COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Vs. MILIND KANTILAL SHAH CHARTERED ACCOUNTANT

JUDGEMENT

(1.) This reference is made under Section 21(5) of the Chartered Accountants Act, 1949 (the Act), by which the Council of the Institute of Chartered Accountants of India (the Council), who has forwarded the case to this Court after finding the respondent, a Member of the Institute of Chartered Accountants of India, guilty of professional misconduct within the meaning of Clauses (5), (6) and (7) of Part I of the Act read with Sections 21 and 22 of the said Act.

(2.) The matter arises out of a complaint filed by Shri R. Banerjee, Managing Director of the Gujarat State Financial Corporation (GSFC) against the respondent - Shri Milind Kantilal Shah, who is a practising Chartered Accountant and who had issued a certificate which the complainant - Corporation relied upon in order to disburse the loan to a Company named M/s Maimoon Textiles Pvt. Ltd. The complainant made the following allegations against the respondent :

(3.) Mr.S.N.Soparkar, learned Senior Advocate appearing for the Institute, contended that the Council had found the respondent guilty of professional misconduct within the meaning of Clauses (5), (6) and (7) of Part I of the Second Schedule to the Act read with Sections 21 and 22 of the Act on the basis of the material on record gathered during the inquiry conducted by the Disciplinary Committee, which has been statutorily constituted. It was submitted that the recommendation of the Council be accepted and the name of the respondent be removed from the Register of Members for a period of one year. 3.1 The learned Senior Advocate invited the attention of the Court to the evidence of the witnesses, namely, Shri Tahir Ali Vasi, a director of M/s Maimoon Textiles Pvt. Ltd., Shri A.H.Nasir, Shri Sirajuddin Khasi, an Advocate and Notary, Shri Ishwarbhai Patel, the Sarpanch of Masma village, Shri Vasi, a Director of M/s Maimoon Textiles Pvt. Ltd., Shri R.L.Patil, an engineer of the GSFC, Shri Buch, an employee of the GSFC, Shri R.T.Jadav, Senior Inspector with the GSFC and the respondent Shri Milind Shah. The learned Senior Advocate submitted that, from the evidence of the witnesses, it appears that one Shri Hanif Memon had an important role to play in the matter. However, for reasons best known to the respondent, he had chosen not to examine Shri Hanif Memon. Had Shri Hanif Memon been examined, all facts, which would ultimately give a complete scenario, would have come on the record. 3.2 The learned Senior Advocate submitted that GSFC disburses funds on the strength of the certificate issued by the Chartered Accountant. That GSFC had not carried out any inspection, as it had relied upon the certificate of the Chartered Accountant. The attention of the Court was invited to the certificate issued by the respondent and it was submitted that the discrepancy as to capital was indefensible. It was contended that if the respondent had verified Form No.2, he could have easily found the amount of share capital raised by the Company. It was pointed out that, when admittedly the capital was of Rs.4,000/-, the respondent had given the certificate for Rs.5 lakhs. It was contended that the basic document which the respondent was supposed to verify for the purpose of deciding how much share capital the company has raised, was Form No.2; however, as stated by the respondent in his deposition, he had not verified Form No.2. It was submitted that the respondent has acted with sheer callousness. 3.3 The learned Senior Advocate submitted that if the certificate is to be accepted at face value, the person who issues it must do so with due care and caution. If he does not do so, the credibility of the certificate is affected. It was submitted that even though the respondent may not be involved in the fraud, he has permitted the fraud to be perpetuated. It was argued that, as regards the share capital, incorporation and bank transactions, the respondent has no answer, so his say that he was shown some some other place is belied. It was argued that the respondent had not even bothered to verify the books of account prior to issuance of the certificate. Referring to the Memorandum of Association of the Company, the learned Senior Advocate pointed out that the Company was incorporated on 13-5-1993. The learned Senior Advocate referred to the deposition of the respondent wherein he had stated that when he had verified the books of account, he saw that the major part of the expenditure was incurred from 1-1-1993. It was contended that the respondent could not have verified the books of account as the Company was not incorporated on that date. It was submitted that this was not a case of mere carelessness, but was a case of gross negligence. 3.4 The decision in case of Council of Institute of Chartered Accountants of India v. P.C.Parekh, reported in (2003) 129 Taxman 80 (Gujarat) was cited to point out that a large section of public relies on the objectivity and integrity of professional accountants to maintain the orderly functioning of commerce. The Members of the Institute are bound to act in a manner consistent with the good reputation of the profession and that, they should refrain from any conduct which might bring discredit to the Institute. If the professional bodies do not take strong steps to not only policing their members but also to ensure that the public believes that they are doing so, it would call for increasing governmental policing. 3.5 It was submitted that such great credibility was attached to a certificate bearing the signature of a Chartered Accountant that it was the basis of issuance of funds by GSFC. It was submitted that if the Institute does not take action it diminishes the credibility of the members of the Institute. It was contended that the very purpose of obtaining a certificate is frustrated if the certificate cannot be relied upon. It was submitted that the respondent ought to have known that the certificate issued by him was false and that it was a fact that he had reason to believe that it was false but did not make necessary inquiry. 3.6 The learned Senior Advocate referred to the written statement of the respondent wherein, in defence, the respondent had denied that the unit was disbursed money on the basis of his certificate only, since it was the procedure of the GSFC to obtain legal clearance of their own full fledged Legal Department armed with experts in the legal field and only thereafter, the money was released. It was submitted that the petitioner Institute is not concerned with as to whether GSFC is at fault, but the Institute is primarily concerned with the conduct of its own members. 3.7 The decision in the case of Council of Institute of Chartered Accountants v. M.R.Shah, reported in (2004)2 GLH 610 was cited wherein this Court, after referring to the Scheme of the Act as well as the provisions of the Income Tax Act, 1961, observed that the said provisions are indicative of the extent that a Chartered Accountant is looked upon by the society, with special reference to the corporate world, as being competent to discharge various statutory duties and responsibilities as a qualified professional. The Court observed that the said position of law clearly demonstrates the faith that various Government Departments have in the professional qualifications, competency and integrity of a Chartered Accountant and hence, the various statutory duties and responsibilities cast upon a Chartered Accountant under various provisions of the Act. It was stated that there are other statutes like Co-operative Societies Act, Bombay Public Trusts Act etc. where also, the importance of the report of the Chartered Accountants has been statutorily recognized and accepted. The Court observed that it is, in the aforesaid context, that the conduct of the respondent has to be tested and appreciated in the light of the evidence placed on record. 3.8 The decision of the Hon'ble Supreme Court in the case of In re "P" An Advocate, reported in AIR 1963 SC 1313, was cited for bringing out the distinction between "negligence" and "gross negligence". It was held that mere negligence or error of judgement on the part of the Advocate would not amount to professional misconduct. It was observed that error of judgement cannot be completely eliminated in all human affairs and mere negligence may not necessarily show that the Advocate who was guilty of it can be charged with misconduct. It was held that different considerations arise where the negligence of the Advocate is gross. It may be that before condemning an Advocate for misconduct, courts are inclined to examine the question as to whether such gross negligence involves moral turpitude or delinquency. In dealing with this aspect of the matter, however, it is of utmost importance to remember that the expression "moral turpitude or delinquency" is not to receive a narrow construction. It was held that, wherever conduct proved against an Advocate is contrary to honesty, or opposed to good morals, or is unethical, it may be safely held that it involves moral turpitude. A wilful and callous disregard for the interests of the client may, in a proper case, be characterized as conduct unbefitting an Advocate. It was observed that in dealing with matters of professional propriety, one cannot ignore the fact that the profession of law is an honourable profession and it occupies a place of pride in the liberal professions of the country. Any conduct which makes a person unworthy to belong to the noble fraternity of lawyers or makes an advocate unfit to be entrusted with the responsible task of looking after the interests of the litigant, must be regarded as conduct involving moral turpitude. 3.9 It was submitted that, similarly, any conduct of the Chartered Accountant, which makes him unworthy of belonging to the noble fraternity of Chartered Accountants or makes him unfit to be entrusted with the various statutory duties cast upon him, must be regarded as conduct involving moral turpitude. 3.10 The learned Senior Advocate submitted that, in the facts of the present case, the respondent did not exercise due care and caution and had displayed a callous attitude towards his duties. It was urged that the certificate issued by the Chartered Accountant was recognized as a final word by the business world, hence, such conduct cannot be countenanced. It was submitted that, in taking an overall view of the facts of the case, the recommendation of the Council was required to be accepted and the name of the respondent was required to be removed from the Register of Members for a period of one year.