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J.S. Bhati Vs. the Council of Institute of Chartered Accountants of India and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtRajasthan High Court
Decided On
Case NumberCivil Misc. Appeal No. 136 of 1973
Judge
Reported inAIR1976Raj86; 1975()WLN502
ActsChartered Accountants Act, 1949 - Sections 22; Evidence Act - Sections 114
AppellantJ.S. Bhati
RespondentThe Council of Institute of Chartered Accountants of India and anr.
Appellant Advocate M.H. Calla and; N.M. Mathur, Advs.
Respondent Advocate K.K. Jain and; G.S. Bapna, Advs. (for No. 1) and; S.C. J
DispositionAppeal partly allowed
Cases Referred and Commissioner of Hazari BaghMunicipality v. Fulchand Agarwala
Excerpt:
.....accountants act, 1949 - section 22 and schedule i(8)--incoming auditor communicating with outgoing auditor through letter under postal certificate--held, requirements of section 22 not satisfied and he is guilty of misconduct.;the expression 'in communication with' when read in the light of the instructions contained in the booklet 'code of conduct' cannot be interpreted in any other manner but to mean that there should be positive evidence on the fact that the communication addressed to the outgoing auditor by the incoming auditor reached his hands certificate of posting of a letter cannot, in the circumstances, be taken as positive evidence of its delivery to the addressee.;(b) chattered accountants act, 1949 section 22 and schedule i(8) - incoming auditor communicating with outgoing..........(8) of schedule i. there itno doubt that mr. agrawal did take a stand that he never received mr. bhati's letter but it was not the finding of the disciplinary committee that the letter did not actually reach the addressee and unless it was held that the letter was not delivered to the addressee, the lapse on the part of mr. bhati cannot be viewed with that strictness with which his conduct has been judged by the council. the breach committed by the appellant is of a technical nature and, therefore, the punishment awarded to him has been termed by the learned counsel for the appellant as severe because it carries with it a stigma. to this extent the submission of mr. calla is correct that neither the disciplinary committee nor did the council record a finding that the letter sent by mr......
Judgment:

V.P. Tyagi, J.

1. Mr. J.S. Bhati has filed this appeal under Section 22A of the Chartered Accountants Act, 1949, (hereinafter called 'the Act') challenging the correctness of the order dated 14th September, 1973, passed by the Council of the Institute of Chartered Accountants of India.

2. The brief facts giving rise to this appeal are as follows:

The appellant is the proprietor of the firm of Chartered Accountants named as M/s. Bhati and Company, Bikaner. It is alleged that the appellant had audited the accounts of Shri Patel Primary School, Sri Ganganagar continuously for the years 1965 to 1969 asthe auditor of the said institution. For 1969-70 respondent Shri M.L. Agrawal, the proprietor of the firm of Chartered Accountants carrying on his business in the name and style M/s. M.L. Agrawal & Co., was appointed as the auditor to audit the accounts of Shri Patel Primary School, Bikaner. It is said that the manager of the said school again appointed the appellant to audit its accounts for two years i.e. for the years 1970-71 and 1971-72. The grievance of Mr. M. L. Agrawal is that the appellant accepted this assignment for auditing the accounts of Shri Patel Primary School without complying with the mandatory requirements of Section 22 read with Clause (8) of Schedule 1 of the Act, inasmuch as the appellant did not even care to send any notice to the respondent of his intention to accept this assignment.

3. The case of the appellant is that he received a letter of appointment from the Manager of Shri Patel Primary School on April 3, 1971, and on April 5, 1971, he sent a letter under a certificate of posting to respondent No. 2 intimating that the appellant had been appointed by the Manager of the said Institution and he intends to accept that appointment provided the respondent No. 2 had no objection; and the respondent Agrawal was requested to send his reply if be had any objection to this proposal. According to the appellant he waited for the respondent's reply till April 17, 1971 when he audited the accounts of Shri Patel Primary School.

4. On a complaint filed by Shri M.L. Agrawal the Council handed over the case for enquiry to the Disciplinary Committee. The Disciplinary Committee after examining the appellant and the respondent submitted its report to the Council holding that Mr. Bhati was guilty of the violation of Clause (8) of part 1 of the first schedule to the Act.

5. The Council then served a notice on Shri Bhati, but the first notice came back with a remark from the post office that the addressee had left without leaving his address. The said notice was again sent to the appellant but it was returned with a remark from the post office that the appellant refused to accept it. The Council then considered the report of the Disciplinary Committee and found the appellant guilty of misconduct as he failed to comply with the requirements of Clause (8) of Part I of the first schedule, and held that Mr. Bhati had only sent a letter under certificate of posting without obtaining any acknowledgement thereof. The mere posting of a letter by Mr. Bhati addressed to Mr. Agrawal was not found sufficient to comply with the requirements of Clause (8) and, therefore, the Council found the appellant guilty of professional misconduct and ordered that the name of the appellant be removed from the membership of the Institute for a period of one month with effect from the date of the order i.e. from 11th September, 1973. It is against this orderthat the present appeal has been filed by Mr. Bhati.

6. Section 22 of the Act defines professional misconduct as follows :--

'22.--Professional misconduct defined.

For the purposes of this Act, the expression 'professional misconduct' shall be deemed to include any act or omission specified is any of the Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or duty cast on the Council under Sub-section (1) of Section 21 to inquire into the conduct of any member of the Institute under any other circumstances.'

7. The first schedule enumerates certain circumstances under which the Chartered Accountant who is the member of the Council may be held guilty of professional misconduct and one of the circumstances which is relevant for the purposes of this appeal is that 'a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he accepts a position as auditor previously held by another Chartered Accountant or a restricted State auditor without first communicating with him in writing.'

8. The Institute of Chartered Accountants of India has issued a booklet under the caption 'Code of Conduct' containing various directions to the members to maintain the high standards of the profession. The purpose of framing the Act and making certain regulations thereunder is to introduce certain degree of standard which are essential for the maintenance of the ethics of the profession. Under the scheme of the Act the control is exercised through the Institute of Chartered Accountants and a Council is appointed to see that the members of the profession discharge their functions in accordance with the provisions of the Act and implicitly follow the rules of conduct prescribed by the Institute of the Chartered Accountants of India. This Council has been empowered to take cognizance of the misconduct of the members and if necessary to institute enquiry into the cases where the Council is prima facie of the opinion that a member is guilty of professional or other misconduct. It is in the exercise of this power that in the present case the Council instituted an inquiry and asked the disciplinary committee to find out the facts with regard to the complaint lodged against Mr. Bhati by Mr. Agrawal.

9. It is not denied that before Mr. Agrawal was appointed as auditor to audit the accounts of Shri Patel Primary School for the year 1969-70, Mr. Bhati was working as auditor for the said institution and after the term of Mr. Agrawal was over, the appellant was again appointed as auditor vide the letter of the Manager of Shri Patel Primary School, Ganganagar. This appointment was for 2 years, viz. for the years 1970-71 and 1971-72. The letter of appointment was issued on 3rdApril, 1971. The finding of the disciplinary committee is that Mr. Bhati before actually taking up the job of auditing the accounts sent a letter under certificate of posting to Mr. Agrawal in compliance with the requirement of Clause (8) of Part I of Schedule 1 of the Act. Mr. Agrawal denies to have received any such communication from Mr. Bhati. It is, however, not proved by Mr. Bhati that the letter addressed to Mr. Agrawal which he had posted on 5th April, 1971, was delivered to the addressee, Mr. Agrawal. The Council under the circumstances found the appellant guilty of professional misconduct for violating the provisions of Section 22 read with Clause (8), Part I of Schedule 1 of the Act.

10. Before considering the arguments advanced by learned counsel for the appellant it will be worthwhile to mention that the institute of Chartered Accountants of India while publishing the booklet under the caption 'Code of Conduct' issued the following instruction to the members of the profession in connection with the requirements of Clause (8) of the first schedule:

'Sometimes, the retiring auditor fails without justifiable cause except a feeling of hurt because of the change, to respond to the communication of the incoming auditor. So that it may not create a deadlock, the auditor appointed can act, after waiting for a reasonable time for a reply, before receipt of the reply to the communication addressed by him, provided, the communication has been sent in such a manner that the member has some acknowledgement from the other party which would ensure that the communication has reached the addressee. The acknowledgement would also be evidence to prove that the communication has been sent as required by law.'

11. The main argument of Mr. Calla appearing on behalf of the appellant is that his client by posting under certificate of posting a letter addressed to Mr. Agrawal on 5th April, 1971 had completed all the formalities to comply with the requirements of Clause (8) of schedule 1 of the Act read with instructions issued by the Institute of Chartered Accountants in the booklet 'Code of Conduct' as Mr. Bhati had ensured that his letter in the ordinary course of circumstances would reach the addressee; and it is after waiting for 12 days for the reply from Mr. Agrawal, that his client audited the accounts of the Shri Patel Primary School, and therefore in such circumstances it is vehemently urged that the Council has committed an error in declaring Mr. Bhati guilty of misconduct under Section 22 read with Clause (8) of Schedule 1 of the Act.

12. This argument of Mr. Calk requires a close scrutiny about the scope of Clause (8) of Schedule 1. This provision requires that before accepting the position as an auditor previously held by another Chartered Accountant it is necessary for the member of the profession first to communicate with the outgoing auditor in writing. Mr. Jain appearing on behalf of respondent No. 1 the Institute however urged that the requirement of Clause (8) of Schedule 1 of the Act is not that the incoming auditor should only intimate to the outgoing auditor about his accepting the new assignment but it is incumbent for the new auditor to communicate with the outgoing auditor in writing which, in his opinion, means that there should be exchange of letters between the incoming and the outgoing auditors before the assignment is accepted by the incoming auditor. He further urged that the instructions issued by the Institute of Chartered Accountants at page 29 of the booklet under the caption 'Code of Conduct' no doubt dilute the rigidity of the requirements of Clause (8) but the minimum which this diluted provision requires is that the incoming auditor should not only send a letter to his outgoing counter-part but before he can claim that he has discharged his obligation under the said provision he should at least obtain the acknowledgement from the outgoing auditor so that such an acknowledgement may in case of need, be pressed into, service as an evidence to show that a communication had been actually sent as required by law. According to Mr. Jain mere obtaining a certificate of posting from the postal authorities for despatching a letter is not sufficient and it cannot be taken as an acknowledgement under the said instructions.

13. These rival contentions of learned counsel for the parties require the Court to correctly interpret the expression 'communicating with him in writing' as used by legislature in Clause (8) of Schedule 1 and to find out its true scope.

14. This question, as to how the word 'communicated' be interpreted, came up before the Supreme Court in State of Punjab v. Khemi Ram, AIR 1970 SC 214 = (1970 Lab IC 271). But the context in which this word was to be interpreted by the court was different. In that case an order was issued by the competent authority to the Government employee. The question arose whether mere issuing of a letter by an officer can be taken as communicating that order to the employee. Their Lordships of the Supreme Court observed that the ordinary meaning of the word 'communicate' is to impart, confer or transmit information. The learned Judges further held that once an order is issued and is sent out to the concerned Government servant it must be held to have been communicated to him, no matter when did he receive it actually. But this authority in my opinion would not be of any avail to the appellant because the requirement of Clause (8) is not that the incoming auditor has only to communicate his intention of accepting the new assignment in place of the outgoing auditor. The expression used by the legislatureis that the incoming auditor must be in communication in writing with the outgoing auditor. The expression 'in communication' therefore cannot be taken equivalent to the expression 'communicate to a particular person'. The mandate of the legislature is that if a person accepts a position as auditor previously held by another Chartered Accountant, 'without communicating with him' in writing then he in the eye of law is guilty of misconduct. The expression 'communicate with him in writing' in this context cannot be interpreted that this provision of the law simply casts a duty on the incoming auditor to inform the outgoing auditor about his intention to accept his new assignment. He has to do something more to discharge his obligation under the said expression. In my opinion Mr. Jain is correct when he submits that the requirement of the expression 'communicate with him' requires more than mere intimating his intention by despatching a letter under certificate of posting. According to Mr. Jain the incoming auditor must be in communication with the outgoing auditor i. e. he must be in touch through letter with his counter-part and before he finally accepts that offer of appointment as auditor he must at least get the reply from the outgoing auditor about the receipt of the letter addressed to him by the incoming auditor.

15. Looking to the practical difficulties for complying with the requirement of Clause (8) of Schedule I the Institute of Chartered Accountants of India issued certain instructions and watered down the rigidity thereof by laying down that if some kind of acknowledgement is received from the other party which may ensure that the communication reached the addressee it would be considered sufficient compliance with the requirement of Clause (8). This instruction was issued by the Institute in the back ground of the attitude invariably adopted by the outgoing auditors who might have felt hurt because of the change and who generally did not respond to the communication of the incoming auditor. But even according to this instruction it is necessary that the incoming auditor must obtain some kind of acknowledgement from the addressee which may be pressed into service as evidence to prove that the communication has reached the addressee which is the least requirement of the law. In the present case Mr. Bhati no doubt took the precaution of sending his letter to the respondent No. 2 under certificate of posting obtained from the post office, but I feel that such a certificate of posting looking to the rigours of the requirement of the law, cannot be accepted as an acknowledgement from the addressee.

16. Mr. Calla referring to Smt. Kanak Lata Ghose v. Amal Kumar Ghose, AIR 1970 Cal 328; Meghji Malsee Ltd. v. P.C. Commen of Pulivelli Kizhakkethil House, AIR 1963 Ker 306 and Commissioner of Hazari BaghMunicipality v. Fulchand Agarwala, AIR 1966 Pat 434 urged that it may be presumed under Section 114 of the Evidence Act that a letter once posted would reach the addressee and, therefore, in these circumstances it is urged that it should be taken that the letter sent under certificate of posting reached the addressee and therefore the certificate of posting obtained from the postal authorities must be regarded as the acknowledgement received from the addressee himself. I regret I cannot accept this contention of Mr. Calla. The obvious reason for rejecting this argument is that the provision of Clause (8) of Schedule I is couched in a language which introduces some rigidity with which the obligation cast under that provision should be discharged in order to maintain the standard of the profession. If the instructions issued by the Council are ignored then it becomes necessary under the law to see that the incoming auditor, before accepting the new assignment, should in some manner establish contact with the outgoing auditor and get at least the acknowledgement from him for the receipt of his communication addressed to his counter-part. This provision has been enacted by the legislature with a view to maintain certain standard in the profession. It is true that the council did experience certain practical difficulty in the compliance of this provision of the law and therefore by issuing instructions the rigidity of the law was diluted by providing that the incoming auditor in order to ascertain that the communication reached the addressee must obtain some kind of acknowledgement from him and it is only then that he should take up his new job. Mere obtaining a certificate of posting in my opinion does not fulfil the requirements of Clause (8) of Schedule I as the presumption under Section 114 of the Evidence Act that the letter in due course reach-led the addressee cannot replace that positive degree of proof of the delivery of the letter to the addressee which the letters of the law in this case require. The expression 'in communication with' when read in the light of the instructions contained in the booklet 'Code of Conduct' cannot be interpreted in any other manner but to mean that there should be positive evidence of the fact that the communication addressed to the outgoing auditor by the incoming auditor reached his hands. Certificate of posting of a letter cannot, in the circumstances, be taken as positive evidence of its delivery to the addressee.

17. It was next urged by Mr. Calk that if the expression 'communicate with him in writing' is interpreted in the manner Mr. Jain wants it to interpret, even then his client cannot be held guilty of the breach of the law unless it was found that the letter sent by him did not reach the addressee. According to Mr. Calla the bona fides of his client are as clear as crystal to establish that he was keen to strictly comply with the requirement of Clause (8) of Schedule I. There itno doubt that Mr. Agrawal did take a stand that he never received Mr. Bhati's letter but it was not the finding of the disciplinary committee that the letter did not actually reach the addressee and unless it was held that the letter was not delivered to the addressee, the lapse on the part of Mr. Bhati cannot be viewed with that strictness with which his conduct has been judged by the Council. The breach committed by the appellant is of a technical nature and, therefore, the punishment awarded to him has been termed by the learned counsel for the appellant as severe because it carries with it a stigma. To this extent the submission of Mr. Calla is correct that neither the disciplinary committee nor did the Council record a finding that the letter sent by Mr. Bhati did not reach the hands of Mr. Agrawal. It is also correct that Mr. Bhati received the letter of his appointment on April 3, 1971, and without any less of time he discharged his obligation under Clause (8) of the schedule by despatching his communication to Mr. Agrawal on April 5, 1971. It is admitted by both the disciplinary committee and the Council that the letter was actually posted by Mr. Bhati. In these circumstances I find it difficult to attribute any mala fide motive to Mr. Bhati for not sending a registered letter acknowledgement due. By sending a letter under certificate of posting Mr. Bhati very much wanted to comply with the requirements of the provisions of clause (8) of Schedule I but probably he could not correctly assess the degree of care that he should have taken while sending his communication to Mr. Agrawal. In these circumstances he can be technically held guilty for not taking that care while communicating with the outgoing auditor which the law required him to observe. The break committed by him is of a technical nature and, therefore, punishment awarded to Mr. Bhati to remove his name from the register of the Chartered Accountants for one month appears to be severe. In my opinion the ends of justice could fairly be met if the appellant was reprimanded for not observing that degree of care which the law required him to take.

18. The result is that the appeal of the appellant is partly allowed. He is no doubt found guilty of misconduct under Section 22 read with Clause (8) of Schedule I of the Act but since the misconduct is of a technical nature he shall be reprimanded. The punishment of removing his name from the register of the Chartered Accountants for one month is hereby set aside. No order as to costs.


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