Delhi High Court
Subramani Gopalakrishnan vs Institute Of Chartered Accountants Of ... on 30 May, 2011
Author: Dipak Misra
Bench: Chief Justice, Sanjiv Khanna
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 5th April, 2011
% Judgment pronounced on: 30th May, 2011
+1. LPA 885/2010
SUBRAMANI GOPALAKRISHNAN ..... Appellant
Through Mr. Shyam Divan, Sr. Advocate with
Mr. R. Sudhinder, Mr. Rahul Ravindran and Ms.
Prerna Amitabh, Advocates
versus
INSTITUTE OF CHARTERED
ACCOUNTANTS OF INDIA & ANR ..... Respondents
Through Mr. Ramji Srinivasan, Sr. Advocate
with Mr. J S Bakshi, Mr. Amitesh S. Bakshi, Mr.
Zeyaul Haque, Mr. Rakesh Agarwal and Mr.
Pulkit Agarwal, Advocates for ICAI/Respondent
No.1
Mr. Jatan Singh, CGSC with Mr. Ashish Kumar,
Advocate for UOI
2. LPA 886/2010
TALLURI SRINIVAS ..... Appellant
Through Mr. T. Andhyarujina, Sr. Advocate
with Mr. R. Sudhinder, Mr. Rahul Ravindran and
Ms. Prerna Amitabh, Advocates
versus
INSTITUTE OF CHARTERED
ACCOUNTNTS OF INDIA & ANR ..... Respondents
LPA 885-886/2010 Page 1 of 59
Through Mr. Ramji Srinivasan, Sr. Advocate
with Mr. J S Bakshi, Mr. Amitesh S. Bakshi, Mr.
Zeyaul Haque, Mr. Rakesh Agarwal and Mr.
Pulkit Agarwal, Advocates for ICAI/Respondent
No.1
Mr. Jatan Singh, CGSC with Mr. Ashish Kumar,
Advocate for UOI
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJIV KHANNA
1. Whether reporters of the local papers be allowed to see the Yes
judgment?
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
DIPAK MISRA, CJ
Keeping in view the similitude pertaining to the legal controversy in
both the appeals, despite the fact that there is a slight difference in the
factual matrix, these appeals were heard together and are being disposed
of by a common order. For the sake of clarity and convenience, the facts
from LPA No.886/2010, which arises from the order passed in WP(C)
No.2205/2010, shall be exposited for the purpose of adjudication.
2. The appellant, a chartered accountant and a member of the Institute
of Chartered Accountants of India (ICAI), was a partner of M/s Price
LPA 885-886/2010 Page 2 of 59
Waterhouse (M/s PW), a firm of Chartered Accountants registered with
ICAI. In the year 2000, the firm was appointed as the statutory auditors of
M/s Satyam Computer Services Ltd. (SCSL). The statutory audits of SCSL
for the years 2001 to March, 2007 were conducted and the reports were
signed by Mr. Subramani Gopalkrishnan, the appellant in LPA
No.885/2010 [the petitioner in WP(C) No.5352/2010]. The statutory audit
for the quarters ending 30th June, 2007 and 30th September, 2008 were
conducted and signed by Mr. Talluri Srinivas, the appellant in LPA
No.886/2010. As the factual matrix would further unfurl, on 7th January,
2009, Mr. B. Ramalinga Raju, the then Chairman of SCSL, in a
communication send to the Board of Directors, disclosed that the balance
sheet of SCSL as on 30th September, 2008 carried inflated (non-existent)
cash and bank balances of Rs.5,040 Crores (as against Rs.5361 Crores
reflected in the books) and accrued non-existent interest of Rs.376 Crores.
The liability was understated to the extent of of Rs.1230 Crores on account
of funds arranged by him and the accounts overstated the debtors position
by Rs.490 Crores (as against Rs.2651 crores reflected in the books). Quite
LPA 885-886/2010 Page 3 of 59
apart from the above, there were many other disclosures which eventually
led to his arrest and a criminal trial which we shall refer to at a later stage.
3. On 10th January, 2009, the ICAI corresponded with M/s PW,
Bangalore, referring to the letters of Mr. Raju, the Chairman of SCSL, that
the said firm had failed to carry out necessary checks which were required
while undertaking the audit of the financial statements and certifying the
quarterly results of the company. The ICAI alleged that the firm had
violated the accounting principles while auditing and certifying the
accounts/quarterly results of SCSL for the aforementioned years and
quarters and did not give a true and fair view of the accounts and further
did not exercise due diligence and were negligent in their professional
duties as statutory auditors. The ICAI treated the newspaper report as
information within the meaning of Section 21(2) of the Chartered
Accountants Act, 1949 [as amended by the Chartered Accountants
(Amendment) Act, 2006 which came into effect from 17th November, 2006]
(for brevity „the CA Act‟). M/s PW was called upon to disclose the name
or names of the member or members who was/were answerable to the
allegation/s and send a copy of the aforesaid information letter along with
LPA 885-886/2010 Page 4 of 59
its enclosures to the said member/members and he/they be requested to
send his/their written statement, if any, in triplicate within 21 days from
the receipt of the letter. It was also stipulated in the said letter that the
member or members who are answerable should also send a declaration
duly signed in the enclosed format and in the event the name(s) of the
member(s) answerable was not disclosed, all the members who were
partners or employees of the firm on the date of occurrence of the alleged
misconduct shall be responsible for answering the allegation or allegations
contained in the information. After certain correspondences, on 30th
January 2009, M/s PW replied to the ICAI stating, inter alia, that the key
members were Mr. S. Gopalakrishnana, Mr. S. Talluri, Mr. P. Shiva Prasad
and Mr. C.H. Ravindranath. M/s PW informed that Mr. S.
Gopalakrishnan and Mr.Srinivas had been arrested by the local police and
they were out of reach. As is manifest, on 20th February, 2009, the criminal
investigation was transferred to the Central Bureau of Investigation (CBI)
and RC No.4(S)/2009 was registered against Mr. S. Gopalakrishnan, Mr.
Srinivas and seven other accused persons for offences punishable under
Sections 409, 420, 468, 471, 477A, 201 and 120B of the Indian Penal Code. It
LPA 885-886/2010 Page 5 of 59
is worth noting that at the instance of the CBI, a Multi Disciplinary
Investigation Team (MDIT) was constituted and a report was prepared by
the ICAI group on 5th April, 2009. One of the conclusions recorded by the
said group is to the following effect:
"19.1 The statutory auditors have failed to exercise
reasonable care and compliance with various
auditing and assurance standards issued by the
Institute of Chartered Accountants of India as a
generally accepted auditing practice while reporting on
the financial statements and the materiality of the
misstatements are so huge that it has rendered the
financial statements for all these years as untrue and
unfair. However, the executive, management and
staff have drawn substantial amounts as
remunerations, commission, incentives, bonuses,
ESOPs. The management has also declared the
dividends to its shareholders under the Companies
Act, 1956. However, all these overstatements and
misstatements have reported the EPS at a higher
level in the financial reporting annually as well as
quarterly which has directly impacted the movement
of the share prices in the stock exchanges market in
India and abroad."
4. As is evincible, on 7th April, 2009, the CBI filed its charge sheet in the
Court of the Additional Chief Metropolitan Magistrate (ACMM)
arraigning Gopalakrishnan, Srinivas and seven others as accused persons.
LPA 885-886/2010 Page 6 of 59
The documents which were relied upon by the CBI was the report of the
ICAI Group which was a part of the MDIT.
5. At this juncture, the Director (Discipline) of ICAI placed a prima
facie opinion before the disciplinary committee and the committee was of
the prima facie view that the said chartered accountants were guilty of
professional misconduct within the meaning of clauses (5), (6), (7), (8) and
(9) of Part I of the Second Schedule to the CA Act. A prima facie opinion
was also formed that the said two chartered accountants were guilty of
other misconduct within the meaning of Section 22 read with Section 21 of
the CA Act. On the basis of the said prima facie opinion, a notice was sent
to the chartered accountants enclosing a copy of the prima facie opinion
and requiring each of them to send their written statement along with
supporting documents and a list of witnesses within 21 days. It is apt to
note that at that time, both the appellants herein were in judicial custody
and at that juncture, the CBI filed a supplementary charge sheet. On 4th
February, 2010, Srinivas was enlarged on bail by virtue of the order passed
by the Apex Court in Criminal Appeal No.257/2010 on certain conditions.
LPA 885-886/2010 Page 7 of 59
6. As pleaded, on 26th February, 2010, notices were issued by the ICAI
to Srinivas with respect to the disciplinary proceedings pending against
him as well as Ravindranath. Srinivas replied to the ICAI stating that
Ravindranath had been cited as a witness in the criminal case pending
before the Special Court, CBI against Srinivas. It was contended by
Srinivas that his appearance as a witness in the disciplinary proceedings
against Ravindranath would severely prejudice his position in the criminal
case pending trial. As regards the disciplinary proceedings against him,
he asseverated that he would be dealing with that separately and
thereafter, on 26th March, 2010, he stated that the initiation of the
disciplinary proceedings against him should be deferred since the alleged
acts of commission or omission on the basis of which the disciplinary
proceedings had commenced not only form the basis of a prima facie
opinion but also form the basis of various charges against him in the
criminal cases and, hence, any disclosure of his explanation or defences
until the final conclusion of the criminal trial pending before the Special
Court at Hyderabad would seriously impact his defence in the criminal
trial. When the ICAI decided to proceed with the disciplinary
LPA 885-886/2010 Page 8 of 59
proceedings, Srinivas filed WP(C) No. 2505/2010 and the learned Single
Judge initially directed postponement of the disciplinary proceedings for
some time.
7. As is reflectible, on 25th June, 2010, Gopalakrishnan was granted bail
by the High Court of Andhra Pradesh with certain conditions and
thereafter, similar proceeding was initiated against him and he also took
the same plea. Being grieved by the action of the ICAI, he preferred
WP(C) No.5352/2010.
8. It was urged before the learned Single Judge that the charge sheet in
the criminal case and the prima facie opinion formed by the Director
(Discipline), ICAI are more or less identical and the list of witnesses in
both the proceedings are same and if they are allowed to continue
simultaneously, serious prejudice would be caused to the writ petitioners
as their defence would be disclosed. A reference was made to the report
dated 5th April, 2009 of the ICAI group which formed a part of the MDIT,
the conclusion of which formed the basis for the prima facie opinion dated
17th September, 2009 of the Director (Discipline), ICAI and the said report
LPA 885-886/2010 Page 9 of 59
formed the basis of the charge sheet and, hence, the allegations are
identical. It was canvassed that since the criminal case against Srinivas is
on identical facts as in the disciplinary proceedings initiated by the ICAI
and the charges in the criminal case are of a grave nature, the disciplinary
proceedings should be stayed till the conclusion of the criminal case. It
was further propounded that as the Special Court is proceeding with the
case and it has been conferred the responsibility to proceed with the
criminal trial, it is not expected to take further time regard being had to
the directions issued by the Apex Court in Criminal Appeal Nos. 2068-
72/2010 to the effect that the trial should be concluded by 31st July, 2011
and, therefore, it would be justified to keep the disciplinary proceedings in
abeyance. It was also proponed that it was not appropriate on the part of
Srinivas to exercise right of silence before the disciplinary committee of
ICAI and if he does so, an adverse inference would be drawn against him
by the disciplinary committee in regard to various charges which formed
the subject matter of the criminal case. Similar submissions in a different
way were canvassed on behalf of Gopalakrishnan. In addition, it was
contended that Gopalakrishnan had not been discharging any function as
LPA 885-886/2010 Page 10 of 59
Chartered Accountant ever since his suspension from ICAI and he did not
intend to do so till the conclusion of the trial.
9. The aforesaid submissions were resisted by the ICAI, submitting
that there was no justification or warrant to stay the disciplinary
proceedings against the Chartered Accountants as the charges are not the
same inasmuch as the charges levelled in the criminal case pertained to
cheating, criminal conspiracy and fraud, whereas the charge sheet in the
disciplinary proceeding pertained to negligence, conduct and functioning
under the CA Act. That apart, it was contended that the standard of proof
in both the proceedings are different and the scope of enquiry are on
different platforms. It was highlighted that there were 433 witnesses in
the criminal trial whereas there are very few witnesses in the departmental
proceedings. Additionally, it was urged that no prejudice would be
caused to them; that the examination of documents by certain witnesses
are formal in nature and certain witnesses are not to be examined and,
hence, the doctrine of prejudice does not get attracted.
LPA 885-886/2010 Page 11 of 59
10. The learned Single Judge referred to various decisions in the field
with regard to the simultaneous continuation of the disciplinary
proceedings and posed the question that in a case of this nature, the Court
is called upon to examine (a) Are the charges on which the disciplinary
proceedings are proposed to be held identical or nearly similar to the
charges on which they are facing criminal proceedings? (b) Are the
criminal charges of a grave nature? (c) Do the charges involve complicated
questions of law and fact?
11. After posing the questions, the learned Single Judge expressed the
view as under:
"46. It may at the outset be noticed that in the
criminal case, arguments on charge which were in
progress when these petitions were argued have been
framed by the Special Judge on 25th October 2010. The
offences mentioned in the charge sheets do allege that
the Petitioners have committed offences which could be
characterized as being of a „grave‟ nature. These
include the offences under Sections 409, 420, 468, 471,
477-A, 201 r/w Section 120-B IPC. Secondly, a
comparison of the charges in the disciplinary
proceedings with those in the criminal trial indicates
that while the charges in the former will all be
examined in the latter as well, the converse is not
true. There would be additional matters that are
LPA 885-886/2010 Page 12 of 59
likely to be examined in the criminal trial. This
brings up the third limb, i.e. whether the charges
involve complicated questions of law and fact? It may
be recalled that in B.K. Meena the Supreme Court has
reiterated that criminal case should be of a grave nature
"involving complicated questions of fact and law."
In other words, it is not sufficient for a Petitioner
resisting departmental proceedings to show that the
criminal case is based on an identical set of facts but
that it involves complicated questions of both fact and
law.
47. The learned senior counsel for the ICAI was right in
the submission that apart from merely stating that the
charges involve complicated questions of law and fact
there has been nothing actually shown by the
Petitioners to demonstrate this. Whether in fact the
charges that are stated to have been framed on 25th
October 2010 by the Special Judge involve
complicated questions of law and fact cannot be
determined unless they are studied in some detail
and further after the trial progresses. Also, the mere
fact that the number of witnesses is large or that the
alleged fraud is of a large sum need not by itself mean
that the questions of fact and law are complicated.
Thirdly, even if in criminal cases, the facts may be
invariably complicated, the question of law need not be.
Understandably therefore, the learned senior counsel
for the Petitioners did not address the Court on this
particular aspect except to repeat the requirement of M
Paul Anthony that the criminal case involved
complicated questions of law and fact. This
however is not sufficient if the court has to be
persuaded to stay the disciplinary proceedings.
LPA 885-886/2010 Page 13 of 59
48. The inescapable conclusion is that the third and
important limb of the test evolved in the decisions
discussed hereinbefore and succinctly summarised in
M Paul Anthony has not been shown by the Petitioners
to be satisfied in their cases viz., that the criminal cases
in which they are arrayed as accused involve
complicated questions of law and fact. They have
therefore been unable to persuade this Court, on
the basis of the law explained above, to stay the
disciplinary proceedings pending the conclusion of the
criminal trial."
12. Be it noted, the learned Single Judge also addressed himself with
regard to the right against self-incrimination and referred to the decision
in Romesh Chandra Mehta v. State of West Bengal, AIR 1970 SC 940
wherein the Apex Court has also referred to the earlier decision in State of
Bombay v. Kathi Kalu Oghad, AIR 1961 SC 1808 and eventually came to
hold that the submission that if the appellants were asked to appear in the
disciplinary proceeding under the CA Act, their fundamental right under
Article 20(3) of the Constitution would be violated was sans substance.
13. We have heard Mr. Shyam Divan, learned senior counsel along with
Mr. R. Sudhinder, Mr. Rahul Ravindran and Ms. Prerna Amitabh for the
appellant in LPA 885/2010, Mr. T. Andhyarujina, learned senior counsel
LPA 885-886/2010 Page 14 of 59
along with Mr. R. Sudhinder, Mr. Rahul Ravindran and Ms. Prerna
Amitabh for the appellant in LPA No.886/2010, Mr. Ramji Srinivasan,
learned senior counsel along with Mr. J.S. Bakshi, Mr. Amitesh S. Bakshi,
Mr. Zeyaul Haque, Mr. Rakesh Agarwal and Mr. Pulkit Agarwal for ICAI
and Mr. Jatan Singh, learned standing counsel for the Union of India.
14. Mr. T. Andhyarujina, learned senior counsel appearing for the
appellant in LPA No.886/2010, has raised the following contentions:
(A) There is an inter-relationship between the charge sheet filed by the
prosecution and the prima facie charges of misconduct levelled
against the appellants by the disciplinary committee as both rely on
each other. The CBI in its first charge sheet dated 7 th April, 2009
relied on the report of the MDIT of the ICAI group which had held
that the appellants had failed to exercise reasonable care and
compliance with norms and same forms subject matter of the charge
sheet of the prosecution. The ICAI charges against the appellant, in
turn, relies on the charge sheet filed by the prosecution. The
simultaneity, inter-relationship, identity and similarity of evidence
LPA 885-886/2010 Page 15 of 59
are the four factors which would warrant that the disciplinary
proceeding should be stayed till the criminal trial is over.
(B) The evidence in respect of the charges could be common, for the
appellant himself will have to adduce the evidence refuting the
charges as well as depose in his defence in the criminal proceedings.
It is required on his part to call the audit managers in the
disciplinary proceedings and they may be cited as at the instance of
the prosecution. He may be required to call the officers of the bank
who supplied the information incorporated in the balance sheet and
the prosecution would also call bank officials as witnesses and
under these circumstances, it is advisable and desirable to keep the
disciplinary proceedings in abeyance.
(C) The continuance of the disciplinary enquiry would compel the
appellant to disclose his defence and in the event of such disclosure,
prejudice shall be caused to the appellant to defend himself in the
criminal proceedings and the same would entail an advantage to the
prosecution.
LPA 885-886/2010 Page 16 of 59
(D) It is the accepted norm that when there are common facts and
evidence in departmental/disciplinary proceedings and criminal
prosecution, there is bound to be prejudice to the delinquent, if the
disciplinary proceedings are not stayed and as in the present case,
the charges in both the disciplinary proceedings as well as in the
prosecution are of grave nature and involve complicated questions
of law, there should be stay of the disciplinary proceedings.
(E) The appellant has been suspended from his practice as a chartered
accountant by his own firm and is unable to practise and, hence, no
prejudice would be caused to ICAI if the proceedings are stayed
until the criminal prosecution is completed by 31st July, 2011, as
directed by the Apex Court.
(F) The evidence disclosed by the appellant in the disciplinary
proceedings would be known to the CBI in the criminal case. The
prosecution has also listed the Director (Discipline) of ICAI as a
witness who had formed the prima facie opinion against the
appellant for the purpose of issuance of the notice to show cause
and, this is bound to cause prejudice to the appellant. The
LPA 885-886/2010 Page 17 of 59
prosecution has also listed Sh. Uttam Prakash Agarwal as PW-24
and he was the first president of the ICAI and author of the report of
the ICAI Multi Disciplinary Team which has arrived at the
conclusion that the appellant is guilty of misconduct. Similarly,
certain witnesses are common and on their examination the
appellant would be put in a disadvantageous position.
15. Mr. Shyam Divan, learned senior counsel appearing for the
appellant in LPA No.885/2010, in addition to the submissions put forth by
Mr.T. Andhyarujina, has canvassed the following contentions:
(a) The Supreme Court has directed the trial to be completed by 31st
July, 2011 and the trial is proceeding on a daily basis. The appellant
has to remain present in the Trial Court everyday during the entire
proceeding as an accused as well as instruct the counsel during
cross-examination. The appellant has to remain present to closely
follow the depositions of the prosecution witnesses and to instruct
his counsel pre and post court sessions. The allegations, inter alia,
involve complicated questions of facts pertaining to falsification of
LPA 885-886/2010 Page 18 of 59
accounts and fabrication of documents, etc. which make the
appellant‟s presence imperative to assist his counsel. The appellant
has to necessarily spend close to 10 to 12 hours a day to participate
in the proceedings and to defend his life and liberty which is
extremely time consuming. Therefore, the appellant will not have
any effective opportunity to defend himself in the disciplinary
proceedings as there will be no time left for preparing himself for
the disciplinary proceedings. Therefore, the appellant would be
severely prejudiced if the disciplinary proceedings are allowed to
continue until the completion of the trial.
(b) In view of the conditions imposed by the Court in its order dated
25.06.2010 granting bail, it would be physically impossible for the
appellant to defend himself before the ICAI without consulting his
team members who had conducted the audit. It was, inter alia, a
condition of bail that the appellant shall not tamper with any
evidence and shall not influence the prosecution witnesses. The
appellant‟s team members have been arrayed as prosecution
witnesses. The allegations are regarding alleged fudging of
LPA 885-886/2010 Page 19 of 59
accounts over seven years. The appellant is required to understand
the records for which he would be required to consult the papers
alongwith the persons who had conducted the audit. In view of the
bail order, the appellant would be constrained to even discuss the
matter with his team member which will again seriously prejudice
his case.
(c) The appellant has already retired as a partner of PW. In effect, the
appellant is suspended from practice. There can be no prejudice to
the ICAI if the proceedings are stayed until the criminal prosecution
is completed as mandated by the Supreme Court before 31.07.2011.
16. An additional affidavit has been filed by Subramani
Gopalakrishnan, the appellant in LPA No.885/2010, with regard to the
progress of the trial. We think it appropriate to reproduce a few
paragraphs from the same which have been pressed into service by the
learned counsel for the appellant:
"(i) I say that pursuant to the directions of the
Hon‟ble Supreme Court dated 26.10.2010, the trial in the
criminal proceedings is being conducted on a day-to-
day basis since 8th November, 2010. I state that as off
LPA 885-886/2010 Page 20 of 59
date more than 100 witnesses have already been
examined and cross-examined. Further the CBI has
given up 192 witnesses as informed to the court from
time to time, out of 470 witnesses cited in the counter by
ICAI and therefore effectively 292 witnesses are over.
The CBI files a schedule of witnesses it proposes to
examine periodically and the said charts/schedules
filed by CBI are used for summoning the witnesses for
examination on respective dates. I say that in a span of
three months since the commencement of trial 292
witnesses are over. No prejudice would be caused to
Respondent if the enquiry is kept in abeyance till 31st
July, 2011.
(ii) I state that there are no other proceedings before
the trial court other than the Charge sheets filed by CBI
in Satyam case which is proceeding on a daily basis
from morning till the court raises for the day. I have to
remain present in trial court everyday during the entire
proceeding as an accused as well as to instruct my
counsel during cross-examination. I have to remain
present to closely follow the deposition of the
prosecution witnesses and to instruct my counsel. I am
required to discuss with my counsel pre and post the
court sessions to analyze the depositions and to prepare
for the next day in the trial. I am required to spend
close to 10 to 12 hours a day to participate in the
proceedings to protect my life and liberty. It is
extremely time consuming and presently all my efforts
are consumed in defending myself in the criminal
proceedings.
(iii) The steps that are required to be taken to defend
the said ICAI proceedings are voluminous. It requires
substantial time and effort on the part of the appellant
LPA 885-886/2010 Page 21 of 59
to take necessary steps. The steps will include like
identification of documents and witnesses,
understanding the charges and documents, the Practical
difficulties is not being able to consult the required
persons to formulate any explanation etc. Therefore, it
is physically impossible for me to defend myself in the
disciplinary proceedings as the trial is proceeding on a
daily basis pursuant to the directions issued by the
Hon‟ble Supreme Court.
17. Mr. Ramji Srinivasan, learned senior counsel appearing for the
respondent ICAI, in oppugnation, has raised the following submissions:
(i) The nature and scope of the criminal proceedings and charges
therein are vastly different and wider in scope as compared to the
disciplinary proceedings which are narrower and limited in nature,
mostly relating to the Accounting Standards.
(ii) In the disciplinary proceedings, the charges have been framed
against the appellant and the co-delinquent and now the matter is
listed for evidence on 26.02.2010 when only two witness from the
SEBI and CBI are to be examined on the said date. They are
witnesses of record.
LPA 885-886/2010 Page 22 of 59
(iii) There is no provision for suspension of a delinquent member
pending the disciplinary proceedings and an action can be taken
only after conclusion of the proceedings under Section 21B(3) of the
CA Act (Amended). The petitioner, taking advantage of the fact
that the disciplinary proceedings pertaining to his professional
misconduct in the matter of Global Trust Bank had not been
concluded, has committed professional misconduct in the present
matter of „Satyam‟ as he continued to have his licence to practise.
The conclusion of disciplinary proceedings to its logical end is
warranted due to considerations of public policy, public interest and
public good.
(iv) No complicated questions of law and fact are involved. The
appellant has not demonstrated so and mere averment in that
regard is not sufficient. This is a categorical finding of the learned
Single Judge. In the present, unfortunately, the appellants have
only in a parrot-like manner repeated the provisions from pages 19
to 24 to demonstrate „Complicated questions of law.‟
LPA 885-886/2010 Page 23 of 59
(v) In the criminal proceedings, the charges against the appellant are
under Sections 120-B r/w 409, 420, 419, 467, 468, 471 & 477 IPC;
while the misconduct alleged in the disciplinary proceedings are
within the meaning of clauses (5), (6), (7), (8) & (9) of Part 1 of the
Second Schedule and „other misconduct‟ under Section 22 read with
Section 21 of the Chartered Accountants Act. Clearly the scope in
the disciplinary proceedings is very limited as the gravamen of the
charge is only with respect to professional and/or other misconduct
and not any criminal offence. The matter needs to be proceeded
further by the Disciplinary Committee as per the procedure
prescribed under Rule 18 of the Chartered Accountants (Procedure
of Investigation of Professional and Other Misconduct and Conduct
of Cases) Rules, 2007.
(vi) The approach and objective in the criminal proceedings and the
disciplinary proceedings is altogether distinct and different. In the
disciplinary proceedings, the question is whether the delinquent
member is guilty of such conduct as would merit his removal from
service or a lesser punishment whereas in the criminal proceedings,
LPA 885-886/2010 Page 24 of 59
the question is whether the offences registered against him are
established and if established, what sentence should be imposed
upon him. The standard of proof, the mode of enquiry and the rules
governing the enquiry and the trial in both the cases are entirely
distinct and different. The strict standard of proof or applicability of
the Evidence Act stands excluded in a disciplinary proceeding.
(vii) In the criminal proceedings close to 500 witnesses shall be examined
and in the disciplinary proceedings may be 5 to 10 witnesses will be
examined in all and hence, there is no justifiability to await the
verdict of the criminal case.
(viii) The office bearers of the ICAI who are PWs in the criminal
proceedings are not the PWs in the disciplinary proceedings. The
present is a matter based on documentary evidence and not ocular
evidence and there is no question of any prejudice being caused to
the appellant if the disciplinary proceedings are continued. In any
event, the appellant has not spelt out as to how and what prejudice
LPA 885-886/2010 Page 25 of 59
is going to be caused to him. The plea of Article 20(3) of the
Constitution is not available to the appellants.
(ix) The proceedings in the criminal case and departmental proceedings
operate in distinct and different jurisdictional areas. In the
departmental proceedings, the factors operating in the mind of
disciplinary authority may be many, such as enforcement of
discipline, etc. The standard of proof required is also different from
the criminal trial. In the former, it is preponderance of probabilities
while the latter charge has to be proved beyond reasonable doubt
following the strict rule of evidence. The disciplinary proceedings
are meant not really to punish the guilty but to keep the
administrative or professional system unsullied. The advisability,
desirability or propriety of staying the departmental enquiry is to be
seen as per the facts of the matter since stay of disciplinary
proceedings cannot be a matter of course.
(x) The allegations made against the appellant vide notice dated
10.01.2009 do not refer to any allegation of conspiracy or fraud or
LPA 885-886/2010 Page 26 of 59
cheating. The allegations contained in the CBI charge sheet
specifically refer to the allegations and offences pertaining to
conspiracy, cheating and fraud. It clearly shows that the allegations
made in the charge sheet filed by the CBI and the allegations
contained in the show-cause notice issued are not the same.
18. At this juncture, we think it appropriate to refer to the comparative
chart which has been filed before us containing the allegations against the
appellants in the disciplinary proceedings and the allegations against the
accused persons in the criminal proceedings:
Allegations against the Appellant Allegations against the Accused as
in the Disciplinary Proceedings per the Charge sheet
i) That the management of the i) Accused S. Gopalakrishnan (A-
company manipulated/inflated the 4) and Srinivas Talluri (A-5) have
profit/ revenue/ cash/debtors/cash intentionally mis-represented
and bank balances and understated themselves as partners of M/s
the liabilities in the financial Price Waterhouse and their firm
statements of the company for the M/s Price Waterhouse, Bangalore
years, namely, 2001-02 to 2007-08 as „M/s Price Waterhouse‟
and 1.4.2008 to till date and you consciously and dishonestly
certified these statements to be trueentered into the said agreement in
and fair. furtherance of the criminal
conspiracy with V. Srinivas (A-3),
ii) You have certified all these B. Ramalinga Raju, (A-1) and B.
figures to be true and fair which as Ramaraju (A-2) thereby S.
LPA 885-886/2010 Page 27 of 59
per the admission of the Chairman & Gopalakrishnan (A-4) and Srinivas
Managing Director of the company Talluri (A-5) have intentionally
are not correct it means that you cheated the shareholders and other
have failed to carry out necessary stake holders by personating
checks which are required while themselves as partners in „M/s
undertaking the audit of the Price Waterhouse‟ on which the
financial statements and certifying shareholders & investors placed
the quarterly results of the company. their reliance. (Page 122)
iii) You have violated the ii) In furtherance of the conspiracy
accounting principles while the statutory auditors S.
auditing/certifying the Gopalakrishnan (A-4) and Srinivas
accounts/quarterly results of the Talluri (A-5) .............................
company for the aforesaid thereby accommodated the
years/quarters. fraudulent and dishonest acts of B.
Ramalinga Raju, A-1 and B.
iv) In spite of the aforesaid Ramaraju (A-2) V. Srinivas (A-3)
irregularities/manipulations in the and other co-conspirators knowing
financial statements/ quarterly fully well the implications and
results of the company, you in your consequences of their overt acts.
audit reports stated that the financial (Page 123)
statements together with the notes
thereon give a true and fair view. iii) As a quid pro quo, the auditors
have been compensated through
v) You have failed to disclose the exorbitant audit fees by B.
material facts known to you as the Ramalinga Raju (A-1), B. Ramaraju
statutory auditors of the company (A-2) and V. Srinivas (A-3) for the
which were not disclosed in the role played by them in furtherance
financial statement of the company. of the conspiracy. A conspiracy
has been made with regard to the
vi) You have failed to report
Turnover & the Audit fee paid by
material mis-statement known to
the peer companies in IT sector viz.
you as the statutory auditors of the
M/s Wipro Ltd. and M/s Infosys
company, which appeared in the
Technologies Ltd. vis a vis M/s
financial statements of the company.
SCSL. The turnover of M/s SCSL
vii) You did not exercise due in 2006-2007 was Rs.6228 Crores, in
LPA 885-886/2010 Page 28 of 59
diligence and were grossly negligent 2007-2008 was Rs.8137 Crores and
in the conduct of your professional the respective Audit Fees paid
duties as the statutory auditors of were Rs.3.67 Crores and Rs.3.73
the company for all these years. Crores. The turnover of M/s
Wipro in the year 2006-07 and
viii) You have failed to obtain 2007-08 though not available but
sufficient information, which were the Audit Fees paid in 2006-07 was
necessary for expression of an Rs.0.90 crores and Rs.1.10 crroes.
opinion. The turnover of M/s Infosys in the
year 2006-07 was Rs.13149 Crores
ix) You have failed to invite
and in the year 2007-08 was
attention to any material departure
Rs.15648 Crores and the respective
from the generally accepted
Audit Fees paid was Rs.0.55 Crores
procedure of audit applicable to the
and Rs.0.83 Crores.
circumstances.
iv) Above figures show the glaring
x) Failed to invite attention to any
variation between the audit fees
material departure from the general
paid by M/s SCSL and other
accepted procedures of audit
companies which clearly
applicable to the circumstances.
establishes the existence of a well
xi) On account of the knit criminal conspiracy between
manipulations/ falsification of the the management of M/s. SCSL i.e.
accounts by the Company for all B. Ramalinga Raju, A-1, B.
these years, it is apparent that the Ramaraju (A-2) and Shri V.
same was not possible without your Srinivas (A-3) and the statutory
knowing about the same as the auditors S. Gopalakrishnan (A-4)
Statutory auditor of the company. and Srinivas Talluri (A-5). In
addition to the above audit fee, the
auditors received an amount of
Rs.1.24 crores and Rs.1.27 crores for
the said years towards rendering
other services. These amounts
were separately in the accounts
though mandated as per the
reporting norms.
LPA 885-886/2010 Page 29 of 59
v) Specific role of the two
petitioners has been again narrated
as follows:
Shri S. Gopalakrishnan (A-4) He
affixed his signature on the
financial statements as a partner of
M/s Price Water House the
statutory auditors for M/s SCSL
since the financial year 2001 till
2007. As per the records
maintained by „The Institute of
Chartered Accountants of India, Sri
S. Gopalakrishnan (A-4), was a
partner in the firm M/s Price
Water House, Bangalore and not in
M/s Price Waterhouse. By affixing
his signature on the Audit Reports
for and on behalf of Price
Waterhouse‟ he deliberately with
the knowledge of its implications
and consequences violated the
requirements of the Auditing &
Assurance Standards. In the
Agreement entered between M/s
SCSL and M/s Price Waterhouse,
instead of affixing his signature, he
has signed as „Price Waterhouse‟
contrary to the established
procedure and practice whereby it
is incumbent on an individual
partner of the firm to affix his
signature as a representative of the
Auditor firm authenticating the
contents of the report. He having
LPA 885-886/2010 Page 30 of 59
been aware of the fact that he never
represented "M/s Price
Waterhouse" designated Auditors
for M/s SCSL, he has signed as
"Price Waterhouse" and thereby
cheated the investors in
furtherance of the conspiracy with
Sri V. Srinivas (A-3), Sri B.
Ramalinga Raju, A-1 and Sri B.
Ramaraju (A-2).
By virtue of his status as a
Statutory Auditor it is incumbent
on his part to verify the bank
balances and FDRs claimed to be
held by M/s SCSL besides other
investments, liabilities and sales of
the Company before certifying the
Statutory Audit Report which
forms the basis of Annual Financial
Statement of the company. He has
knowingly certifies the
inflated/forged balance sheets
prepared basing on the forged
FDRs and other data with regard to
the banks and also the status of the
sales without making any
mandatory independent
verifications. The auditors are
required to write directly to the
banks and obtain confirmation of
balances. After obtaining the
confirmations they must compare
these figures with the figures as
appearing in the books of accounts
LPA 885-886/2010 Page 31 of 59
of the company. Sir S.
Gopalakrishnan received the
confirmations from the banks
which are in great variance with
the figures provided by the
management and appearing in the
books of accounts. Despite this
glaring discrepancy and having
both the confirmations i.e. the
original confirmations received
from the banks and the forged
blank confirmations provided by
the other accused, Sri S.
Gopalakrishnan in furtherance of
the conspiracy, has accepted forged
bank confirmations provided by
the accused, certified the same and
incorporated in the final accounts.
He has flouted the prescribed
Audit and Assurance Standard
number 30 of the Institute of
Chartered Accountants of India,
thereby facilitated the projection of
falsified data in the Annual
Financial Statements of the
Compare continuously.
The presentations made by him to
the audit committee about the
health of the company were
misleading and in fact he gave a
very good certification regarding
the financial discipline and controls
available in the company contrary
to the reality.
LPA 885-886/2010 Page 32 of 59
As a consideration for his acts in
accommodating the accused
persons, he has received an
exorbitant audit fee from M/s
SCSL over and above the market
rate which reflects a quid pro quo
arrangements. He has consciously
overlooked the accounting
irregularities committed by M/s
SCSL for the past 7 years showing
his complicity in the commission of
the above said offences and he is
liable as a co-conspirator.
Letters generated on the letter pads
of M/s Price Waterhouse were
recovered from the computer
systems of M/s SCSL. These letters
were supposed to be written by the
auditors addressed to the banks
seeking confirmations about the
balances. Sri S. Gopalakrishnan as
part of the conspiracy got these
letters generated in the computer
systems of M/s SCSL for the
purpose of creation of the records
which depicts his privy and
involvement in the conspiracy. He
also made M/s SCSL to generate
certain letters addressed to the
banks directing the banks to
directly inform the auditors.
However these letters were
generated merely for the purpose
of record which shows the role of
LPA 885-886/2010 Page 33 of 59
Sri Gopalakrishnan in the
conspiracy this was proved by the
GEQD opinion. But for his active
cooperation and disregarding the
crucial evidence available with
him, this fraud would not have
taken place for so many years. He
affixed his signature on the
financial statements as partner of
M/s Price Water House the
Statutory Auditors for M/s SCSL
since the financial year 2001 till
2007.
Information Technology General
Check was carried out for the first
time during financial year 2006-07
by the Head of Information
Systems Audit of M/s Price
Waterhouse, wherein around 180
deficiencies were found and was
communicated to the Audit team
with the assertion that the IT
systems in existence in M/s SCSL
are not fully integrated and are
subject to manipulation. It was also
suggested that in the light of the
above deficiencies, substantial and
elaborate examination of the
financials should be conducted. In
spite of this Sri S. Gopalakrishnan
deliberately did not make any
extensive changes in the audit plan
which clearly establishes his
motives and intentions in allowing
LPA 885-886/2010 Page 34 of 59
the fraudulent practices to continue
in M/s SCSL.
Even though as many as 135
control deficiencies were identified
in the integrated audit conducted
in accordance with the Standards
of the Public Company Accounting
Oversight Board which has severe
impact on the internal control and
financial accounting. He
deliberately did not bring these
control deficiencies to the notice of
the Audit report even though they
are material in nature, thereby his
privy and active role in the
conspiracy is established.
The above overt acts of Sri S.
Gopalakrishnan reveal the offences
punishable u/s 120B r/w 420, 419,
467, 468, 471, 477A of IPC.
Shri Talluri Srinivas (A-5) affixed
his signature on the financial
statements as a partner of M/s
Price Waterhouse the Statutory
Auditors for M/s. SCSL for the
financial year 2007-2008.. Sri
Talluri Srinivas continued the
legacy of Sri S. Gopalakrishnan (A-
4) and he actively took part in the
conspiracy hatched by Sri V.
Srinivas (A-3), Sri B. Ramalinga
Raju (A-1) and Sri B. Ramaraju (A-
2).
LPA 885-886/2010 Page 35 of 59
As per the records maintained by
the Institute of Chartered
Accountants of India, Sri Talluri
Srinivas (A-5) is the partner in the
firm „M/s. Price Waterhouse
Bangalore‟ and not in „M/s. Price
Waterhouse‟. By affixing his
signature on the Audit Reports for
and on behalf of M/s. Price
Waterhouse he deliberately with
the knowledge of its implications
and consequences violated the
requirements of the Auditing and
Assurance Standards (AAS) 28.
In the agreement entered into
between M/s. SSCL and M/s. Price
Waterhouse contrary to the
established procedure and practice
whereby it is incumbent on the
individual partner of the firm to
affix his signature as a
representative of the Auditor firm
authenticating the contents of the
report. Sri Talluri Srinivas (A-5)
having been aware of the fact that
he never represents „M/s. Price
Waterhouse‟ designated Statutory
Auditors for M/s. SCSL has signed
as "Price Water House" and
thereby cheated the investors in
furtherance of the conspiracy with
Sri V. Srinivas (A-3), Sri B.
Ramalinga Raju (A-1) and Sri B.
Ramaraju (A-2).
LPA 885-886/2010 Page 36 of 59
By virtue of Sri Talluri Srinivas (A-
6) status as a Statutory Auditor, it
is incumbent on his part to verify
the bank balances and FDRs
claimed to be held by M/s. SCSL
besides other investments,
liabilities and sales of the company
before certifying the statutory
Audit Report which forms the basis
of Annual Financial Statement of
the company. Sri Talluri Srinivas
(A-6) has intentionally certified the
inflated and forged balance sheets
prepared basing on the forged
FDRs and other data furnished to
him with regard to the banks and
also the status of the sales without
making any mandatory
independent verifications. The
auditors are required to write
directly to the banks and obtain
confirmation of balances. After
obtaining the confirmations should
compare these figures with the
figures as appearing in the books of
accounts of the company. Sri
Talluri Srinivas (A-6) received the
confirmations from the banks
which were in great variance with
the figures as provided by the
management and appearing in the
book of accounts. Despite this
glaring discrepancy and having
both confirmations i.e. the original
LPA 885-886/2010 Page 37 of 59
confirmations from the banks and
the forged bank confirmations
provided by the other accused. Sri
Talluri Srinivas, in furtherance of
the conspiracy, has chosen the
forged bank confirmations
provided by the accused, certified
the same and incorporated them in
the final accounts. He has flouted
the prescribed Audit and
Assurance Standards number 30 of
the Institute of Chartered
Accountants of India, thereby
facilitated the projection of falsified
data in the Annual Financial
Statements of the company
continuously.
The presentations made by him to
the audit committee about the
health of the company were
misleading and in fact he gave a
very good certification regarding
the financial discipline and controls
available in the company contrary
to the reality. In consideration of
his acts in accommodating the
accused persons, he has received
an exorbitant audit fee from M/s
SSCL over and above the market
rate which reflects a quid pro quo
arrangements.
The Information Technology
General Check was carried out for
the first time during the financial
LPA 885-886/2010 Page 38 of 59
year 2006-07 by the Head of the
Information Systems Audit of M/s
Price Waterhouse, wherein around
180 deficiencies were found and
was communicated to the Audit
Team with the assertion that the IT
systems in existence in M/s. SCSL
were not fully integrated and are
subject to manipulation. It was also
suggested that in the light of the
above deficiencies, substantial and
elaborate examination of the
financials should be conducted. In
spite of this, Sir S. Gopalakrishnan
deliberately did not make any
extensive changes in the audit plan
which clearly establishes his
motives and intentions in allowing
the fraudulent practices to continue
in M/s SCSL. Sir Talluri Srinivas
has also followed the suit in
furtherance of the conspiracy
allowed the above deficiencies to
continue.
Even though as many as 135
control deficiencies were identified
in the integrated audit conducted
in accordance with the Standards
of Public Company Accounting
Oversight Board which has severe
impact on the internal control and
financial accounting. Sri S.
Gopalakrishnan continued the
trend and deliberately did not
LPA 885-886/2010 Page 39 of 59
bring these control deficiencies to
the notice of the Audit Committee
and thereby facilitated the
continuance of the fraudulent
practices unabated. He did not
comment on these control
deficiencies in his Audit Report
even though they are material in
nature, thereby his privy and active
role in the conspiracy is
established. Sri Talluri Srinivas
also did not take remedial action
and continued the same practices
to continue which establishes his
role in perpetuating the fraud by
the other accused.
Sri Talluri Srinivas has consciously
overlooked the accounting
irregularities committed by M/s.
SCSL since 2007 showing his
complicity in the commission of the
above said offences and he is liable
as a co-conspirator.
There is a discrepancy with regard
to the existence of the Price
Waterhouse, Hyderabad as
Auditors in the registration with
the ICAI, a statutory body. The
ICAI has confirmed that Sri Talluri
Srinivas is a member „Price
Waterhouse, Bangalore‟ and not
„Price Waterhouse‟. As such the
certification of Statutory Audit
Reports by such non-member
LPA 885-886/2010 Page 40 of 59
Audit Firms consequently
invalidates the Annual Financial
Statement of the Company which is
a statutory requirement under law
to invite investments from the
prospective investors.
Letters generated on the letter pads
of M/s Price Waterhouse were
recovered from the computer
systems of M/s SCSL. These letters
were supposed to be written by the
auditors addressed to the banks
seeking confirmations of balances.
Sri Talluri Srinivas as part of the
conspiracy, got these letters
generated in the computer systems
of M/s. SCSL for the purpose of
creation of records which depicts
his privy and involvement in the
conspiracy. He also made M/s
SCSL to generate certain letters
addressed to the banks directing
the banks to directly inform to the
auditors. However, these letters
were generated merely for the
purpose of record which shows the
role of Sri Talluri Srinivas in the
conspiracy. But for his active
cooperation this would not have
taken place for the period since
2007.
The above acts of Sri Talluri
Srinivas reveal the offences
punishable u/s 120B r/w 420, 419,
LPA 885-886/2010 Page 41 of 59
467, 471, 477A of the IPC.
Summary has been specified on
pages 147 to 149.
From the investigation, it is clear
that the whole fraud was designed
and orchestrated by Shri B.
Ramalinga Raju (A-1), Shri B.
Ramaraju (A-2) and Shri V.
Srinivas (A-3) and they got the
same implemented with the active
connivance of Shri G. Ramakrishna
(A-7), Shri D. Venkatapathi Raju
(A-8) and Shri S. Srisailam
Chetkuru (A-9). Further Sri G.
Gopalakrishnan (A-4) and Shri
Talluri Srinivas (A-5) have actively
participated in the conspiracy by
auditing the fudged balance sheets
and certified the same and thereby
connived with the other accused.
Further Sri. B. Suryanarayana Raju
(A-6) has actively participated in
the conspiracy by assisting Sri B.
Ramalinga Raju (A-1), Sri B.
Ramaraju (A-2) in reaping
maximum benefit from this fraud
and in rotating funds amongst the
companies.
In view of the above have
committed the offences of
conspiracy, cheating, cheating by
personation, generating forged
valuation securities, forging the
LPA 885-886/2010 Page 42 of 59
documents for the purpose of
cheating and knowingly using
these forged documents as
genuine. Further they have
falsified the accounts of the
company and also caused
disappearance of evidence of the
offence to screen themselves from
legal punishment. Therefore, all
the accused are liable for
commission of offences punishable
under sections 120B r/w 420, 419,
467, 468, 471, 477A and 201 of the
Indian Penal Code and substantive
offences thereof.
19. In the course of hearing, Mr. Ramji Srinivasan has also filed the list
of witnesses who would be examined in the disciplinary proceedings
against the appellants. The said list reads as under:
"LIST OF WITNESSES
IN THE MATTER OF SHRI S. GOPALAKRISHNAN
AND SHRI S. TALLURI BY THE DISCIPLINARY
COMMITTEE
1. Concerned official from ICAI
2. Shri A.V.Y. Krishna, CBI, Hyderabad
3. The then Investigating Officer of SEBI
LPA 885-886/2010 Page 43 of 59
4. Concerned official from Citi Bank, HDFC Bank,
ICICI Bank, HSBC Bank, BNP Paribas and Bank
of Baroda.
5. The concerned official (Finance Department) of
Satyam Computer Services Ltd.
6. The concerned official (Sales Department) of
Satyam Computer Services Ltd.
7. Main Partners of Price Waterhouse (FRN)
8. Main Partners of Lovelock & Lewes (FRN)
9. Shri Pulavarthi Siva Prasad, Part of Audit Team
10. Shri Chintapatla Ravindernath, Part of Audit
Team
11. Shri Srikant Pola, Part of Audit Team."
20. Keeping in view the aforesaid factual scenario, we may refer with
profit to certain authorities in the field which relate to the role of the Court
when a challenge is made to continuation of the disciplinary proceeding or
enquiry, when the same person is facing criminal prosecution.
21. In Capt. M. Paul Anthony v. Bharat Gold Mines Ltd. and Anr., AIR
1999 SC 1416, it has been stated thus:
"13. As we shall presently see, there is a consensus of
judicial opinion amongst the High Courts whose
LPA 885-886/2010 Page 44 of 59
decisions we do not intend to refer in this case, and the
various pronouncements of this Court, which shall
be copiously referred to, on the basic principle that
proceedings in a criminal case and the departmental
proceedings can proceed simultaneously with a little
exception. As we understand, the basis for this
proposition is that proceedings in a criminal case
and the departmental proceedings operate in distinct
and different jurisdictional areas. Whereas in the
departmental proceedings, where a charge relating
to misconduct is being investigated, the factors
operating in the mind of the Disciplinary Authority
may be many such as enforcement of discipline or to
investigate the level of integrity of the delinquent or the
other staff, the standard of proof required in the
those proceedings is also different than that required
in a criminal case. While in the departmental
proceedings the standard of proof is one of
preponderance of the probabilities, in a criminal case,
the charge has to be proved by the prosecution
beyond reasonable doubts. The little exception may
be where the departmental proceedings and the
criminal case are based on the same set of facts and the
evidence in both the proceedings is common
without there being a variance."
22. The aforesaid enunciation of law was made on the backdrop of the
principles laid down in Delhi Cloth and General Mills Ltd. v.
Kushal Bhan, AIR 1960 SC 806, Tata Oil Mills Co. Ltd. v. Workmen, AIR
1965 SC 155, Jang Bahadur Singh v. Baij Nath Tiwari, AIR 1969 SC
LPA 885-886/2010 Page 45 of 59
30 and Kusheshwar Dubey v. M/s. Bharat Coking Coal Ltd., AIR 1988 SC
2118. Thereafter, their Lordships referred to the entire case law
which was reviewed again in the case of State of Rajasthan v. B.K.
Meena, (1996) 6 SCC 417. In B.K. Meena (supra), their Lordships have
opined thus:
"14. It would be evident from the above decision that
each of them starts with the indisputable
proposition that there is no legal bar for both
proceedings to go on simultaneously and then say that
in certain situations, it may not be 'desirable',
'advisable or 'appropriate' to proceed with the
disciplinary enquiry when a criminal case is pending
on identical charges. The staying of disciplinary
proceedings, it is emphasised, is a matter to be
determined having regard to the facts and
circumstances of a given case and that no hard and fast
rules can be enunciated in that behalf. The only ground
suggested in the above decisions as constituting a valid
ground for staying the disciplinary proceedings is
that "the defence of the employee in the criminal
case may not be prejudiced". This ground has,
however, been hedged in by providing further that this
may be done in cases of grave nature involving
questions of fact and law. In our respectful opinion,
it means that not only the charges must be grave
but that the case must involve complicated questions
of law and fact. Moreover, 'advisability',
'desirability' or 'propriety', as the case may be, has
to be determined in each case taking into
consideration all the facts and circumstances of the
LPA 885-886/2010 Page 46 of 59
case. The ground indicated in D.C.M. and Tata Oil
Mills is also not an invariable rule. It is only a factor
which will go into the scales while judging the
advisability or desirability of staying the
disciplinary proceedings. One of the contending
considerations is that the disciplinary enquiry cannot
be - and should not be - delayed unduly. So far as
criminal cases are concerned, it is well known that they
drag on endlessly where high officials or persons
holding high public offices are involved. They get
bogged down on one or the other ground. They
hardly ever reach a prompt conclusion. That is the
reality inspite of repeated advice and admonitions from
this Court and the High Courts. If a criminal case is
unduly delayed that may itself be a good ground for
going ahead with the disciplinary enquiry even
where the disciplinary proceedings are held over at
an earlier stage. The interests of administration and
good government demand that these proceedings are
concluded expeditiously. It must be remembered that
interests of administration demand that undesirable
elements are thrown out and any charge of
misdemeanour is enquired into promptly. The
disciplinary proceedings are meant not really to punish
the guilty but to keep the administrative machinery unsullied
by getting rid of bad elements. The interest of the
delinquent officer also lies in a prompt conclusion
of the disciplinary proceedings. If he is not guilty of
the charges, his honour should be vindicated at the
earliest possible moment and if he is guilty, he should
be dealt with promptly according to law. It is not
also in the interest of administration that persons
accused of serious misdemeanour should be
continued in office indefinitely, i.e., for long periods
awaiting the result of criminal proceedings. It is not
LPA 885-886/2010 Page 47 of 59
in the interest of administration. It only serves the
interest of the guilty and dishonest. While it is not
possible to enumerate the various factors, for and
against the stay of disciplinary proceedings, we found
it necessary to emphasise some of the important
considerations in view of the fact that very often the
disciplinary proceedings are being stayed for long
periods pending criminal proceedings. Stay of
disciplinary proceedings cannot be, and should not be,
a matter of course. All the relevant factors, for and
against, should be weighed and a decision taken
keeping in view the various principles laid down in the
decisions referred to above."
(Emphasis supplied)
23. Analyzing the same, their Lordships in Capt. M. Paul Anthony
(supra) have observed thus:
"20. This decision has gone two steps further to the
earlier decisions by providing:
(1) The 'advisability', 'desirability' or 'propriety' of
staying the departmental proceedings "go into the scales
while judging the advisability or desirability of staying
the disciplinary proceedings" merely as one of the
factors which cannot be considered in isolation of other
circumstances of the case. But the charges in the
criminal case must, in any case, be of a grave and
serious nature involving complicated questions of
fact and law.
(2) One of the contending considerations would be
that the disciplinary enquiry cannot - and should not be
LPA 885-886/2010 Page 48 of 59
- delayed unduly. If the criminal case is unduly
delayed, that may itself be a good ground for
going ahead with the disciplinary enquiry even
though the disciplinary proceedings were held over
at an earlier stage. It would not be in the interests of
administration that persons accused of serious
misdemeanour should be continued in office
indefinitely awaiting the result of criminal
proceedings."
24. After discussing all the decisions in the field, the principles that
have been culled out in Capt. M. Paul Anthony (supra) read as follows:
"22. The conclusions which are deducible from
various decisions of this Court referred to above are:
(i) Departmental proceedings and proceedings in a
criminal case can proceed simultaneously as there is no
bar in their being conducted simultaneously, though
separately.
(ii) If the departmental proceedings and the criminal
case are based on identical and similar set of facts and
the charge in the criminal case against the
delinquent employee is of a grave nature which
involves complicated questions of law and fact, it
would be desirable to stay the departmental
proceedings till the conclusion of the criminal case.
(iii) Whether the nature of a charge in a criminal case is
grave and whether complicated questions of fact and
law are involved in that case, will depend upon the
nature of offence, the nature of the case launched
LPA 885-886/2010 Page 49 of 59
against the employee on the basis of evidence and
material collected against him during investigation or as
reflected in the charge sheet.
(iv) The factors mentioned at (ii) and (iii) above
cannot be considered in isolation to stay the
departmental proceedings but due regard has to be
given to the fact that the departmental proceedings
cannot be unduly delayed.
(v) If the criminal case does not proceed or its
disposal is being unduly delayed, the departmental
proceedings, even if they were stayed on account of the
pendency of the criminal case, can be resumed and
proceeded with so as to conclude them at an early date,
so that if the employee is found not guilty his
honour may be vindicated and in case he is found
guilty, administration may get rid of him at the
earliest."
(Emphasis supplied)
25. In Annasalai and Anr. v. P. Ganesan and Ors., (2008) 1 SCC 650, the
Apex Court in paragraph 18 has laid down thus:
"18. Legal position operating in the field is no longer res
integra. A departmental proceedings pending a criminal
proceedings does not warrant an automatic stay. The
superior courts before exercising its discretionary
jurisdiction in this regard must take into consideration
the fact as to whether the charges as also the evidence in
both the proceedings are common and as to
whether any complicated question of law is involved
in the matter."
LPA 885-886/2010 Page 50 of 59
Thereafter, their Lordships referred to the earlier decisions in the
field and opined thus:
"23. The High Court, unfortunately, although
noticed some of the binding precedents of the Court
failed to apply the law in its proper perspective. The
High Court was not correct in its view in concluding
that the stay of the departmental proceedings should be
granted in the peculiar facts and circumstances of the
case without analyzing and applying the principle of
law evolved in the aforementioned decisions. It,
therefore, misdirected itself in law. What was
necessary to be noticed by the High Court was not
only existence of identical facts and the evidence in the
matter, it was also required to take into consideration
the question as to whether the charges leveled
against the delinquent officers, both in the criminal
case as also the disciplinary proceedings, were same.
Furthermore it was obligatory on the part of the High
Court to arrive at a finding that the non-stay of the
disciplinary proceedings shall not only prejudice the
delinquent officers but the matter also involves a
complicated question of law.
24. The standard of proof in a disciplinary proceedings
and that in a criminal trial is different. It there are
additional charges against the delinquent officers
including the charges of damaging the property
belonging to the bank which was not the subject matter
of allegations in a criminal case, the departmental
proceedings should not have been stayed."
[Emphasis added]
LPA 885-886/2010 Page 51 of 59
26. In NOIDA Entrepreneur Association v. NOIDA & Ors.; JT 2007 (2)
SC 620, the Apex Court has expressed thus:
"12. The purpose of departmental enquiry and of
prosecution is 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 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 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 Indian
Evidence Act 1872 (in short the „Evidence Act‟).
Converse is the case of departmental enquiry. The
LPA 885-886/2010 Page 52 of 59
enquiry in a departmental proceedings 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. Under these
circumstances, what is required to be seen is whether
the department 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."
[Emphasis supplied]
27. In LPA No.730/2010 (National Insurance Company Ltd. v. Shri
Sunil Kumar & Ors.) decided on 29th March, 2011, this Court, after
referring to the aforesaid authorities, has stated as follows:
"15. From the aforesaid enunciation of law, it can be
stated with certitude that the scope, effect and
consequence of a criminal trial and a departmental
proceedings are distinct and different. Once the
employer has reasonable basis regard being had to
the sanctity, stability and the propriety of the
administration and to avoid any kind of anarchy or
chaos, it may be under an obligation to initiate
departmental proceeding and simultaneously a
criminal prosecution may be launched against the
same delinquent employee. The circumstances should
be such that there would be a warrant for directing stay
LPA 885-886/2010 Page 53 of 59
of the disciplinary proceedings. It needs no special
emphasis to state, the onus is on the delinquent
employee that serious prejudice would be caused, if the
parallel proceedings are allowed to continue. It is well
settled in law that the burden of proof in a criminal trial
is quite stringent, as an accused is entitled to benefit of
doubt and the consequent acquittal, but the test of
preponderance of possibilities in departmental
proceedings is different. But regard being had to the
nature of proof required in the departmental
proceedings enquiry, a charged employee may not be
entitled to exoneration. Regard must be given to the
fact that in the departmental proceeding, the
standard of proof is totally different. The cannons
of service jurisprudence require that the
departmental proceedings are put to an end as
expeditiously as possible. The exception carved out is
that the delinquent employee should be exposed to
grave prejudice and the charges leveled against him
should be so grave and involve complex questions
of law and fact, so that it is undesirable and
apposite to invite an interdiction in exercise of
inherent jurisdiction by the Court. As has been
stated by their Lordships, there cannot be any hard
and fast rule or a strait jacket formulae and it depends
upon many a factor and facts of each case."
[Emphasis added]
28. In the case at hand, as is evident, the charges levelled relate to the
departmental proceeding under the CA Act as amended from time to
time. The said enactment has been enacted to make provisions for the
LPA 885-886/2010 Page 54 of 59
regulation of the profession of Chartered Accountant and for that purpose
to establish the Institute of Chartered Accountants. The purpose of
enacting such legislation was to authorize the incorporation by a statute of
an autonomous professional body. The body has been conferred the
certain responsibilities. No member of the institute is entitled to practise
unless he has obtained certificate of practice from the Council. Certain
disqualifications have been stipulated in Section 8 of the Act. The
legislature confers numerous functions on the Council. The institute has
the power to take disciplinary action against the registered Chartered
Accountants. The Act also defines professional or other misconduct to
include any act or omission provided in the Schedule to the Act. There is a
provision for appeal. If the Act and the Schedule appended thereto are
appreciated with studied scrutiny, it is quite evident that a legislative
endeavour has been made to ensure high standards, confidence and
integrity in the profession. Keeping in view, in fiscal matters,
responsibility and sanctity attached to accounts, audit and role of a
statutory auditor are the fundamental paradigms. The professional
conduct stands on a different footing than a delinquent employee facing a
LPA 885-886/2010 Page 55 of 59
disciplinary enquiry. Keeping the aforesaid in view, it is obligatory on the
part of the court to see whether such a proceeding should be interdicted.
The submission of learned senior counsel for the appellant which we have
reproduced in extenso basically conveys that there is similarity of charges;
that there are same witnesses; that the element of prejudice is involved;
that if the simultaneous proceedings are continued the appellants accused
in criminal trial would be compelled to disclose their defence; that the
standard of proof is not the only test; that the impact of verdict in criminal
proceeding on the disciplinary authority in case of acquittal would be of
great magnitude; and that the direction given by the Supreme Court to
conclude the trial by end of July 2011 becomes an additional reason on the
part of the institute not to proceed with the enquiry. The submissions, in
oppugnation, by the learned senior counsel for the respondents as we
have noted hereinbefore are that the charges are absolutely different; that
the question of fraud and cheating are not involved in the departmental
enquiry; that the witnesses are few in number in the departmental
proceeding; that there is a violation of accounting standards by the CA
which cannot be gone into in the criminal trial; that they have not
LPA 885-886/2010 Page 56 of 59
functioned appositely as statutory auditors; that they have not shown due
diligence and acted with gross negligence; that they have failed to obtain
sufficient information and there has been material departure from the
generally accepted procedure of accounting; that the direction for
conclusion of trial does not help as there are number of witnesses; that the
standard of proof is totally different; and that the conspiracy and other
factors are not the matter in the disciplinary proceeding. Quite apart from
the above, it is contended that the appellants cannot take shelter under the
umbrella that they have stopped practising inasmuch as the institute has
no power to suspend their registration. Additionally, it is urged by
learned senior counsel that the charges levelled against them do not
involve complex questions of law and fact and, hence, it is not desirable to
invite an interdiction in exercise of the inherent jurisdiction of this Court.
29. On a perusal of the comparative chart of the charges levelled in the
disciplinary proceeding and the chargesheet in the criminal proceeding,
the list of witnesses, the nature of enquiry, the purpose of enquiry and
arraigning the appellants as accused persons in the criminal case are on a
different base. The theory of prejudice that has been canvassed is not to be
LPA 885-886/2010 Page 57 of 59
routinely inferred. It cannot be held in the obtaining factual matrix, that
participation of the applicants in the departmental enquiry would
seriously prejudice the defence at the trial in the criminal case. That apart,
we are disposed to think that it is not desirable to interdict in the
proceeding initiated by the institute. That would be against the public
interest since the CA Act has its rigorous technical norms and the
Chartered Accountants registered with it are required to function with
statutory responsibility. In addition, the charges levelled against the
appellants in the departmental proceeding/the proceeding under the Act
do not involve grave and complex questions of law.
30. At this juncture, we may note with profit that a contention was
canvassed that the appellants shall not be able to participate in the
departmental enquiry as the Supreme Court has directed the trial to
proceed on day-to-day basis. Mr.Srinivasan, learned senior counsel
appearing for the respondents fairly stated that enquiry shall be fixed on
such dates which will be suitable and convenient for the Chartered
Accountants-appellants and they will not face any kind of difficulty on
that score. Learned senior counsel also submitted that, if required, they
LPA 885-886/2010 Page 58 of 59
will hold the enquiry on non-working days of the court and afford
adequate opportunities to them.
31. Regard being had to our aforesaid analysis of the facts and law, we
are not inclined to interfere with the order of the learned Single Judge but
only direct that the respondents shall proceed with the departmental
enquiry keeping in view the convenience of the appellants and affording
them adequate opportunity to put forth their case from all spectrums.
32. Consequently, with the aforesaid direction, both the appeals stand
dismissed leaving the parties to bear their respective costs.
CHIEF JUSTICE
SANJIV KHANNA, J.
May 30, 2011 Pk/Kapil LPA 885-886/2010 Page 59 of 59