Council of the Institute of Chartered Accountants of India v. Shri George Thomas, Chartered Accountant

## **`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 2010`** ## **`PETITIONER:`** ``` COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, INDRAPRASTHA MARG, NEW DELHI BY ADVS. SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS SRI.P.GOPINATH SRI.K.JOHN MATHAI ``` ## **`RESPONDENT:`** ``` SHRI.GEORGE THOMAS, CHARTERED ACCOUNTANT, KAVALAM PUTHENPURA, P.P.JOSE ROAD, CHANGANACHERRY 686 101. BY ADVS. SRI.ABDUL JAWAD K. SMT.A.GRANCY JOSE ``` ## **`OTHER PRESENT:`** ``` ADV POULOSE C. ABRAHAM FOR THE PETITIONER ``` ``` HIS 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 2010 2 ## ORDER Dated this the 4th day of March 2022 ## S.V.BHATTI, J. In the 269th meeting held from 18th to 20th July 2007, the Council of the Institute of Chartered Accountants resolved as follows: “The Respondent has not been able to carry the due diligence exercise which he was supposed to carry out while issuance of utilisation certificate and accordingly, the Respondent has been held guilty of professional misconduct falling within the meaning of Clause (7) of Part 1 of Second Schedule to the Chartered Accountants Act, 1949. Thus, the Council decided as under. (a) NOT to accept the report of the Disciplinary Committee to the extent wherein the Respondent was held guilty of professional misconduct falling within the meaning of Clause (6) of Part I of the Second Schedule to the Chartered Accountants Act. 1949 and "Other Misconduct” under Section 22 read with Section 21 of the Chartered Accountants Act, 1949. (b) to accept the report of Disciplinary Committee to the extent wherein the Respondent was held guilty of CMR No.1 of 2010 3 professional misconduct falling within the meaning of Clause (7) of Part 1 of the Second Schedule to 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.” 2. The instant reference is made to this Court under Section 21(5) of the Chartered Accountants Act, 1949 (for short ‘the Act’) by the Institute. The circumstances preceding the above resolution are briefly stated as follows: On 29.12.2004, Dr.Ravi M.Nair, on behalf of the service association for the mentally handicapped, complained against the respondent, a member/Chartered Accountant of the institute. The respondent audited the accounts and certified the utilization statement on the grant-in-aid sanctioned to All Kerala Association for the Mentally Retarded (AKAMR) of the Development Centre for the Mentally Retarded (DCMR), Kerala. The respondent being a qualified Chartered Accountant failed to exercise his professional CMR No.1 of 2010 4 skill to bring to light the financial cheating committed and concealed by the management of the DCMR. The Council, in terms of Regulation 12(11) of the Chartered Accountants Regulations, 1988, received a reply from the respondent and the Council in the meeting held in the month of March 2006 found a prima facie case of misconduct warranting inquiry by the disciplinary committee. The disciplinary committee conducted an inquiry into the charges made against the respondent. At this juncture, it is useful instead of extracting the allegations made by the complainant against the respondent to set out the background. The crux of the matter is that as per Section 11 read with section 12 of the Indian Contract Act, 1872 a person of sound mind is competent to contract. The students of DCMR are not of sound mind. In other words, the students of DCMR are differently disabled and cannot in terms be brought within the fold of unsound mind referred to in Section 11 of the Contract Act. But their comprehension would not be normal. The management of DCMR received a grant from the State government. The purpose of the grant from the State government was to meet the travelling CMR No.1 of 2010 5 expenses of the students of DCMR. It is clear from the record that the respondent has been auditing the accounts of the DCMR between 1996 to 2001. In all the years, the respondent has accepted the register in which the thumb impression marks of differently abled students have been accepted as due receipt and acquittance by those students in favour of the Management. Based on the audited report and the utilisation certificate given by the Management of DCMR, the utilisation of the grant has been accepted as proper by the competent authority. According to the complaint, none of the students of DCMR was paid any subsidy towards the travelling expenses. The respondent filed a detailed explanation and tried to justify the procedure being followed in all these matters. The Disciplinary Committee, after examining the documents and materials brought on record, has recorded a few findings against the respondent which we feel are apt to reproduce for our final consideration of the recommendation made by the institution. “15.3 The Committee noted that the only defence produced by the Respondent was that he was fully satisfied that the mentally retarded children were fully capable of giving the CMR No.1 of 2010 6 receipt for the allowances obtained. However, the Committee during the course of the hearing had looked at the mentally retarded children and felt that these children were not even capable of deposing as to what was/were their name(s), their age(s) etc for instance, the Committee called in two children one below the age of 18 years and other above the age of 18 years and found that they were not able to comprehend what they were doing or saying. 15.4 In view of above, the Committee is of the opinion that the Respondent had mainly relied on the receipt obtained from the children with their thumb impression and without going into the basic fact whether the mentally retarded children were capable of giving the said receipt or not Moreover, copy of passports of these children though had the thumb impression of these children, yet the same were taken under the supervision of passport Authority. 15.5 As stated above, it was with this idea that the appointment was made and the expenditure was actually incurred for the purpose for which grant had been received accordingly It was incumbent on the Respondent to verify the same and if he had not done so the very purpose of the audit was defeated. It was incumbent on the part of the Respondent to verify whether the money disbursed was received by the Mentally Handicapped children The Respondent miserably failed to do so If the conclusion drawn by the Respondent after carrying out the audit was based on evidences by way of stamp and thumb impression, then there was no purpose of such audit or verification The very motive and object of the audit has been defeated by the non-performance of the Respondent. CMR No.1 of 2010 7 15.6 In the considered opinion of the Committee, the Respondent is guilty of professional misconduct falling within the meaning of Clauses (6 & (7) of Part 1 of the Second Schedule and other misconduct under Section 22 read with Section 21 of the Chartered Accountants Act, 1949. ## CONCLUSION: In conclusion, in the considered opinion of the Committee, the Respondent is held guilty of professional misconduct falling within the meaning of Clauses (6) & (7) of Part 1 of the Second Schedule and other misconduct" under Section 22 read with Section 21 of the Chartered Accountants Act. 1949.” This was accepted by the Council resulting in the punishment of reprimand subject to the approval of the Court. 3. To appreciate the lack of professional skill and diligence exhibited by the respondent, we opine that the admitted document against which the complaint is made by the Association may be reproduced hereunder for proper review of the view taken by the Institute: ## CMR No.1 of 2010 **==> picture [9 x 8] intentionally omitted <==** **----- Start of picture text -----**<br> 8<br>**----- End of picture text -----**<br> **==> picture [341 x 459] intentionally omitted <==** 4. The Council has examined the usual receipt obtained from physically disabled students by other institutes; for example, one of the receipts is pasted hereunder: CMR No.1 of 2010 **==> picture [9 x 8] intentionally omitted <==** **----- Start of picture text -----**<br> 9<br>**----- End of picture text -----**<br> **==> picture [452 x 420] intentionally omitted <==** 5. Advocate for the Institute contends that the case falls not only under clause c of Section 21(6) where the material warrants a stringent punishment against the respondent. To explain the jurisdiction of this Court, he has relied upon the very same judgments which we have considered in _**Council of the Institute of Chartered Accountants of India**_ v _**C.H.Padliya and another**_ (1977 M.P.L.J.), _**Council of the**_ CMR No.1 of 2010 10 _**Institute of Chartered Accountants of India**_ v _**Somnath Babu**_ (AIR 2007 Cal.29), _**Institute of Chartered Accountants of India L.K.Ratna and others**_ (AIR 198 SC 71) and _**In the Matter of Shadi Lal Batra**_ (AIR 1968 Delhi 283). 6. Adv.Abdul Jawad appearing for the respondent contends that from the very nature of things that have been stated against the respondent, the disciplinary committee of the council did not find all the allegations of misconduct against the respondent. The Disciplinary Committee fails to report a material misstatement known to the respondent in the financial statement with which he is concerned in a professional capacity and he is grossly negligent in the conduct of his professional duties. According to the learned counsel, the explanation given by the respondent would explain the circumstances in which the register maintained by DCMR has been accepted as true receipts and acquittance of travel allowance by the disabled students. It is not a case where the respondent has certified in the absence of material on record. By looking at the register the respondent acted objectively and maybe the extreme skills which should have been exhibited in the case on hand 11 CMR No.1 of 2010 were not exhibited by the respondent. From that circumstance alone, firstly, even the punishment of reprimand ought not to be considered and secondly, this Court, at this length of time, ought not to consider enhancing the punishment or remitting the matter to the Council for a fresh decision. 7. We have taken note of the limited submissions made by the learned counsel appearing for parties. 8. Considering the nature of allegations made against the respondent and the professional diligence and skills which are expected to be employed by the respondents in matters of this nature, at the first blush, we felt it desirable to refuse to accept the recommendation given by the Council and remit the matter to the Council for consideration afresh. The difficulty, the proposed disciplinary inquiry may cause, is that the students who have signed in the acquittance register about 20 years back and their whereabouts may not be known. They conducted inquiry only to find out whether the acquittance register could also be treated as a receipt or if it is only a register maintained evidencing the CMR No.1 of 2010 12 payments made to the students independently or not. Such a course, at this length of time, with much hesitation, we avoid. Reverting to the misconduct alleged against the respondent, we don’t sit as a Court of appeal to re-appreciate the entire circumstances. The sequence of events that constitute misconduct is established with sufficient material. From the point of view of the Council, a conclusion warranting the lack of skill or professional approach in audit of the respondent is available, being so we will not substitute our opinion for the view taken either by the Disciplinary Committee or the Council, unless and until the exceptional case is made out. The register, in a very monotonous way, contains the thumb impression marks of all the differently-abled students. What one would ask himself in a situation like the present is the amount was paid to such physically disabled children in the absence of their guardians, there is every reason to believe that either the management is not paying the amount or even if paid it has not been put to the use for which the subsidy was given by the Government. Secondly, being physically disabled students, it is very difficult to appreciate that after understanding the consequences CMR No.1 of 2010 **==> picture [14 x 8] intentionally omitted <==** of such affirmation in the register they would have affixed their thumb impression. This Court is also of the view that the respondent failed in his due diligence skill required to be exhibited on an occasion as the present. We do not want to re-iterate every reason that was weighed both with the Disciplinary Committee and the Council for recommending the punishment of reprimand. Stated in one sentence, we are in full agreement with the procedure followed by the Disciplinary Committee, and the view taken by the Council. The material available on record justifies the lenient punishment now proposed by the Council. Hence the proposed punishment of reprimand is accepted and accordingly the respondent is reprimanded for professional misconduct. Sd/- S.V.BHATTI, Judge Sd/-BASANT BALAJI, Judge css/