DEPUTY SECRETARY TO THE GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS Vs. S N DAS GUPTA

JUDGEMENT

(1.) The respondent, Sri S. N. Das Gupta, is a Fellow of the Institute of Chartered Accountants and practices his profession in Calcutta. For the years 1942, 1943 and 1944 he was the Auditor of the Aryan Bank Limited, which has since gone into liquidation and in fact acted as such Auditor. The reports he made were in terms of the usual formula, but those for the first two years were made subject to special reports. After the failure of the Bank, certain criminal proceedings were commenced against its Managing Director, the Director in Charge, the Secretary and another Director, which resulted, in the end, in the conviction of the first two accused persons of conspiracy to falsify the accounts of the Bank and of publication of false balance-sheets. In those criminal proceedings, the respondent was a prosecution witness and it appears that not only the records of the Bank, but his personal papers as well were seized in the course of the investigation. The criminal proceedings terminated with the appellate judgment of this High Court, given in August, 1952.

(2.) On 4-2-1954, one Sri B.K. Kaul, Deputy Secretary to the Government of India, Ministry of Finance, Department of Economic Affairs, addressed a letter to the Secretary of the Institute in which he stated that the balance-sheets and the profit and loss accounts of the Aryan Bank Limited for the years 1942, 1943 and 1944 did not exhibit a true and correct view of the state of the Bank's affairs and he asked that such action as the Institute might deem fit might be taken against the respondent. According to the informant, the Bank had resorted to manipulation of accounts on an extensive scale during the period covered by the respondent's audit. As instances, he alleged that in 1943, the Bank had purported to allot a pro'digious number of shares to certain concerns in which the Managing Director or his relatives were interested and this it had done not on receipt of any actual payment in cash, but by opening fictitious loan accounts in the names of the allottees or non-existent persons and showing the money as paid out of such loans. In the same year, the Bank had purported to pay a large sum to one A.C. Chakraborty, one of its Directors, as commission in respect of the sale of those very shares. In 1944, the Bank had shown in its Fixed Deposit Ledger certain large sums as received on. fixed deposit on a single day from certain concerns in which the Managing Director was interested, but the Cash Book of the Bank did not show any corresponding entries on the relevant date. It was also alleged that on a certain date in 1944, the Cash Book showed a cash balance of about Rs. 5,00,000/-, although the actual balance on that date was a little over Rs. 1,000/- only.

(3.) On receipt of the complaint, the Institute issued the usual notice to the respondent who filed his written statement in due course. With respect to the issue of the shares, his defence wad that he had examined the relevant books and papers and found them to be in order and it was not possible for him, nor was it his duty as a statutory Auditor, to do more or investigate whether the allottees were relatives of the Managing Director or concerns in which he was interested or whether they existed in fact. If loans had been granted to share-holders, there was nothing per se illegal in such transactions. As regards the fixed deposit receipts, the respondent pleaded that the entries in the Fixed Deposit Ledger, which was only a subsidiary book, could not be decisive, because the entries might be wrong, but if the General Ledger was tallied with the Cash Book, the deposits would be found to have been actually made, it might also be that the entries in the Fixed Deposit Ledger related only to renewals. As to the payment of a commission to A.C. Chakraborty the respondent pointed out that in 1943 there was no Director of the Bank of that name at all, but, in any event, payment of a commission to a Director for the sale of shares was not illegal, if the same was permitted by the Articles of Association. As regards the cash balance on a certain date in 1944, the respondent pleaded that an Auditor was concerned only with the cash balance on the day of the closing of the accounts, but it was not his duty to check and certify the cash balance on any particular day in the middle of the year. While taking these specific pleas, the respondent also stated that he had been unable to obtain his papers from the Courts and the police within the short time given to him and he had, therefore, been compelled to rely entirely on his memory.