Delhi High Court
Council Of Institute Of Chartered ... vs Shri R.K. Tayal, R.K. Tayal And ... on 23 July, 2007
Equivalent citations: (2008)5COMPLJ514(DEL)
Author: V.B. Gupta
Bench: Madan B. Lokur, V.B. Gupta
JUDGMENT V.B. Gupta, J.
1. Present reference has been made to this Court under Section 21(5) of the Chartered Accountants Act, 1949 read with Chapter 7-F of the Delhi High Court Rules.
2. Notice of this reference was issued to the Respondents for 29th November, 2005. On that date counsel for the Respondent had put in his appearance and matter was adjourned for 4th April, 2006 for final hearing.
3. On 4th April, 2006, none appeared for the Respondent and the matter was posted for final hearing for 9th October, 2006.
4. On 16th July, 2007, only counsel for Union of India-Respondent No. 2 appeared whereas, there was no appearance on behalf of the Respondent No. 1, R.K. Tayal and arguments were heard.
5. As per statement of the case, Sh. Thampy Mathews, DGM, Industrial Investment Bank of India, New Delhi filed a complaint against Respondent No. 1. The complainant-bank had sanctioned a term loan of Rs. 630 lacs to M/s Haryana Steel & Alloys Ltd. Sonipat, Haryana (hereinafter referred to as the Company) for its expansion cum modernisation project. As per terms and conditions of sanction, the company was to bring in 100% of the promoters' contribution (Rs. 270 lacs) by way of internal accruals and actually bring in at least 50% of the same. While requesting for disbursement of the sanctioned amount, the company stated that it had already spent Rs. 147.21 lacs for the project till that time and in support thereof, the company submitted a certificate dated 10th February, 1998 issued by the Respondent No. 1 stating that the company has already spent Rs. 147.21 lacs for the project till that time including an amount of Rs. 6.61 lacs paid to the complainant-bank.
6. Based on the aforesaid certificate of Respondent No. 1, the complainant-bank disbursed an amount of Rs. 315 lacs in two installments to the company being 50% of the sanctioned amount and advised it to submit a utilisation certificate. The company, thereafter submitted a certificate dated 26th December, 1998 issued by Respondent No. 1 certifying that the funds were utilised by the company out of the loan of Rs. 315 lacs received from the complainant-bank. In the said certificate, a sum of Rs. 6.61 lacs has also been shown as amount paid to the complainant-bank for up front fee, while the said amount was received from the funds inducted by the promoters before disbursement of the said loan. It has been further alleged in the complaint that sum of Rs. 12,55,117/- and also Rs. 7,25,348/- had been paid to the complainant-bank for interest on loan of Rs. 315 lacs up to 14.5.1998 and for the period from 15.5.1998 to 30.6.1998. The aforesaid amounts were, however, never received by the complainant-bank.
7. Against the aforesaid background, the allegations made against the Respondent No. 1 as per complaint, are as under:
(i) Respondent No. 1 had not verified the records properly before issuing the aforesaid certificates dated 10th February, 1998 and 26th December, 1998.
(ii) The said certificates did not reflect the end use of the funds.
8. On the basis of these allegations, it appears that Respondent No. 1 has committed professional misconduct under Clause (5), (6), (7) & (8) of part-1 of the Second Schedule of the Chartered Accountants Act, 1949. These clauses read as follows:
A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he--
(1) to (4) xxx xxx xxx xxx (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 mis-statement 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;
(8) fails to obtain sufficient information to warrant the expression of an opinion or his exceptions are sufficiently material to negate the expression of an opinion; (9) & (10) xxx xxx xxx xxx
9. A copy of the complaint was sent to Respondent No. 1 with a request to send his written statement. Respondent No. 1 submitted his written statement on 31st January, 2000. The defense of the Respondent No. 1 is that the company had submitted the statement of expenditure incurred by it under the head of 'Capital work in progress' during the period 1st July, 1997 to 30th November, 1998 duly verified by company's official along with a printed copy of balance sheet as on 30th June, 1998 audited by M/s Thakur Vaidyanathan & Company, Chartered Accountants. However, the Respondent No. 1 did not say anything about payment of the aforesaid amounts to the complainant-bank but only stated that the certificate dated 26th December, 1998 appears to have been issued only on relying on such books of account and audited balance sheet and he further stated that the copy of the certificate was not presently available in his records and he was searching for the same.
10. The Disciplinary Committee of the Council considered the matter and for the purpose the enquiry was fixed for 4th November, 2003 but the same was adjourned on the request of Respondent No. 1. Thereafter, the meeting was fixed for 26th December, 2003. On that date, the complainant and Sh. Sushil Gupta, Manager of the company were present. However, the Respondent No. 1 was absent and no request or intimation was received on his behalf. The complainant and Sh. Sushil Gupta were examined. Sh. Sushil Gupta filed a letter dated 12th March, 1999 in which it was stated that an amount of Rs. 12,55,117/- being the interest of the term loan of Rs. 350 lacs up to 14th May, 1998 has been wrongly shown as paid and this amount was payable.
11. The Disciplinary Committee came to the conclusion that Respondent was guilty of professional misconduct under Clause (5), (6), (7) & (8) of part-1 of Second Schedule read with Sections 21 & 22 of the Chartered Accountants Act, 1949.
12. The report of Disciplinary Committee was sent to the complainant and the Respondent with request to send written representation, if any, and also if they so desire they can appear before the Council. The complainant submitted his written representation and also appeared before the Council for making the oral submission. Respondent No. 1 neither submitted any written representation on the report of the Disciplinary Committee, nor he or his authorised representative appeared before the Council to make oral submission. The Council found Respondent No. 1 guilty of professional misconduct under Clause (5), (6), (7), (8) of Part-I of the Second Schedule read with Sections 21 and 22 of the Chartered Accounts Act, 1949 and decided to recommend to remove the name of the Respondent No. 1 from the register of members for a period of three months.
13. It is clear from the record that the Respondent No. 1 has been grossly negligent in issuing the certificates dated 10th February, 1998 and 26th December, 1998 and he was very much aware of the purpose for which the certificate were being issued.
14. Based on these certificates of Respondent No. 1, the complainant-bank had disbursed an amount of Rs. 315 lacs to the Company. As per certificate dated 26th December, 1998 a sum of Rs. 6.61 lacs has already been shown as amount paid to the complainant-bank for up front fee while the said amount was received from funds inducted by the promoters before disbursement of the said amount. Further, it was mentioned that sum of Rs. 12,55,117/- and also Rs. 7,25,348/- had been paid to the complainant-bank for interest of loan of Rs. 315 lacs but in fact the aforesaid two amounts were never received by the complainant-bank. So the Respondent No. 1 did not verify the record properly before issuing the certificates dated 10th February, 1998 and 26th December, 1998 and these certificates did not reflect the end use of the funds.
15. The lack of responsibility displayed by Respondent No. 1 clearly shows that he had acted in a manner unbecoming of a Chartered Accountant and we agree with the conclusion of the Council recommending the removal of name of Respondent No. 1 from the register of its members for a period of three months.
16. We have examined the issue whether the punishment is justifiable in this case or not. We find that there has to be some degree of integrity and probity which is expected of a Chartered Accountant who is regularly concerned with financial transactions and on the basis of whose recommendations and certificates, financial institutions such as banks etc. disburse loans or enter into other financial transactions.
17. Under the circumstances, we are of the view that the punishment awarded to Respondent No. 1 is not unduly harsh. We accept the recommendations of the Council to the effect that the name of Respondent No. 1 be removed from the register of the members for a period of three months. Necessary gazette notification may be issued by the authority.
18. The reference is disposed of accordingly.