Council of Institute of Chartered Accountants of India v. Shri K.A. Ravindran

``` IN THE HIGH COURT OF KERALA AT ERNAKULAM ``` ``` PRESENT ``` ``` THE HONOURABLE MR.JUSTICE S.V.BHATTI ``` ``` & ``` ``` THE HONOURABLE MR.JUSTICE BASANT BALAJI ``` ``` FRIDAY, THE 4[TH] DAY OF MARCH 2022 / 13TH PHALGUNA, 1943 ``` ``` CMR NO.1 OF 2018 ``` ## **`PETITIONER:`** ``` COUNCIL OF INSTITUTE OF CHARTERED ACCOUNTANTS OF IN- DIA, INDRAPRASTA MARG, NEW DELHI. BY ADVS. SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN SRI.KURYAN THOMAS SRI.PAULOSE C. ABRAHAM ``` ## **`RESPONDENT:`** ``` SHRI.K.A.RAVINDRAN, KAKKANATU,MANGANAM P.O., KOTTAYAM – 682018. BY ADVS. A.KUMAR G.MINI(1748) SHRI.P.VIJAYAKUMAR, ASG OF INDIA MANU S., ASG OF INDIA ``` ## **`OTHER PRESENT:`** ``` ADV. POULOSE C. ABRAHAM FOR THE PETITIONER ``` ``` THIS CIVIL MISC. REFERENCE HAVING COME UP FOR ADMISSION ON ``` ``` 04.03.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` CMR No.1 of 2018 -2- **ORDER** Dated this the 4[th] day of March 2022 ## **S.V.Bhatti, J.** The subject reference is under Section 21(5) of the Chartered Accountants Act, 1949 (for short ’the Act’), at the instance of the institute of the Chartered Accountants Act, 1949 (for short ‘the Act’) against the respondent herein. In the 364[th] council meeting held between the 20[th] and 21[st] of April 2017, the Council of the Institute made the following resolution: “On consideration of the Report of the Disciplinary Committee along with written representations dated 9[th] March, 2015, 10[th] April, 2015 and 30[th] July, 2016 received from the Respondent, the Council decided to accept the said Report and accordingly held that the Respondent was guilty of professional misconduct falling within the meaning of Clauses (5). (6) and (7) of Part 1 of Second Schedule to the Chartered Accountants Act, 1949 read with Section 21 of the said Act. The Council also decided to recommend to the High Court that the Respondent be reprimanded.” CMR No.1 of 2018 -3- 2. Clauses (5), (6) and (7) of Part I of the 2[nd] schedule reads thus: A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he- 1. xxxxx 2. xxxx 3. xxxx 4. xxxx 5. Fails to disclose a material fact known to him which is not disclosed in a financial statement but disclosure of which is necessary to make the financial statement, not misleading . 6. Fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity. 7. Is grossly negligent in the conduct of his professional duties.” 3. The respondent is a Chartered Accountant by profession and a member enrolled with the institute. On 14.07.1997, the Chairman of Lord Krishna Bank, Cochin communicated a letter to the institute against the respondent. The letter refers to a few alleged omissions and commissions by the respondent in preparing and finalising the CMR No.1 of 2018 -4- balance sheet and profit and loss account of a partnership firm known as M/s Indiana Panels, Kottayam. The commissions and omissions noted are that the respondent inflated the sales and closing stock as Rs.45,60,000/- and Rs.80 lakhs respectively. In contrast to the balance sheet and profit and loss account prepared by the respondent, the balance sheet and profit and loss account were finalised by another Chartered Accountant’s firm M/s Kuryan & Suseelan, stated Rs.33.60 lakhs and Rs.2.13 lakhs as sales and closing stock. On the balance sheet certified by the respondent, the firm earned a gross profit of Rs.35,28,000/-. On the other hand, the balance sheet prepared by M/s Kuryan & Suseelan reported a loss of Rs.79,17,000/. The figures inflated in the balance sheet and profit and loss account prepared by the respondent are inflated figures. Therefore, the respondent failed to discharge the professional skill and conduct expected of a member of the institute. Further, the respondent is negligent in the discharge of his professional work. Therefore, the action was sought against the respondent. From the record placed before this Court, it appears the letter of Lord Krishna Bank has been treated as information instead of a complaint against the respondent. CMR No.1 of 2018 -5- From the dates and events set out in the statement of fact filed along with the reference, it would appear that till the 9[th] of January 2006 nothing was moved in the matter, much less a reply immediately upon noticing the alleged commission or omission from the respondent was called for. The letter dated 9.1.2006 was returned with an endorsement ‘incomplete address’. Therefore, at the first stage, the decision to proceed against the respondent was taken as service effected on the respondent is treated as complete and in the place of a complaint letter is treated as information and action under clauses (5), (6) and (7) of Part I of 2[nd] schedule (for short ‘the 2[nd] schedule of the Act’) was initiated. The charges refer to alleged negligence, lack of professional skill and not maintaining the probity expected of a Chartered Accountant. The respondent filed the reply dated 5.11.2008. The reply of the respondent, stated briefly, is that the respondent is not the appointed or regular chartered accountant of M/s Indiana Panels. One K.C.Gopalan, an Advocate by profession is a friend of the respondent. The said friend requested the respondent to give provisional audited accounts of the firm. Since the auditors of the appointed Chartered Accountants firm are not available the CMR No.1 of 2018 -6- respondent was requested and the firm M/s Indiana Panels is audited by M/s Kuryan & Suseelan. The balance sheet and profit and loss account were prepared based on the accounts and other details furnished by the firm. The respondent, on the definite allegations of not claiming depreciation, stated that the respondent was preparing only a provisional balance sheet and therefore the depreciation claim of Rs.25,06,245/- as claimed and accounted for in the balance sheet of M/s Kuryan and Suseelan has not been done. The final balance sheet has been prepared only by the appointed auditors of M/s Indiana Panels. The closing stock has been verified from the monthly stock statement filed by the firm with the bank. The actual verification of stock in the godown was not carried out. The differences between the balance sheet and profit and loss account prepared by the respondent on one hand and Kuryan and Suseelan, Chartered Accountants on the other hand, is on account of the circumstances that the respondent has prepared the provisional balance sheet. There is no infirmity or illegality in the details incorporated in the provisional balance sheet. What ought to have been done in the final audited balance sheet is not undertaken or carried out in the provisional balance sheet prepared by CMR No.1 of 2018 -7- the respondent. The respondent further contends that the details are not false. There is no negligence and the summary arrived at by the respondent can be culled out from the details furnished. Therefore, in all fours, the respondent denies alleged commission or omission warranting any action against him under the clauses read above. In the 284[th] meeting of the institute held in January 2009 in New Delhi, the Council, not accepting the reply given by the respondent, after being _prima facie_ of the opinion that the respondent was guilty of professional and/or other misconduct decided to cause inquiry by the Disciplinary Committee. The inquiry into a complaint received on 17.07.1997 was commenced on 24.11.2011. The Disciplinary Committee relied on the enclosures filed by Lord Krishna Bank and found that the respondent is guilty of the misconduct covered by Clauses 5, 6 and 7 of Part I of the 2[nd] schedule of the Act. We have perused the material which constituted the evidence or record before the disciplinary committee and we may, at this juncture, point out that the figures given by the respondent are treated as inflated and incorrect by comparing with the figures said to have been arrived at by the firm M/s Kuryan & Suseelan Chartered Accountants. The CMR No.1 of 2018 -8- falsity or truthfulness of the respective accounts ought not to have been explored by comparison of numbers in both the accounts. Be that as it may. When the inquiry is pending before the disciplinary committee the issues on hand happened allegedly in the year 1996. Merely after 12 years from the date of happening it is treated as information in the year 2008. The bank which has given the complaint against the respondent is not in existence. The managing partner of the firm wound up business and migrated to Australia. Under those circumstances without having primary documents as evidence for inquiry the committee may examine whether it is desirable to proceed with the inquiry and submitted a report to the institute. It was also clearly stated by the respondent that on account of expiry of merely 18 years from the date of alleged happenings, the respondent is also handicapped in producing the material in support of his case. One of the findings recorded by the disciplinary committee reads thus: “It was apparent that there was a negligent attitude on the part of the Respondent who chose to forego the process of checks and verifications required of a professional while performing a certification of this nature to meet the urgent requirements of the client. CMR No.1 of 2018 -9- The Committee also felt that since the firm was not his usual client and in fact, there was a regular auditor of the firm he should have taken steps to seek proper details from the client. In such an audit assignment which appeared to be a one-time affair, merely trying to cite excuses at this point in time to evade the disciplinary proceedings is not the correct approach to be adopted by a professional like him. Moreover, in such case, it would have been appropriate for the Respondent to have given certain specific qualifications or clarificatory Notes to the effect that the same was a provisional Balance Sheet. The Committee has taken into consideration, the time gap that has since been lapsed the difficulty of the Respondent in procuring any documents/witness and was of the view that such limitation factors cannot be summed up as mitigating factors in this case. This case is based on the documents available on record, it is apparent that the Respondent has chosen to certify the financial statement whereby he has merely signed the documents without putting any date or the place or qualification which would have shown that this was meant to be a provisional balance sheet. The explanations by the Respondent on the irregularities such as closing stock and depreciation are also not maintainable because of the aforementioned errors noticed in the Balance Sheet which a prudent auditor would circumstances.” As excerpted above, the institute accepted the report of the committee and forwarded the record to administer a reprimand to the respondent for the alleged misconduct. 4. Learned counsel appearing for the institute argues that the CMR No.1 of 2018 -10- respondent is not disputing the assertions made against his claim in the letter dated 14.7.1997. The issue in such circumstances would be whether the reply given by the respondent is available, if so by referring to such a reply can it be considered and held by the disciplinary committee whether the acts complained against the respondent constitute misconduct or not. According to him, the institute is required to maintain the discipline and conduct of all its members and in each case, the inquiry depends upon the issues that are taken up for consideration. In the case on hand, an inquiry is required to commence from the partial admission or admission given by the respondent. Therefore, according to him, the resolution of the Council praying this Court to administer reprimand of the respondent is warranted and may be ordered accordingly. 5. Adv.A.Kumar appearing for the respondent invites our attention to a few provisions in the Act and also the decisions viz. _**Council of the Institute of Chartered Accountants of India** v_ _**C.H.Padliya and another**_ (1977 M.P.L.J.), _**Council of the Institute of Chartered Accountants of India** v_ _**Somnath Babu**_ (AIR 2007 Cal.29), _**Institute of Chartered Accountants of India** v_ _**L.K.Ratna**_ CMR No.1 of 2018 -11- _**and others**_ (AIR 198 SC 71) and _**In the Matter of Shadi Lal Batra**_ (AIR 1968 Delhi 283) for the position that the issue before the Court is the misconduct of the respondent and in the special supervisory jurisdiction conferred on this court, the misconduct is appreciated and the material brought on record to bring home the charge is acceptable. In addition, he relies on the judgment in _**Vipin Malik v The Institute of Chartered Accountants of India**_ of Delhi High Court, particularly, the effect of the delay in conducting inquiry into the complaint received against the respondent. Adverting to the merits of the matter, he says, even going by the requirements of proof in an inquiry as to the present, according to him, the letter, firstly, is not treated as a complaint. It has been treated as information or input. In cases where information or input is received, the institute receives the reply of the member Chartered Accountant, then forms an opinion and takes further steps against the issue viz., whether the allegations need inquiry by a Disciplinary Committee or not. In the case on hand, on the admission of the institute, the letter addressed to the respondent returned with an endorsement ‘incomplete address’. That being the case case, the original formation of opinion about the _prima facie_ CMR No.1 of 2018 -12- against the allegations made against the respondent is illegal and unsustainable. The respondent is subjected to inquiry before the disciplinary committee and the disciplinary committee takes note of the _prima facie_ opinion already formed by the Institute and has conducted the inquiry in the matter. The institute though entitled to treat an input received by it as information but that information is sought to be used as the basis for a charge against the respondent. The respondent should be given a fair and reasonable opportunity with what constitutes negligence, misconduct, escalation of figures so on and so forth. In brief, it is argued the two balance sheets are matters of contemporaneous verification. According to him, the verification should always be from the record maintained and produced for the preparation of the balance sheet and profit and loss account by both the Chartered Accountants. In the absence of original record, the very fact that there is a difference between the figure shown in the balance sheet and the profit and loss account of the respondent and M/s Kuryan & Suseelan firm is not a ground to assume any one of the shares contemplated by Clauses 5 to 7 of Part I in 2[nd] schedule of the Act. CMR No.1 of 2018 -13- 6. We have perused the record and taken note of the arguments advanced by the counsel appearing for the parties. 7. The institute received a complaint on 14.07.1997. The institute has much responsibility in maintaining the professional ethics, good conduct, and decorum of the chartered accountancy professionals. The institute, for reasons not discernible from the record, did not move on the matter for nearly 9 years. The institute, as rightly pointed out by Adv.A.Kumar formed a _prima facie_ opinion on the misconduct of the respondent without affording an opportunity as is required by the Act. The disciplinary committee examined the figures shown in the balance sheet and profit and loss account prepared by the respondent and the other prepared by M/s Indiana Panels. Looking at the explanation given by the respondent and what is sought to be stated against the respondent as misconduct, we are of the view that the findings recorded in the report dated Ist July 2013 of the disciplinary committee are overstretched and are completely presumptuous. The Disciplinary Committee could not, for the reasons already narrated, secure the original record for verifying the truthfulness or otherwise in the reply given by the respondent. The CMR No.1 of 2018 -14- respondent is admitting the variation in the figures shown by him. The important circumstance is the closing stock is prepared by the respondent from the periodical statements submitted by the borrower to the bank. The committee failed to note, firstly, that the bank has not received such reports. Secondly that if false statements are submitted and accepted by the bank, the same statements are also looked into for preparing the provisional balance sheet and profit and loss account. The case on hand appears as not a case of misconduct or negligence on the part of the respondent, at best, it could be a case of not employing the professional skillfully or a bit casual in obliging a friend of the respondent. When the complainant could not place sufficient material before the Disciplinary Committee or the institute on the inflation of figures, variation, etc. relying upon the figures as it is between the two sets of balance sheets, profits and loss account, etc., in our view, does not conclusively establish the misconduct alleged against the respondent under Clauses (5), (6) and (7) of Part 1 of Second Schedule to the Chartered Accountants Act, 1949. We are, after perusing the record and appreciating the delay of evidence placed before the Committee, the reply of the respondent, conclusions CMR No.1 of 2018 -15- arrived at both by the disciplinary committee and the institute, we are unable to persuade ourselves even to administer a reprimand to the respondent. For the above reasons, the reference is rejected. Letter dated 14.7.1997 shall be treated as closed. No order as to costs. sd/- S.V.BHATTI, Judge sd/-BASANT BALAJI, Judge css/