Council of the Institute of Chartered Accountants of India v Shri George Alexander

## **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ## **`PRESENT`** ## **`THE HONOURABLE MR.JUSTICE S.V.BHATTI`** ## **`&`** ## **`THE HONOURABLE MR.JUSTICE BASANT BALAJI`** ## **`THURSDAY, THE 3[RD] DAY OF MARCH 2022 / 12TH PHALGUNA, 1943`** ## **`CMR NO. 1 OF 2008`** ``` In the matter of : The Chartered Accountants Act, 1949 and In the matter of Recommendation of the Council of the Institute of Chartered Accountants of India in its 263[rd] meeting held from 12[th] to 14[th] October, 2006 at New Delhi and ``` ## **`PETITIONER:`** ``` COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, INDRAPRASTHA MARG, NEW DELHI ``` ``` BY ADV.POULOSE C.ABRAHAM ``` ## **`RESPONDENT:`** ``` SHRI.GEORGE ALEXANDER, FCA, CHARTERED ACCOUNTANT MUTHOOT CHAMBERS, OPP.SARITHA CINEMA, BANERJEE ROAD, COCHIN-682018 ``` ``` BY ADV SRI.MILLU DANDAPANI ``` ``` THIS CIVIL MISC. REFERENCE HAVING COME UP FOR ADMISSION ON 03.03.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` CMR No.1 of 2008 -2- ## **ORDER** Dated this the 3[rd] day of March 2022 ## **S.V.BHATTI, J.** The reference is under Section 21(5) of the Chartered Accountants Act, 1949 (for short ‘the Act’) against the respondent, a registered member of the Institute of Chartered Accountants of India (for short ‘the institute’). One T.C.Varkey, on 1.9.2000, filed Form “8” complaint under Section 21 of the Act against the respondent. 2. The gist of the complaint is that the respondent is engaged in a business other than the profession of Chartered Accountancy norms submitted by the Council. ## **Summary of accusation on Respondent** ## “The First Schedule in Part 1-Para (11) He engaged in Business other than the profession of Chartered Accountants not permitted by the Council to engage for Example he has engaged in Business as Managing Partner of Muthoot Bankers, Muthoot Financiers, and Muthoot Builders. The mandate is thereto me to operate the Accounts (See Photostat copies No.1 & No.2), Evasion of Income Tax in CMR No.1 of 2008 -3- different ways is visible. ## (2) The Second Schedule of part I Para (7) He is grossly negligent in professional duties as per the above clause. Moreover, the firm Muthoot Financiers and Muthoot Builders are not registered for Business in Alwaye. It is a violation of RBI Act 1934, Section 451A. The same business is still continuing. A correspondence reply is enclosed on this subject (attached Photostat copy marked Evasion of Income Tax in different ways is visible. ## (3) The Second Schedule of Part 1 (Para 2) He certified and submitted in his name in his firm a report of an explanation of financial statements and not by another chartered accountant in practice. See enclosures No.2 and our comments thereon Evasion of Income Tax is visible in several ways. Para (4). He expressed his opinion on the financial statements of his Business and did not disclose his interest also in his report. See enclosure No.2 and our comments. Evasion of Income Tax is there. Para (5). He failed to disclose a material fact known to him which is not disclosed in his financial statement but disclosure which is necessary to make the financial statement not misleading. (See enclosure No.2 and our comments) There is no comparison of figures in his statement and Branch figures CMR No.1 of 2008 -4- Evasion of Income Tax is visible in several ways. Para (6) He failed to report a material statement known to him to appear in a financial statement with which he is concerned in a professional capacity. See enclosure No.2 and our comments. For example, he has included several branches under Alwaye. See Enclosure No.2 and our comments. Alwaye has no branches. (See Registration Certificate). As Auditor he should not have done this. Evasion of Income Tax is visible always. Para (7) He is grossly negligent in his professional duties on account of his above professional activities other things being equal. See our enclosure No.2 and our comments Evasion of Income Tax is visible always. Para 9. He failed to invite the attention to the material departure from the generally accepted procedure of Audit applicable to the circumstance other things being equal. (See enclosures No.2). Evasion of Income Tax in visible always.” ## Reply of the Respondent “The first allegation is that I am engaged in business other than the profession of Chartered Accountancy not permitted by the council. In this regard, I am enclosing herewith a letter dated 20th September 1993 issued by the Sr. Deputy Secretary, ICAI, SIRC, Madras conveying the decision of the Council permitting me to look after the banking business of my family in addition to the practice of the profession of accountancy. Therefore, the first complaint is baseless devoid of any merit. As such I have authorized the Branch Managers to operate bank accounts. It is also stated that there is suppression of income from Income-tax which is also baseless. Only certain instructions have been given in the manner of accounting. All CMR No.1 of 2008 -5- receipts are taken into consideration in the total receipts of the firm and also in the Income-tax return. The Income-tax returns have been filed up to date and there has not been any case of evasion found but by them. The Manager has no authority to spell out evasion when the actual facts are otherwise. 4. According to him, I am grössly negligent in the execution of professional duties. It is also stated that Muthoot Financiers and Muthoot Builders have no registered business in Alwaye. He is totally confusing matters before the Institute. A concern can open branches anywhere in the country or outside. It is for the partners to decide from time to time the manner in which the business could be operated upon. Partnership Act recognises business operation through branches and this has been välidly done. It is not for the Manager to give a finding of the violation of Reserve Bank Act or others. There are separate authorities who are monitoring and checking the day-to-day working of our ground concern and there has not been any complaint from them so far. 5. It is stated by him that I have certified and submitted the Audit Report or my firm and this should have been done by another independent Chartered Accountant. In this regard, I wish to state that as per Section 44A5 of the Income Tax Act read with Section 288 of the Income-tax Act what is contemplated to audit by an Accountant who can be a Chartered Accountant within the meaning of the Chartered Accountants' Regulation. It cannot be stated that there has been any element of professional mis-conduct in this. In fact the Income-tax department has accepted such report also. 6. It is stated that I have not disclosed my interest in the above referred report submitted. The report forms part of the Income tax return and the financial statement wherein it could CMR No.1 of 2008 -6- be seen that my interest in the business is disclosed. This point is also baseless. 7. In Para-5 it is alleged that I have failed to disclose the material fact known to me in the financial statements and thereby rendering such statements misleading . It is a wild and baseless allegation. This is a private concern. and there are no circumstances arising to mislead any outsiders. The statements have been filed with the statutory authorities like Income-tax and Sales-tax and they have accepted and they have not made out any case of themselves having been mis-lead by such presentation. 8 `。` In Para-6 it is stated by him that in the report of the Alwaye firm, the names of certain branches have been included where's no such branches actually existed. This is not correct. In so far as Alwaye firm is concerned, during that year it had branches at T.S. Razd, Kotayam, Cooker Town, Bangalore. Arattupuzha near Kozhencherry and Hyderabad. The operations and income from these branches have been consolidated into the Alwaye account and statements presented. The Registration Certificate as produced by him is the Registration Certificate when the firm was originally registered. The branches have been commenced thereafter. The addition of branches are intimated to the Registrar as and when the Deed is reconstituted which is the procedure. Without even understanding these procedures he has tried to make a baseless allegation. 9. In Para-7 it is stated that I am grossly negligent in the professional duties on account of the above-referred activities. There are no material to adduce such an allegation. 10. In the last Paragraph it is stated that I have failed to invite attention to the material from the Generally Accepted CMR No.1 of 2008 -7- Procedure of Audit applicable to the circumstance. This is also not convincing and without any material dependent upon by him. 11. Before concluding, I would like to mention that there had been various occasions of in-subordination from this Manager at Alwaye and by the time he attained the age of 70 we have no other alternative than to relieve from the service on account of his old age and failing health. He had requested for an extension of service which could not be favourably considered by the partners and management of the company. On account of this he had turned to hostile against the group and especially against me. It may be appreciated that he has no authority to make a complaint like this and to point out that I have committed professional misconduct. None of the materials forwarded by him and relied upon by him show any sort of professional misconduct or misleading statements made by me. I have on the death of my father as early 1993 applied to the Institute seeking permission to practice and after consideration, the Institute has been granted and therefore his basic allegation that I have been practicing without permission is devoid of merits. I therefore strongly object to the various complaints made by him and request the Institute of Chartered Accountants of India to drop any sort of proceedings against me.” 3. The institute referred the matter to the Disciplinary Committee. The Disciplinary Committee submitted a report dated 2.2.2006 and the report was placed before the Council of the institute in the meeting held between the 12[th] and 14[th] of October 2006. The Council decided as under: CMR No.1 of 2008 -8- “On consideration of the Report of the Disciplinary Committee along with the written representation dated 27[th] September 2006 received from the Complainant and the written representation dated 28th September 2006 received from the Respondent, the Council decided to accept the Report of the Disciplinary Committee and accordingly held that the Respondent was: - (a) not guilty of professional misconduct under the charges 1,2,3,5,6 and 7 falling within the meaning of Clause (11) of Part I of the First Schedule and Clauses (5), (6), (7), and (9) of Part I of Second Schedule and other misconduct under Section 21 of the Chartered Accountants Act, 1949 and (b) guilty of professional misconduct of charge no. 4 falling within the meaning of Clause (4) of Part 1 of Second Schedule read with Sections 21 and 22 of the Chartered Accountants Act, 1949. In respect of (b) above, the Council also decided to recommend to the High Court that the Respondent be reprimanded.” Hence the reference for confirmation of the recommendation made by the Institute. 4. Advocate appearing for the institute invites our attention to Paragraph-12 of the disciplinary committee report, CMR No.1 of 2008 -9- “The fourth charge alleged against the Respondent is that the Respondent certified and submitted in his name, (in his firm) a report of an explanation on financial statements and expressed his opinion on the financial statements of his business and did not disclose his interest also in his report. The Respondent, however, submitted in his written statement that as per Section 44AB of the Income Tax Act read with Section 288 of the Income-tax Act what is contemplated to audit by an Accountant is one who can be a Chartered Accountant within the meaning of the Chartered Accountants Regulations. He also stated that in fact the Income Tax Department has accepted such report also. The report forms part of the Income tax return and the financial statements wherein it could be seen that my interest in the business is disclosed. However, at the time of hearing the respondent accepted his guilt for this charge under Regulation 15(2) of the Chartered Accountant Regulations 1988. 12.1 The Committee in this regard noted the provisions of clause (4) of Part I of Second Schedule to the Chartered Accountants Act, 1949 which prohibits the member to express his opinion on the financial statements of any business or any enterprise in which he or his firm or a partner of his firm has a substantial interest unless he discloses the interest also in his report. It is further noted that though there was no bar on the Respondent to audit the financial statements of his business provided he had disclosed in the report so issued his interest in the business as the partner. The additional documents submitted by the Respondent were perused as well by the Committee wherein he has given the list of firms wherein he is admitted as the partner and a statement declaring the number of tax audits done for the Muthoot Group of Firms. Given the CMR No.1 of 2008 -10- above, the Committee holds the Respondent guilty of charge falling within the meaning of clause (4) of Part I of Second Schedule to the Chartered Accountants Act 1949. and argues that the institute instead of taking a serious view of the matter, particularly, by appreciating that there is no misconduct in fiscal matters recommended the reprimand. The reprimand recommended by the institute may be considered and accepted. 5. Adv.Mr.Millu Dandapani appearing for the respondent argues that as all the circumstances are fairly stated and nothing touching on the conduct of the respondent as a professional is made out, the reprimand need not be considered and accepted by this Court in CMR No.2 of 2010 dated 3.3.2022 disposed of by us. 6. We have, in sufficient detail, considered the jurisdiction of this Court, misconduct, professional standards,etc. in CMR No.2 of 2010. The observations are fresh in our consideration and the very same decisions viz. _**Council of the Institute of Chartered Accountants**_ CMR No.1 of 2008 -11- _**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 and others**_ (AIR 198 SC 71) and _**In the Matter of Shadi Lal Batra**_ (AIR 1968 Delhi 283 are not again excerpted in the present reference. 7. We have heard the learned counsel appearing for the parties and perused the record. The question that arises for decision is whether, in the facts and circumstances of the case, the respondent is guilty of misconduct warranting reprimand or not. 8. The misconduct stated against the respondent, accepted by the disciplinary committee and the council relates to engaging in business other than the profession of Chartered Accountants. The few charges made against the respondent enquired into the disciplinary committee led to recording the finding of not guilty. The guilty of misconduct arrived is substantially based on the CMR No.1 of 2008 -12- admission of the respondent. The admission of the accusation is very important and rightly considered by the disciplinary committee and the council. Hence the recommendation of the Council that the respondent is reprimanded is warranting and can be accepted in the facts and circumstances of the case. Hence the reference is ordered by reprimanding the respondent for the misconduct of clause-iv of Part of 2[nd] schedule. CMR ordered accordingly. Sd/- S.V.BHATTI, Judge Sd/- BASANT BALAJI, Judge css/