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Dissatisfied with the reply submitted by the respondent, SEBI concluded that the respondent/Auditors, without actually verifying the bank statements regarding realisation of the cheques, had given a false certificate regarding receipt of promoters contribution, in full, by Ritesh Polysters Limited. The respondent was held guilty of professional misconduct, and to have abetted the promoters in the fraudulent activity by issuing a false certificate, as he could have issued the certificate with the remark that subject to realisation of the Cheques deposited. Instead of doing so, the respondent had issued certificate as if the entire contribution of the promoters was received.

As alleged by SEBI as to why we have not verified the Bank Statement Regarding Realization of the cheques we once again reiterate that as upto 9th June 1995 no cheques of the promoters had bounced and hence we had no reason to believe that any cheques issued by the promoters could bounce.

As you will be aware that the certificate issued by us clearly states as under:- We the Statutory Auditors of Ritesh Polyesters Limited, Secunderabad, hereby certify and confirm that as per books of Accounts maintained by the Company the Company has received Rs.2,25,000.00 as share application money from promoters, directors, their friends and Associates as on 9th June 1995. Hence it has been wrongly alleged by SEBI that we have given a false certificate and aided and abetted the Promoters in fraudulent activities by giving a false certificate.

In Institute of Chartered Financial Analysts of India v. Council of the Institute of Chartered Accountants of India the Apex Court, while considering the misconduct of a clerk, drew a distinction between a misconduct committed by an employee and professional misconduct and held that, in case of professional misconduct, the person in the profession precisely knows what is expected of him.

The prospectus is a special document and it is the duty of the Auditor to issue a certificate, regarding receipt by the company of entire sums due towards promoters contribution, before shares are offered to the public at large. If a false certificate is issued by the Auditor, it would amount to his failure to discharge his statutory duties, as he must be presumed to be aware of the consequences that flow from such gross negligence of a false certification, as the invitation to the public, to subscribe to the shares of the company, is based on the false representation that the promotees had paid the entire amount due, towards their capital contribution, to the company.

The law declared in the above judgment cannot be applied to the present facts of the case since the respondent, in utter disregard of his professional duties, issued a certificate containing a false statement regarding receipt of Rs.2,25,00,000/- towards contribution by the promoters for allotment of 15,00,000 shares, though he was well aware that the promoters had all issued cheques just one day prior to opening of public issue, all of which were later dishonoured on presentation.

The word neglect is defined both as a noun and as a verb in terms of failure or omission to discharge or perform a duty; but one cannot be charged with failure to perform a duty unless he knows, or ought to know, that there is a duty incumbent on him to be performed. However, the word may import something more than a mere omission, something more than a failure without fault; it may import an omission accompanied by some kind of culpability in the conduct of the person, and it embraces wilful as well as unintentional disregard of duty.