
of Clauses (5), (6), (7) and (8) of Part I of the Second Schedule
and "Other Misconduct" under Section 22 read with Section
21 of the Act with respect to the first two charges.
36. On careful review of the proceedings involving the
respondent Mr. V.Rama Chandra Rao, this Court
acknowledges the ICAI's determination to deal with
professional misconduct, with a focus on the application of
its faculties and adherence to the principles of natural
justice. The proceedings unfolded with an examination of
reported turnover figures and concerns about financial
transparency, leading to a comprehensive assessment of
potential discrepancies in financial statements.
37. Throughout its inquiry, the ICAI ensured that the
respondent had ample opportunities to present both oral and
written submissions in response to the allegations. The ICAI
analyzed the respondent's explanations along with a scrutiny
of concerns related to potential conflicts of interest, financial
statement incongruities, and the direct crediting of funds to
the respondent's account. Crucially, the ICAI's judicious
application of mind is evident in its discerning questioning
and meticulous scrutiny of relevant financial transactions
and figures. The respondent's admission of involvement in
M/s.Viz Constructions and the ICAI's exploration of potential
conflicts of interest are indicative of the thoroughness
inherent in the inquiry.
38. The observations hitherto lead this Court to align with
the ICAI's determination insofar as the finding of guilt of the
respondent's professional misconduct in accordance with the
relevant provisions of the Act.
39. Coming to the quantum of punishment, having given a
considerable thought so far as the proposed punishment is
concerned, certain facts which need to be considered are that
the whole issue originally started in the year 2005. As such,
it is by now nineteen (19) years have already lapsed. Today
the respondent is roughly seventy (70) years of age, as such,
he is a septuagenarian. At this juncture, if the proposed
punishment of imposition of ban on practice has
recommended by the ICAI, in the opinion of this Bench would
be too harsh a punishment, however, as the guilt has been
established, the respondent as such cannot be let off without
any punishment.
40. Considering the long lapse of time that has transpired
in conclusion of the proceedings and the respondent having
been undergone the agony of facing these proceedings all
through this period including the time spent before the High
Court in the present case and also considering the age that
the respondent has now reached, we are of the considered
opinion that it would be more appropriate, just and proper if
the punishment proposed by the ICAI is reduced to some
extent. In considered opinion of this Bench if punishment is
reduced from two (02) years to six (06) months, it would meet
the ends of justice.
41. Accordingly, invoking the powers conferred upon the
High Court under Section 21(6C) of the Act, we reduce the
punishment proposed to six (06) months instead of two (02)
years, as has been proposed by the ICAI. Accordingly, the
Reference Case is disposed of directing the respondent's
membership with the ICAI shall stand suspended for six (06)
months starting from 01.05.2024 till 31.10.2024, and as a
result, during that period he shall not practice or function as
a Chartered Accountant. No costs.
42. Consequently, miscellaneous petitions pending if any in
this Reference Case, shall stand closed.
____________________________________
P.SAM KOSHY, J
___________________________________
LAXMI NARAYANA ALISHETTY, J
Date: 26.04.2024
GSD/KKM
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE LAXMI NARAYANA
ALISHETTY
Date: 26.04.2024
GSD/KKM
