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Kishorilal Dutta Vs. P.K. Mukherjee - Court Judgment

LegalCrystal Citation
CourtKolkata High Court
Decided On
Case NumberMatter No. 78 of 1959
Reported inAIR1964Cal131,67CWN772
ActsChartered Accountants Act, 1949 - Sections 17(3), 21, 21(6), 22, 30(1) and 30(2); ;Chartered Accountants Regulations, 1949 - Regulations 11(7), 62A and 62B
AppellantKishorilal Dutta
RespondentP.K. Mukherjee
Appellant AdvocateArun Prokash Chatterji, Adv.;S.K. Mukherji and ;P.N. Chunder, Advs.
Respondent AdvocateS.M. Bose, Adv. General, ;B. Das and ;M. Sen, Advs.
Cases ReferredGovt. of India Ministry of Finance v. S.N. Das Gupta
- f.b. mukharji, j. 1. this is a reference under section 21 of the chartered accountants act. the complainant is one kishorilal dutta who is described as the president of the ananda bazar patrika, hindusthan standard and pesh employees union. the complaint is against p.k. mukherjee, a chartered accountant. he was appointed an auditor to check the provident fund accounts for the years 1953 and 1954. the appointment was made by the director of ananda bazar patrika ltd. the appointment letters are exts. 17 and 18 and are dated respectively 31st march 1954 and 26th april 1955. within a month of his appointment from 26th april, 1955, the auditor by a letter dated 25lh may 1955 addressed to the ananda bazar patrika ltd. informed the company.'it appears that certain loans were granted by the.....

F.B. Mukharji, J.

1. This is a Reference under Section 21 of the Chartered Accountants Act. The complainant is one Kishorilal Dutta who is described as the President of the Ananda Bazar Patrika, Hindusthan Standard and Pesh Employees Union. The complaint is against P.K. Mukherjee, a Chartered Accountant. He was appointed an auditor to check the Provident Fund Accounts for the years 1953 and 1954. The appointment was made by the Director of Ananda Bazar Patrika Ltd. The appointment letters are Exts. 17 and 18 and are dated respectively 31st March 1954 and 26th April 1955. Within a month of his appointment from 26th April, 1955, the auditor by a letter dated 25lh May 1955 addressed to the Ananda Bazar Patrika Ltd. informed the company.

'It appears that certain loans were granted by the Trustees of the Fund to the company in 1954 which although adjusted within the accounting year, does not appear to be in accordance with the Provident Fund Rules. We disapprove such transaction and believe it will not recur in future. Cheques issued by you to the Fund should also be cleared promptly.'

Within two days thereafter, a resolution was adopted in a meeting of the Board of Directors of Ananda Bazar Patrika Provident Fund held on the 27th May 1955 recording-

'This meeting records with regret that the cheques amounting to RS. 6,21,863-9-9 could not be presented to the bank on the verbal request of the management of the Ananda Bazar Patrika Ltd.; this meeting considering all the relevant facts resolves that all the cheques be returned to the company to the debit of the Loan account bearing an interest of 6% per annum with effect from the date of issue of the cheques'.

The auditor signed the statement of account ending the 31st December 1953 on the 14th May 1954 and the statement of account ending the 31stDecember 1954 on the 30th June, 1955. The statement that the auditor signed runs as follows:

'Checked with the Books and Accounts produced and found correct.'

This was not only signed by the auditor but also by all the trustees and the Manager of the Provident Fund.

2. Although the auditor signed the statements as early as the 14th May 1954 and 30th June 1955, nothing seemed to happen for a long time until more than a year and a half when on the 1st November 1957 the present complaint was signed by Kishorilal Dutta, President of the Union. This delay is significant. In the mean time, the State took over the Provident Fund under the Employees Provident Fund Act on the 1st January 1957. What was the occasion and the need for making thereafter on the 1st November 1957 a complaint, such as the present, has remained inexplicable. Before proceeding to discuss the motive for such complaint, it will be appropriate to state at this stage the substance of the complaint against the auditor.

3. The complaint is that the auditor failed to disclose material facts known to him which were not disclosed in the financial statement but disclosure of which was necessary to make the financial statement not misleading. The failure particularised by the complaint is (1) that the fund was vested in a Board of Trustees and was irrevocable save with the consent of all the beneficiaries under Rule 7 of the Provident Fund Rules, but was in fact revoked without such consent of all the beneficiaries. It is alleged that the auditor did not bring to the notice of the beneficiaries, nor was there any mention of it in the financial statement. This is the first non-disclosure which the auditor is alleged in the complaint to be guilty of; (2) that the Government securities to the extent of Rs. 2,06,937-8-0 were encashed without any resolution of the Board of Trustees and in contravention of Rule 11 of the Fund. It is also alleged that this fact was also not disclosed in the financial statement of the year which the auditor signed; (3) that the Joan granted to Ananda Bazar Patrika Private Ltd. was in contravention of Rule 12 of the Provident Fund Rules and that the auditor failed to disclose that fact in that financial statement; and (4) that the auditor had failed to invite attention to the material fact that huge amount was shown as cash in hand in the financial statement for the years 1953 and 1954 in contravention of Rule 11 of the Fund. This in short is the complaint made about two years after the auditor had signed the statement.

4. This complaint was ultimately referred by the Council of the Institute of Chartered Accountants of India to the Disciplinary Committee for inquiry under Section 21 of the Chartered Accountants Act read with Regulation 11 thereunder. The [Disciplinary Committee made their report on the 13th September, 1958. The Disciplinary Committee recorded the fact that the first charge under the complaint set out above was made under a misconception by the complainant and that the complainant had withdrawn that charge. The Disciplinary Committee also said that the second charge under the complaint regarding sale of Government securities without a resolution of the Board of Trustees was not proved in the absence of the relative proceedings and gave the auditor the benefit of doubt; but on the 3rd and 4th charges the Disciplinary Committee found -- (1) that it was admitted that the loans were granted by the Provident Fund to the Company in contravention of the Provident Fund Rules and the auditor should have brought out this fact in his report and (2)that the auditor was guilty of not disclosing the fact that a large amount of loan was given out of the fund of the Provident Fund to the company and that the cheques received in payment of these loans and shown as cash in hand 'Cheques and Cash' in the statement of accounts as at the 31st December 1954 were not encashed at least upto the day on which he wrote the letter to the Directors i.e. 25th May 1955 and the nondisclosure of this material information was an act of misconduct on the auditor's part. The Disciplinary Committee also held that the loans were given in contravention of the Rules of the Fund and failure to report on the default in clearing the cheques received in repayment of the loans amounted to a failure to report on a material miss atement known to the Chartered Accountant. On these findings the Disciplinary Committee held that the auditor was guilty of misconduct under he provision, of the Chartered Accountants Act. In other words, the Disciplinary Committee held that the loans were given by the fund to the company in contravertion of the Rules of the Fund and that the Auditor failed to mention this contravention in his report and that such failure amounted to an act of gross negligence on his part. Finally, the Disciplinary Committee expressed their decision in the following way:

'. . . . We are, therefore, of the opinion that the respondent is guilty of misconduct under items (o), (p) and (q) of the schedule to the Chartered Accountants Act, 1949.'

The matter then under the Act and the Regulations went upto the Council of the Institute of Chartered Accountants who in their meetings held on 13th, 14th and 15th September 1958 at New Delhi decided as follows:

'In the opinion of the Council, the respondent is guilty of misconduct under items (o), (p) and (q) of the schedule to the Chartered Accountants Act, 3949.'

5. The matter now comes up before this Court on a Reference under Section 21 of he Chartered Accountants Act for final orders. Under Section 21(2) of the Act as well as under the Rules of this Court, notice was given to the Accountant concerned, the Council of the Institute of Chartered Accountants and the Central Government. The Institute, through its Council and the Chartered Accountant have appeared, but the Central Government has not appeared before us to support the finding of the Council.

6. The learned Advocate-General, appearing for the Chartered Accountant, has made a number of points attacking the findings of the Disciplinary Committee and the Council. In the first place, he contended that the Institute of Chartered Accountants or its Council should not appear in these proceedings under Section 21 of the Act. According to his contention, the Council and the Disciplinary Committee are quasi-judicial bodies in discharging these functions of finding a member guilty of misconduct under the Chartered Accountants Act and such quasi-judicial bodies following the general principles should not appear in such proceedings. He elucidated his point by a reference to the subordinate courts against whose judgments and orders this court has to pronounce and which subordinate courts do not appear as such bodies before us in these proceedings. We are not impressed by that argument, nor by the analogy or the illustration given by the, learned Advocate-General. The Act in this case is quite explicit on the point. Section 21(6) of the Chartered Accountants Actplaces a mandate on this High Court to cause notice of the day fixed for hearing these References and that notice has to be given to the Council expressly in addition to the Central Government and the member of the Institute concerned. The sub-section goes on further to provide that this High Court shall afford the council an opportunity of being heard before orders are passed on the case. Naturally the Rules of this High Court also provide for such notice and for hearing of the council in these References. We, therefore, overrule this point of objection of the learned Advocate-General.

7. His second point of objection was that there was no proper constitution of the Disciplinary Committee. This objection is based on two grounds. His first ground is that under Section 21(1) of the Chartered Accountants Act, the Council has to be of opinion in the first instance that the member of the Institute has been guilty of conduct which, if proved, will render him unfit to be a member of the Institute. He, therefore, contends that it is only then, when this opinion of the council is formed, that the duty is cast upon the council to cause an inquiry. He submits that this preliminary opinion has not been expressed. In paragraph 5 of the statement of case filed before this court under the Rules of this Court, it is expressly said that the Council decided to refer the matter to the Disciplinary Committee. It is, therefore, clear that unless the Council was of that opinion it would not have decided in that manner. Besides, the learned Advocate-General did not call for the proceedings of the meetings of the Council held on the 3rd, 4th and 5th September 1958 at New Delhi mentioned in paragraph 5 of the statement of case which would have shown the decision of the Council to refer the matter to the Disciplinary Committee. Then the learned Advocate General contended that even if it had so decided to refer the matter to the Disciplinary Committee, it did so only after looking into the written statement of the Chartered Accountant. According to the Advocate-General, the Council could not do that because the written statement only comes at the stage of the inquiry and could only be called jor by the Disciplinary Committee. In other words, he said that before the Disciplinary Committee was formed and before any decision was taken to refer the matter to the Disciplinary Committee, the Council decided to call for the written statement of the Chartered Accountant and this the council had no jurisdiction to do. Here again, we are not impressed by the objection raised by the Advocate-General. The Disciplinary Committee, it must be remembered, is only a standing committee of the council itself. The decision to refer the matter to the Disciplinary Committee belongs to the council and ultimately the conclusion of the Disciplinary Committee has to be reported back to the Council under Section 21(1) of the Act. Besides, there is the clear provision in Regulation 11 (7) of the Chartered Accountants Regulation 1949 which expressly provides power to the Council to peruse written statement before ordering an inquiry to be made by the Disciplinary Committee. The relevant part of that Regulation reads as follows:

'If on perusal of the complaint ...... and the written statement, if any, of the member concerned...... the Council is of opinion that there is aprima facie case against such member, the council shall cause an inquiry to be made on the matter by the Disciplinary Committee.'

At this stage it is only the prima facie opinion of the Council that is intended and therefore, the Regulation quoted above makes it quite clear,which indeed now is also made clear in Section 21(1) of the Act after the amendment by introduction of the word 'prima facie' and such opinion is implicit in the fact that the matter was not only referred to the Disciplinary Committee, but the report, of the Disciplinary Committee was considered and upheld by the Council in this case. We, therefore, also overrule the learned Advocate-General's objection on this ground as well.

8. His second ground on the constitution of the Disciplinary Committee in this case is more substantial. The Advocate-General formulates his objection on this ground on the strength of Section 17 of the Chartered Accountants Act. His point is that the Diciplinary Committee by statute has to be a committee of 5 members under Section 17(3) of the Chartered Accountants Act which says that each of the standing committees shall consist of the President and the Vice-President Ex-officio and 3 other members of the Council elected by the Council provided that in case of the Disciplinary Committee, nut of the members to be elected, two shall be elected by the Council and the 3rd nominated by the Central Government from amongst the persons nominated to the Council by the Central Government. The learned Advocate General contends that in this case the Disciplinary Committee appears to have been composed by 4 persons -- (1) S. Vaidyanath Aiyar, (2) S. Suryanarayana Iyer, (3) N.M. Shah and (4) C.C. Chokshi, as the names of only these four persons appear as signatories to the report of the Disciplinary Committee and also from the proceedings of the disciplinary committee! before us. Therefore, he says that there was no proper and legal constitution of the Disciplinary Committee. The point has some attraction and a flood deal of force.

9. In support of this point the learned Advocate-General relied on the decision of the Division. Bench of this Court in In the matter of P.K. Mukherjee reported in 59 Cal WN 969. That decision is an authority for holding that it is fundamentally and radically wrong that some one should hear and see witnesses and someone else should give the decision. Questions of fluctuations in the composition of the Tribunal have often arisen in relation to judicial or semi-judicial proceedings and it is now settled law that unless there is a specific warrant in a statute, no decision of a committee or other body, which had undergone changes of personnel during the progress of the enquiry, can be accepted as a valid decision at all. In that case on the conclusion of the hearing in which evidence was given, composition of the Disciplinary Committee which held the inquiry under the Chartered Accountants Act, 1949, underwent a change and thereafter report was made by a committee of different composition. It was held there that the defect in the procedure adopted there was of fundamental character. Prima facie the decision supports the Advocate-General's contention, but it is basically different from the facts presented here before us- This is not a case here of somebody hearing the evidence and somebody else giving the decision. Here the persons who conducted the inquiry and who heard evidence are the same persons who have given the report and the decision. That case, therefore, is distinguishable. That case also does not discuss Regulation 62A. Regulation 62B and Regulation 62C and the relevant Regulations in connection therewith of the Chartered Accountants Regulation 1949. These Regulations from 62A to 62C occur in the Chapter on Standing Committees marked. Chapter 6A of the Regulations. Regulation 62B provides that no businessshall be transacted at a meeting of the Standing Committee unless there are present at least three members including the President or in his absence the Vice President. That is said to be the quorum. The Disciplinary Committee being the Standing Committee would come under this Regulation about quorum. This quorum is satisfied in the present case. The learned Advocate-General contended that this Regulation 62B would not apply to the proceedings of the Standing Committee because under Section 30 of the Chartered Accountants Act, the powers given to the Council to make Regulations do not contain the power to make Regulations about quorum of the Disciplinary Committee. For this purpose, contrast and comparison were made between the provisions in Section 30(2)(o) of the Act which expressly refer to quorum of the Council, and then contrasted with Section 30(2)(q) dealing with the Standing Committee where there is no reference to quorum. The suggestion in this argument is that while power to make Regulation imposing quorum in the meetings of the Councils is given, no such power to impose quorum in the meetings of the Standing Committees or Disciplinary Committee is given by the statute. The point is concluded by the decision of the Division Bench of this Court in Controller of Insurance v. H.C. Das reported in (S) : AIR1957Cal387 . That case decides that it cannot be contended that any enquiry contemplated by Section 21 can be held only by all the five members of the Disciplinary Committee who are members for the time being and that it cannot be held by a smaller number of members in any event at all, even it the quorum laid down in Regulation 62B is present at the initial meeting. In that case 4 members of the Disciplinary Committee attended at the first meeting at which the matter in dispute was taken and those very members sat throughout the proceedings, completed the inquiry and made their report. It was, therefore, held there that there was no defect about the constitution of the committee and no irregularity in the proceedings. It also decided that the Disciplinary Committee was a Standing Committee and that the Council had not exceeded its rule-making powers in framing Regulations 62A and 62B in respect of the Standing Committees including the Disciplinary Committee. The decision gave two reasons -- (1) First, the generality of the powers to make Regulations conferred by Sub-section (1) of Section 30 of the Chartered Accountants Act for the purpose of carrying out the objects of the Act; and (2) Section 30(2)(q) expressly refers to the functions of the Standing Committee and the conditions subject to which such functions should be discharged and therefore the question of quorum of the Disciplinary Committee fell within the words 'functions and conditions' used in Section 30(2)(q) of the Chartered Accountants Act. In addition to those two. reasons we can add one more by a reference to sub-clause (s) to Section 30(2) of the Act which expressly says 'the exercise of disciplinary powers conferred by the statute'. Now, disciplinary powers are exercised by the Council through the Disciplinary Committee and the Rules and Regulations for the exercise of such disciplinary powers by the Disciplinary Committee including quorum in respect of its own meetings come within the general words 'exercise of disciplinary powers' used in Sub-clause (s).

10. The Advocate-General's point of objection in this respect would have been of considerable weight if the Standing Committee namely, the Disciplinary Committee in this case, was not in fact composed of 5 members; for that would havebeen a breach clearly of Section 17(3) of the Chartered Accountants Act; but the Official publications of the Institute of Chartered Accountants clearly show the personnel and the membership of the Disciplinary Committee in this case and they indicate that they were in fact composed of 5 members as required in Section 17(3) of the Act. That 4 out of them actually took part in this case does not mean that the Disciplinary Committee was not composed of 5, but it only means that 4, which was a permissible quorum for the meeting of the Disciplinary Committee under Regulation 62B, were always there who heard evidence and gave the report.

11. Having overruled these preliminary objections of the learned Advocate-General, it is necessary now to deal with his submissions on the merits of this case. Appearing for the Chartered Accountant the learned Advocate-General submits that the findings of the Disciplinary Committee and the Council cannot be maintained or upheld in the facts of the case. His submission is short, brief and to the point. In the first instance he contends that it is wrong and improper for the Disciplinary Committee and the Council to have found the Chartered Accountant guilty of misconduct under items (o), (p) and (q) of the schedule to the Chartered Accountants Act. We shall leave out item (q) for the time being because this is a general expression 'grossly negligent in the conduct of his professional duties'. That is certainly in the schedule of misconduct which renders him unfit to be a member of the Institute, but items (o) and (p) of the schedule relate to the failure of the Accountant to disclose a material fact known to him which is not disclosed in a financial statement, 'but disclosure of which is necessary to make the financial statement not misleading and failure to report a material mis-statement known to him to appear in a financial statement with which he is concerned in a professional capacity. In the first place the learned Advocate-General contends that there has been no failure to disclose and no failure to report any material mis-statement. He says that it is the Accountant's duty to report the state of facts as disclosed in the Books of Accounts and not to en-er into any other consideration. In this case the Accountant found that cheques and cash to the extent of Rs. 2,52,166-1 -9 in 1953 and Rs. 6,35,972-3-9 in 1954 were according to the Books and Accounts. Now, this is certainly a correct statement. It is not disputed that this statement was in any way erroneous or wrong. Although the statement is 'cash in hand', yet it is expressly mentioned there that it includes cheques and cash and cheques in hand. It is no part of his duty, according to the Advocate-General, that he should also add there that these cheques were there waiting to be cashed at least for about 5 months; but in fact were not cashed. Naturally the Accountant has stated cheques and cheques must be cheques as such and not cash because cheques when cashed are no longer cheques.

12. His second submission on this point on merit is that there is in fact no non-disclosure and there can be no question of any motive for nondisclosure in this case. In fact he says, it has been disclosed that there was irregularity because the Trustees of the Provident Fund in this case lent provident fund monies to the company which it could not do. In support of this submission he relies on Ext. 10, a letter which the Accountant himself wrote to the Ananda Bazar Patrika Ltd. dated the 25th May 1955 drawing pointed attention to this irregularity and saying that this is notin accordance with the Provident Fund Rules. He also in support of this argument relied on the Resolution of the Board which is Ext. 13 and which we have already quoted above. Therefore, the Advocate-General rightly contends that there has been no non-disclosure in fact. The company knew it; the Trustees of the Provident Fund knew it and in fact the Trustees of the Provident Fund tor the time being signed the statement of the Auditor and the resolution quoted above is a resolution adopted in a meeting of the 'Board of Directors, Ananda Bazar Patrika Provident Fund, held on 27-5-55'.

13. Responsibilities of an Accountant or Auditor are heavy enough. It is necessary, however, to see that vague, undefined and unknown responsibilities are not imposed upon the Auditors or Accountants. That will lead not only to a confusion of standards but also to many complications in the administration of such standards. About the duties of Auditors and Accountants there has been many pronouncements, for instance, those made by the Division Bench of this Court in Deputy Secretary to the Govt. of India Ministry of Finance v. S.N. Das Gupta reported in : AIR1956Cal414 . We do not think that we need enter into any general discussion on this subject. We shall be content in this case to rely on the sections of the Companies Act defining and indicating the duties ot Auditors of companies. The Companies Act, 1956 has useful and relevant sections bearing on this subject. In fact, Section 227 of the Companies Act which was formerly Section 145 of the older Companies Act deals with the powers and duties of the Auditors. Precision in describing any such powers and duties being essential, we do not think, it will be useful or even proper to extend by a general discussion such powers and duties. We need only add here that under Section 231, which was previously Section 145(4.) of the old Companies Act, the auditor has a right to attend the general meeting. Similarly Section 217 (formerly Section 131(A) of the previous Companies Act) requires that there shall be attached to every balance sheet laid before a company in a general meeting a report by its Board of Directors with respect to, inter alia, the state of company's affairs and it is also provided in Section 221 of the present Act imposing a duty on the officer to make disclosure of payments. There is, therefore, no scope for non-disclosure and far less, a motive in the facts of the present case.

14. The learned Advocate-General contends that the duty of disclosure must be to a particular person. Items (o) and (p) relate to failure to report disclosure of material facts or material mis-statements; but be asked: to whom is this duty to disclose owed by the auditor. That raises an important question. The auditor has no duty to the whole world as such. His first duty certainly is to the person or institution, who appoints him, to import to him the true state of facts on the accounts. Now, in this case the company and not the Trustees of the Provident Fund employed the Auditor and the Auditor disclosed the irregularities to the company which appointed him. It is no doubt true that the auditor was examining the statement of accounts of the Providend Fund. It is not, however, the Trustees of the Provident Fund who appointed him. It is unfortunate that under the Provident Fund Rules the company has to appoint an auditor for examining the Provident Fund Accounts. I should think that the healthier practice would be for the Trustees of the Provident Fund to appoint their own auditor to examine theProvident Fund accounts, for there may be conflict of interest and duty between the company and the Provident Fund, as indeed it happened in this case and the allegation was that the Provident Fund illegally and improperly and in breach of the Rules lent money to the company. But then this point of non-disclosure is of great substance and it is not a question of technicality. There could be no non-disclosure to the Trustees of the Provident Fund on the facts of this case, because the Trustees themselves lent this money to the company. Normally, the Trustees would represent the trust fund, for it is legally vested in them. Therefore, there was disclosure to the Trustees themselves. The Trustees also signed not only the statement of accounts of the auditor but also adopted a resolution of the trust fund indicating that knowledge. If it is intended that thousands of subscribers or employees should also have to be individually informed by the auditor, then the matter becomes impossible. We accept the Advocate-General's contention that the auditor or accountant in this case had no duty to disclose to the subscribers of the Provident Fund. The Advocate-General supports his contention not on any ground of narrow technicality but on fundamental principles. It is an unprofessional conduct on the part of the Chartered Accountant to disclose information acquired in course of his professional engagement to any person other than his client without the consent of his client or otherwise than as required by any law for the time being in force. Because the individual subscribers to the Provident Fund Account in this case were not informed or notified by this particular Chartered Accountant he has been held to be guilty of non-disclosure by the Disciplinary Committee and the Council. But the law appears to be otherwise. In fact, if he had disclosed this information to them, then he would have been guilty of conduct which would render him unfit to be a member of the Institute by reason of the express language used in Clause (g) to the schedule which reads--'disclose information acquired. In course of his professional engagement to any person other than his client, without the consent of his client, or otherwise than as required by any law for the time being in force'. It is here on this point on merit that we think that both the Disciplinary Committee and the Council went wrong in holding the accountant guilty of any non-disclosure. He was not guilty pf any non-disclosure to the company which appointed him; he was not guilty of nondisclosure to the Trustees of the Provident Fund who signed and who knew of these irregularities; he was not guilty of any non-disclosure to the individual subscribers of the Provident Fund because he owed no duty to disclose to them and the accountant was well within his rights to have disclosed the irregularities to (the Trustees themselves and to the company. To go beyond would have been for the Accountant an unprofessional conduct.

15. There is one other point of importance to which the Advocate-General made a reference. He laid stress on the expression 'financial statement' in items (o) and (p) of the schedule to the Chartered Accountants Act. What is a financial statement is not defined in the Chartered Accountants Act or in the Companies Act. It is necessary to emphasise here that what we are concerned in this case is not with any balance sheet or any profit and loss accounts which certainly are financial statements. This particular statement is described as statement of account. The Advocate-General poses the question, is every statement of account a financial statement' within trie meaningof items (o) and (p) of the schedule to the Chartered Accountants Act? Fortunately, however, it is not necessary for us to decide this subtle point. As at present advised, we are inclined to think that perhaps it will not be right to bold that any and every statement by a Chartered Accountant would become a financial statement including even as letter written to his client. At the same time, the statement in question here, although described as a statement of account, has many features which are common to what is technically known as either balance sheet or profit and loss account. It is indisputable that a balance sheet and a profit and loss account is certainly a financial statement. As we are of opinion that there is no failure to disclose material facts within the meaning of item (o) nor any failure to report any material mis-statement within the meaning of item (p) of the schedule to the Chartered Accountants Act, to persons concerned and to whom the auditor owed a duty to disclose, we would leave the meaning and definition of expression 'financial statement' in items' (o) and (p) of the second schedule to the Chartered Acountantsi Act at large for the time being leaving it to some future cases where the point would-be necessary to decide.

16. Proceeding further with the Advocate-General's argument on the defence on the merits it is necessary and fair to refer to paragraph 6 of the written statement of the Chartered Accountant to which our attention was drawn by the learned Advocate-General. There the Accountant makes the specific case that no loan was outstanding as on the date of the statement of account and accordingly, the question of his disclosure in the financial statement did not arise. Indeed he submits in paragraph 5 of his written statement that the loan had been given to the company in 1954-and though it was squared off within that very year, he wrote to the company, his employer, a letter drawing its attention to the irregularity. Now, if no loan was outstanding as on the date of the statement of account when the auditor was signing the statement of account, then there was no question of any non-disclosure and especially so when the loan was squared off within that very year 1954. The Accountant was signing this statement in June 1955 when there was no loan outstanding.

17. Here one cannot but refer to the fact that the Disciplinary Committee should have been more careful in recording evidence on the point. It has not been clearly found by the Disciplinary Committee as a fact when exactly and on what date the loan was given; when and on what dates the loan was repaid by cash and by cheques and what were the dates of the cheques which were not cashed. The Disciplinary Committee did ask the Accountant questions about the audit notes and commented on the failure of the auditor to preserve his audit notes; but 'the Disciplinary Committee was not so helpless in this matter and it is a part of its obligation in the inquiry to summon the company and its documents to find out what was the date of the loan and what were the dates-- of the cheques from the company's Books of Accounts and also from the Books of Accounts of the Trustees of the Provident Fund. The Disciplinary Committee did not unfortunately do this and take this essential evidence. Naturally a point arises whether giving of cheques could be sufficient repayment of loan until the cheques were cashed. But it is not found as a fact on this record that these cheques were not cashed at all and if so, under what circumstances they were not cashed andwho were responsible for that situation. In this connection, one cannot but refer to the fact that the complaint, which is required, under the Chartered Accountants Regulation 11(2)(3)(b) as well as in the form appended thereto, to contain, particulars of oral and documentary evidence relied on in support of the allegations made in the complaint did not satisfy this requirement. All that the complaint in this case stated on this ground was (1) financial statement for 1953 and (2) financial statement for 1954 and (3) Rules and Regulations of Ananda Bazar Patrika Provident Fund. Now that is not oral evidence at all, nor is it sufficient documentary evidence necessary to prove non-disclosure. Regulation 11(b) expressly casts a duty upon the Secretary of the Council to place before the Disciplinary Committee all facts brought to his knowledge which are relevant for the purpose of inquiry by the Disciplinary Committee. It also confers on the Disciplinary Committee a power to regulate this procedure in such a manner as it considers necessary and during the course of the inquiry the Committee may examine witnesses on oath, receive affidavits and any other oral and documentary evidence. It can not be over-emphasised that the Disciplinary Committee would do well to follow scrupulously the procedure laid down in these Regulations. Necessary witnesses and necessary documents should be brought on record and the witnesses should be properly examined on oath. Looking into the record in this case it appears that the Chartered Accountant was askedonly two questions on solemn affirmation, but the rest does not seem to be on any kind of oath or affirmation. That we think was not proper. In the midst of the record of the proceeding we find some gentleman described as Mr. Suri asking a number of questions. Mr. Suri, however, was not a member of the Disciplinary Committee and we were greatly mystified in finding a stranger taking part in these proceedings until we were shown from the publication of the Institute of Chartered Accountants that the President and the Vice President, namely, Baidyanath Aiyar and Suryanarayana Iyer, respectively were members of Suri and Company, Second Floor, 19, Stringer Street, LoaneSqr., Broadway, P.O. 1354. It is all the stranger that both these Iyers the President and the Vice President who were signing the report did not bother to see that one of them was being described as Mr. Suri, because he belonged to the firm Suri and Co'. We are bound to comment that this was a very slipshod method of recording evidence and it must be avoided in future by the Disciplinary Committee performing so responsible a duty as imposing discipline on the members of the Institute.

18. Before concluding it is necessary to remark about a particular feature in this case. We have already noticed the delay in making this complaint against the Accountant. The statement of Account was signed by the auditor on the 30th June 1955 and the complaint was not made until 1st November, 1957. In the meantime, on the 1st January (957 the State had taken over the Provident Fund. Probing further into this question ofdelay, it is apparent that the present complainant appears to have made it a cause of his Union. It is said that the present complainant came to the Board of Trustees of the Provident Fund in November and December 1956, but even then he took about a year to make this complaint His excuse is that he took time to discover all the papers; but the answer is that before him there were other representatives of the staff and of the Board of Trustees under the Provident Fund Rules. Apparently his predecessor trustee belonged to a different group than the present complainant. Equally strange appears to be the attitude of the complainant, because the persons who committed the breach are first the trustees of the Provident Fund who lent the money in breach of the Rules and secondly, the company itself which borrowed money. These are the persons who, according tp the complainant, if the charge is true, are primarily guilty of what may be called even misappropriation of the Provident Fund money; but he did not, nor did the Union, proceed to correct these guilty persons, but chose to pursue the auditor about two years later. No doubt, under Section 21 of the Chartered Accountants Act, the Council may move on receipt of information and receipt of the complaint and there is no question of any limitation as to when it can receive such complaint, but it should be impressed that while the Council can act on any information or on any complaint, it is elementary precaution and wisdom not to move by any and every kind of complaint or information however frivolous it may be. Great are the responsibilities on the Council and the Disciplinary Committee in this respect and they must not so act as to become a convenient tool and an engine of oppression against the members of the profession. They must act with responsibility. That is why Section 21 imposes a preliminary duty on the Council to form a prima facie opinion before proceeding further. It will be a misfortune for the profession of the Chartered Accountants in India, if the Council chooses to let loose the whole machinery of Disciplinary Committee on any complaint or any information received by it, however old and however stale and whatever its source without examining it with at least some care to see if a prima facie case exists or not.

19. We do not consider it necessary to refer to the Provident Fund Rules. At some stage of the argument an attempt was made by the learned Advocate-General to suggest that the Provident Fund Rules do not bar lending of money to the company. On the merits and on the interpretation of the relevant Provident Fund Rules, we do not think that the learned Advocate-General's argument on this point has any substance, but it is unnecessary for us to go into these Rules of the Provident Fund for the simple reason that even on the assumption that there was a breach of the Provident Fund Rules by the Trustees, we do not consider that the Auditor or the Accountant is guilty of failure to report material facts or of material mis-statement within the meaning of items (o) and (p) of the Schedule to the Chartered Accountants Act.

20. Lastly, as more a matter of prejudice than merits, this Court was told that the present Chartered Accountant is a hero of many battles and three cases came up before this Court concerning his professional conduct. One we have already referred to in 59 Cal WN 969, where no order was made by this Court, except an order sending the case back to the Council for fur her inquiry, regarding a matter where this Chartered Accountant was charged in respect of taking money from an apprentice under him. The other is an unreported decision in Matter No. 108/1954 in the matter of Chartered Accountants Act and in the matter of P.K. Mukherjee where by a judgment of this Court dated December 14, 1956 on that very matter the Court reprimanded him. The third is the present case before us. The previous cases cannot and should not, in our view, influence our judgment in the facts of this particular complaint in this case appearing in the present reference before us. Lastly we record that although theDisciplinary Committee and the Council found the Accountant guilty, they did not suggest or recommend any penalty or punishment whatever.

21. For these reasons, we set aside the findings of the Council and the Disciplinary Committee and we hold that the Accountant has not been guilty of misconduct under items (o), (p) and (q) of the schedule to the Chartered Accountants Act on the facts of the present complaint and the present reference.

22. There will be no order as to costs.

Laik, J.

23. Before the Chartered Accountants Act, 1949 (hereinafter called the Act) came into force on July 1, 1949; the Auditor's Certificate Rules 1932 under which the Accountants were enrolled, was the prior law and occupied the field. We are concerned in this case to examine whether a particular conduct of a Chartered Accountant is or is not a profesional misconduct. The Auditor's Certificate Rules left it to the Central Government to determine in each case whether a particular conduct on the part of an auditor was or was not professional misconduct. The Act now is a self-contained code of conduct in respect of the Chartered Accountings. Cases of professional misconduct though do not differ essentially from cases of offences, it is better to remember that for any or every unworthy or merely blameworthy conduct of the Chartered Accountant, action cannot be taken under the Act.

24. The Institute of Chartered Accountants, composing of its members, is an autonomous Association of themselves. It largely assumes the responsibility involved in the discharge of the duties by securing maintenance of the requisite standard of professional qualifications, discipline and conduct of its members. Such standard of an accountant though might not be that of either a bloodhound or of an insurer but the accountant is expected to take all possible care and to apply reasonable skill in exercising technical professions and professional obligations and to carry out his task in the manner in which the statute asks him to do.

25. The Act was amended several times, the principal ones being in the years 1955 and 1959. After the Court pronounced earlier that the Act was not well drafted, particularly having no provisions for grades of misconduct and graduated forms of punishment appropriate thereto, the whole Chapter V of the Act (misconduct) was substituted by the Amending Act of 1959. A new section, being Section 22A was added in the said Chapter providing for appeals. The Chartered Accountanis Regulations. 1949 (hereinafter called the Regulations) were first framed by the Central Government by virtue of Sub-section (4) of Section 30 of the Act. Section 30A was added by the Amending Act, 1959 by which the Central Government was given the power to direct the Council, constituted for the management of the affairs of the Institute of the Chartered Accountants and for discharging the functions assigned to it under the Act, (hereinafter referred to as the Council), to make, amend or revoke any regulation. The Regulations again, were amended' from the year 1950 more than once in each year. Regulation 11A was added on May 26, 1450 to cover cases of enquiry on information. Regulation 11D has been added on November 19, 1960 to the other Regulations for procedure in an enquiry before the Council. In 1960 alone, there were about 8 amendments of the Regulations. Several High Courts including this Court framed Rules under Section 21 of the Act.

26. Even after the amendments from time to time the Act remained unsatisfactory and obscure at many places. I find it impossible not to remark that the draftsmanship of the sections dealing with misconduct and disciplinary action is anythingbut satisfactory, there being also no co-ordination of the provisions in the Act. The result is that the provisions of the Act and the Regulations assumed somewhat interestingly unusual colour, particularly in the light of the procedures adopted by the Council and the Disciplinary Committee, which is one of the standing Committees constituted by the Council, to exercise the functions as are prescribed, including the holding of enquiry relating to misconduct of the members of the Institute. I find in the instant case disposed of by the Council before the Amending Act of 1959 and in some other cases disposed of thereafter, a great deal of confusion still persists and I find the same to my regret. It is painful, rather I am completely mystified to see that the Institute, the Council and the Disciplinary Committee are not doing their duties, discharging their functions and carrying our heir obligations equally in all cases as are required to be done. I find it impossible not to observe that many of the directions given in the cases decided earlier, ate not even attended to, far less carried tout. I also find that certain defects in the procedure are still committed which are of a serious and fundamental character and I feel bound to comment that the ends of justice require that the following principles and directions on the following heads are to be followed by the authorities as guidelines and the observations and remarks made above and hereinbelow are to be remembered by them with due caution to avoid recurrence of similar defects ;n future: Complaint and Prima facie opinion:

27. On receipt of the complaint or information as to the misconduct of an accountant, the Council is not bound to proceed straightway and to cause the enquiry to be held. It would test the bona fides of the same from the standpoint as to whether it is frivolous. There is no time limit to receive the complaint or the information but special care should be taken in the cases of old and stale complaints or where the source was not disclosed. If the complaint does not contain full particulars, specially the particulars of oral and documentary evidence sought to be relied upon in support of the allegations, the Council should call for the same from the complainant before forming prima facie opinion. A bald statement without such (particulars should not be treated as a sufficient: compliance under the statute. The Council and/or the Disciplinary Committee must proceed on the complaint or information as appearing on the records and not on a different complaint or information made for the first time before them. Notice of the complaint or of the receipt of the information is to be given to the member concerned. There is no bar for the Council to ask for a written statement or explanation from the Accountant concerned before forming prima facie opinion though it is the primary duty of the Council toform such an opinion by way of elementary precaution or wisdom before causing enquiry to be held by the Disciplinary Committee but then again, no hard and fast test should be laid down as to how such an opinion is to be expressed. The formation of prima facie opinion is the condition precedent for direction by the Council for enquiry by the Disciplinary Committee. Charges:

28. Charges of misconduct must be clear and specific and must not be vague, undefined andunknown. Specific types of misconduct charging the accountant should be enumerated. Charges might be added by the Council and/of the Disciplinary Committee but must be based on factswhich had already transpired.Enquiry (General):

29. There should not be a general or roving investigation or enquiry relating to misconduct of an accountant but should be confined to the matter or charge in issue. Enquiry should not be dropped merely because the allegations are withdrawn. If not impossible for valid reasons, it should be persuaded; as the object of such a proceeding is in the public interest and the further object is to test the fitness of the accountant concerned, to exercise his profession. Enquiry should be for the period complained of and must not travel to a period prior to or later than the same. If the complaints are of the same nature against more than one member or the complaints are based upon same set of facts and events and arose out of the same proceedings there should be one enquiry, if possible, in respect of all the delinquents and separate enquiries should be avoided. On the complaint by the Central Government, its officers should take part in the enquiry and assist the Council and/or the Disciplinary Committee in coming to its proper findings and they should not maintain an attitude of passivity or incuriosity. If the Government does not assist the Council or the Disciplinary Committee the Government should be directed to appear in the proceedings and to produce evidence in support of the complaint.

30. All enquiries shall be held by the Disciplinary Committee, after the Council directs such enquiry. The Council is to place all the relevant facts and records, brought to its knowledge, before the Disciplinary Committee. The disciplinary Committee must call for the written statement by way of explanation from the accountant even though one such was filed earlier by him before the Council. The Accountant might rely on the earlier explanation or file a fresh explanation and rely on both. Additional written statement or explanation might be accepted. There would be no absolute bar in accepting a written argument, supplementing the written explanation. The Disciplinary Committee may regulate its sitting of enquiry, as such procedures should remain flexible. There is no time limit to hold or to finish the enquiry, but every attempt should be 'made to finish the same before the term of the Disciplinary Committee, which has begun the 'enquiry, expires. Quorum:

31. The Disciplinary Committee must be composed of five members. Short of that, it would be an illegal constitution; but for the purpose of an enquiry, three members of the Committee in the minimum, including the President or the Vice President, might form a quorum, take cognizance of the complaint and enter upon the enquiry. There should be fixity of the personnel of the Enquiry Committee. There should not be change in the composition or re-constitution of the said Committee during the course, process or progress of the enquiry. It must not be a fluctuating body of persons which are added to, substituted from or replaced wholesale from time to time. The same body which began the enquiry should hear the evidence and five its final decision; otherwise it would be a bad enquiry; the report would be an improper report and the decision by the changed personnel would be a wrong decision. The Enquiry Committee would not be vitiated by theabsence of the member nominated by the Government.Evidence: Oral and documentary.

32. The Accountant against whom there is a proceeding for misconduct, has a right to defend himself before the Council and/or the Disciplinary Committee either in person or through a legal practitioner or through a member of the Institute. Both the accountant and the complainant have the right to give evidence, both oral and documentary in support of their respective cases. Evidence taken before a Committee differently composed of, on a prior occasion might be admitted by a subsequent Committee, with the consent of the parties. The burden of proof is not in the first instance wholly on the Accountant to disprove the allegations made in the complaint or in the charges framed against him but the importance of onus loses its significance when evidence on both sides has been given.

33. It is the duty and part of the obligation of the Council and Disciplinary Committee:--

(a) To see that all necessary, essential and relevant evidence, both oral and documentary, are brought up at the enquiry to find out the facts, if not admitted.

(b) To insist that the parties should give their respective lists of witnesses to be examined and they should further indicate on whose behalf they like to give such evidence.

(c) To see that all the witnesses are duly summoned, properly examined on oath or solemn affirmation, in a methodical and not in haphazard way and their whole evidence is recorded and not a portion of it.

(d) To see that the deposition is properly recorded and not the substance of it, in a sli-shod or summary fashion. General discussion or mutual conversation or table-talk among the members themselves or between legal representatives of the party on the one hand and members on the other should not be allowed to be recorded and treated as a part of the evidence. The manner of recording the examination of the persons as witnesses, appeared to me as nothing short of the ludicrous.

(e) To see that the answers of the witnesses are only recorded and not of their lawyers or representatives appearing on behalf of their respective parties. The representatives particulary should not be allowed to behave or think as if they are the witnesses themselves.

(f) Not to allow 'any stranger to take part in the proceeding and not to record his observations and not to treat the same as evidence.

(g) To receive documentary evidence 'and affidavits but they must be relevant and on the points in issue. There should be sufficient indication in the records to show from whom the document is received and by whom the same is proved. Respective lists showing particulars of documents should also be filed.

(h) To see that notes of lawyers and opinions of solicitors are not accepted as evidence as a matter of course. Report and Penalty:

34. The Council, charged with the maintenance of the highest standard of professional integrity, uprightness and purity among its learned members, must record definite findings in its Report, which should be such as of some assistance to the High Court. Merely to say in the report that the Chartered Accountant is guilty of misconduct or unfit to be a member of the Institute is not to make a complete finding. It must state under which of the several items in the Schedule or ofthe additions made thereto by the Council itself, the Accountant is guilty, i.e., what particular or specific types of condemned varieties of misconduct the Chartered Accountant in its opinion committed or had been guilty of. In making the report, the Council should bear in mind the difference between a case where there is some lapse from the etiquette and a case of misconduct. Failure to detect one or two instances of irregularities by the Accountant might not be a misconduct in a particular case but the Council should consider in making the Report whether he exercised any skill or care of any kind.

35. The report of the Council is not final. So is the report of the Disciplinary Committee. But it should appear from the report, or there shouldbe some indication in the Council's report itself that it had applied its mind and considered the report of the Disciplinary Committee. The statement of the case of the Institute filed in the Reference to the High Court should not be referred to or solely relied on for the said purpose. If the reports of the Council and the Disciplinary Committee respectively, are not unanimous, both the majority and the minority report should be forwarded. Where the Council does not accept the report of the Disciplinary Committee, and takes a view different from it or, arrives at a contrary conclusion, the Council in those cases must express its opinion by giving its own reasons which weighed with the Council in support of its opinion, more elaborately, than in a case where the Council does mot take a different view. All members of the Council and the Disciplinary Committee are to signtheir respective reports. Occasion should not arise in future for members' seeking permission before the High Court, for affording them opportunities for such signatures. It would be better if the Council forwards to the High Court the record of the minutes of the Council kept during the course of hearing, where other records are insufficient. It as desirable that the Institute or the Council and the complainant should appear before the High Court, but fresh plea before it would not be permissible.

36. Both the Disciplinary Committee and the Council should suggest or indicate and recommendthe penalty or punishment, the types of which might be severe, moderate or lenient. Barring the penalties provided in Chapter VII of the Act, the punishment might be also imposed by (a) removal of the name of the Chartered Accountant from the Register, either for all time or for a limited period, (b) suspension, (c) reprobation (d) reprimand(e) censure, (f) warning --in full view of the Court or otherwise. The following considerations should be borne in mind, at the time of imposing the type of penalty:--

(1) Whether the accountant acted for any motive of gain, pecuniary or otherwise, whether he actually derived any pecuniary benefit.

(2) Whether the case was a case of mental or moral turpitude.

(3) Whether in addition to failure to do his duty, partially or entire, there had also been failure to act honestly.

(4) Whether the accountant was grossly negligent in his duty which could lead to serious consequences or whether he misconceived his duty but acted reasonably; whether it was a case of default for bare non-performance or part-performance of his duty.

(5) Whether there is an error of judgment, anda claim of bona fide exercise of normal and reasonable care, particularly in cases outside his special province of accountancy; whether it was a case of technical breach though he acted with due diligence or whether he acted mala fide.

(6) In a case of inefficiency the grade of the same, and whether it could lead to grave results.

(7) Whether the accountant was aided and abated by the complainant himself.

(8) Whether he had an unblemished record and his entire career would be completely blasted by imposing the penalty.

(9) Whether a lenient view of the lapse can be taken because of the comparative young age and immaturity of the accountant. It would not be necessary to multiply the points further as we should impose the penalty in each case which would be true measure of our disapproval of the conduct of the Chartered Accountant.

37. The principles which I have summarised above are not and cannot be exhaustive but for the sake of consistency and also for the sake of conformity with good reason, I have so attempted to spell out a workable construction of the Act and Regulations, particularly with regard to the procedure in the enquiry relating to misconduct of an accountant. Many of the observations mentioned above and directions specified might also appear to many as mere elementaries but to our surprise we find that the bare elementaries have not been followed in some cases. Hope would tell us that the position might now be remedied.

38. As I am in agreement with my learned brother and concur with his opinion I did not restate the facts, but before parting with this case I would like to say that the aim of the Act. being like a horse which every member of the legislature rode, was mainly to protect the public from unscrupulous, negligent or dishonest accountants. The duty of the Chartered Accountant is onerous. He should be conscious that he is entrusted with the safety of the interest of the public. He should neither suggest nor assist in the preparation of false accounts. He must not do any act which the Act forbids and his profession disapproves. He should not take up an attitude without repudiating his statutory responsibilities. He must be under the disciplinary control of the profession to which he belongs and remain answerable, to the learned body of professional men of which he is a member, for any misconduct. A Chartered Accountant, should he misconduct, might be reminded that the power of the High Court is wide. It can pass final order and it can also pass orders for lesser punishment but is not bound to pass such order.

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