Independent and Reasoned Findings by ICAI Council under Section 21: Commentary on Council of Institute of Chartered Accountants of India v. S.N. Valera

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1. Introduction

The decision of the Gujarat High Court in Council of Institute of Chartered Accountants of India v. S.N. Valera, FCA M/s S.N. Valera & Co. (Charted Accountant Reference No. 3 of 2006, decided on 19 November 2025) is a significant addition to the jurisprudence on disciplinary proceedings against chartered accountants under the Chartered Accountants Act, 1949 (“the Act”).

The case arises out of the infamous Madhavpura Mercantile Cooperative Bank (MMCB) scam of 2001. The respondent, a chartered accountant, had audited MMCB for the financial year 1999–2000. In a subsequent re‑audit ordered by the Registrar of Cooperative Societies, serious irregularities were allegedly detected which, according to the complainant, had not been reported or were improperly reported by the respondent in his audit report. Sixteen distinct charges were framed, ranging from failure to verify documentation for loans to non-reporting of violations of Reserve Bank of India circulars regarding advances and exposure limits.

The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) found the respondent guilty on 8 out of 16 charges (all falling under Part I of the Second Schedule to the Act, i.e. “serious” professional misconduct). The ICAI Council, after receiving the Committee’s report, recommended to the High Court under Section 21(5) of the Act that the respondent’s name be removed from the Register of Members for a period of five years.

The reference before the High Court under Section 21(6) essentially raised one core issue:

• Whether the Council, while exercising its powers under Section 21(3) read with Regulation 16 of the Chartered Accountants Regulations, 1988, had properly discharged its quasi-judicial duty to “consider” the report of the Disciplinary Committee and the respondent’s representation and to record its own independent “findings”, or whether it had mechanically adopted the Committee’s report.

The Court did not decide the respondent’s guilt or innocence on merits. Instead, it examined the validity of the Council’s report and recommendation as a quasi‑judicial act under the Act and Regulations, and whether that report could lawfully form the basis of High Court action under Section 21(6).

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2. Summary of the Judgment

The Division Bench (Hon’ble Mr. Justice A.S. Supehia and Hon’ble Mr. Justice Pranav Trivedi) held:

1. Under Section 21(3) of the Act read with Regulation 16(2) and 16(4) of the 1988 Regulations, the ICAI Council is mandated to:
   • consider the Disciplinary Committee’s report,
   • consider the written representation and oral submissions of the member, and
   • record its own reasoned, independent “findings” on guilt or otherwise.
2. The Council’s report in this case largely reproduced the Disciplinary Committee’s report verbatim (“a cut‑paste job”), and its “findings” were confined to a brief paragraph merely stating that the Committee’s report was being accepted. The Council did not discuss or deal with the respondent’s written representation or oral submissions in any reasoned manner.
3. On this basis, the Court held that the Council had failed to apply its mind as required by law, and had violated the duty to pass a reasoned quasi‑judicial order. The so‑called “findings” did not qualify as findings in law.
4. Relying on Supreme Court authorities, the Court emphasized that:
   • “finding” implies a conclusion supported by reasons demonstrating application of mind;
   • “consider” requires an active, reasoned assessment of all relevant material and submissions;
   • recording reasons is a facet of natural justice in all judicial and quasi‑judicial decisions.
5. The Court therefore set aside the Council’s report and recommendation and remitted the matter back to the Council for fresh consideration and disposal in accordance with law, with a direction to conclude the process within three months. All merits‑based contentions of both sides were left open.

The High Court specifically declined to rely on a previous decision (involving the co‑auditor, Shri Manubhai Panchal) because in that earlier matter, the specific issue of whether the Council had passed a reasoned, independent order had neither been raised nor adjudicated.

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3. Statutory and Regulatory Framework

3.1 Section 21 of the Chartered Accountants Act, 1949

The judgment reproduces and analyses Section 21, which (in the form applicable to this case) structures the process for inquiries into professional or other misconduct of members. The key sub‑sections relevant here are:

• Section 21(1): The Council, on receiving information or a complaint and forming a prima facie opinion that a member is guilty of misconduct, refers the case to the Disciplinary Committee, which holds an inquiry and reports its result to the Council.
• Section 21(2): If, on receiving the Committee’s report, the Council finds the member not guilty, it records that finding and closes the matter.
• Section 21(3): If, on receiving the report, the Council finds the member guilty, it “shall record a finding accordingly” and then proceed as per sub‑sections (4)–(6).
• Section 21(4): Where misconduct is of the kind specified in the First Schedule, the Council itself can:
  • reprimand the member, or
  • remove his name from the register for up to five years,
  unless it feels that longer or permanent removal is warranted, in which case it must forward the case to the High Court.
• Section 21(5): Where the misconduct is of any other category (e.g. Second Schedule misconduct), the Council must forward the case to the High Court with its recommendations.
• Section 21(6): The High Court, after hearing the member, the Council, and the Central Government on such a reference, may:
  • dismiss the complaint or direct filing of proceedings,
  • reprimand the member,
  • remove him from membership (temporarily or permanently), or
  • remit the case to the Council for further inquiry and report.

Thus, Section 21 envisages a multi‑tier process culminating in High Court oversight.

3.2 Regulation 16 of the Chartered Accountants Regulations, 1988

Regulation 16 specifically governs the procedure after the Disciplinary Committee completes its work:

• Reg. 16(1): The Disciplinary Committee submits its report to the Council.
• Reg. 16(2): If the Committee finds the respondent guilty, a copy of its report must be furnished to the respondent, who must be given an opportunity to make a written representation to the Council.
• Reg. 16(3): The Council must “consider” the Committee’s report and the respondent’s representation, and, if it thinks further inquiry is necessary, may direct such inquiry.
• Reg. 16(4): The Council “shall, on the consideration of the report … and the representation … record its findings.” Where the Committee has found the respondent not guilty, the Council cannot record a contrary finding.
• Reg. 16(5): The Council’s “finding” is to be communicated to both complainant and respondent.

The High Court synthesizes Section 21 and Regulation 16 to identify two distinct fact‑finding stages:

1. The Disciplinary Committee’s inquiry and report; and
2. The Council’s own independent evaluation of that report and the member’s representation, culminating in its own findings.

The Court emphasises that the Council is not a rubber stamp for the Disciplinary Committee, but a statutory quasi‑judicial authority with its own duty to reason.

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4. Precedents Cited and Their Influence

4.1 ICAI v. Price Waterhouse & Anr., (1997) 6 SCC 312

In Price Waterhouse, the Supreme Court interpreted Section 21 and Regulation 16. The Gujarat High Court extracts and relies upon the following core holding:

“The recording of a finding of guilt or non-guilt by the Council is mandatory … The Council is required to consider independently the explanation submitted by the member and the evidence adduced in the enquiry before the Disciplinary Committee and the report of the Disciplinary Committee… Entire material constitutes the record of the proceedings before the Council to reach a finding whether or not the delinquent member committed professional or other misconduct.”

This precedent is central to the Gujarat High Court’s reasoning. It establishes that:

• The Disciplinary Committee’s report is not conclusive on guilt or innocence;
• The Council must conduct its own evaluative exercise on the entire material on record, including the member’s explanation; and
• Only the Council’s own reasoned finding triggers the next statutory step under Section 21(4) or 21(5).

The Gujarat High Court applies this principle to conclude that merely repeating the Committee’s report and stating “we accept it” is not enough to amount to a finding in law.

4.2 D.K. Agrawal v. Council of ICAI, 2021 SCC OnLine SC 903

In D.K. Agrawal, the Supreme Court examined the ICAI Council’s recommendations and criticised them for being non-speaking and mechanical. The Gujarat High Court cites paragraphs 21–22, where the Supreme Court held:

• The Council’s power under Section 21 is quasi‑judicial in nature.
• The Council had failed in that case to discuss the Disciplinary Committee’s report, the written statement, or oral submissions while concluding that the member was guilty.
• The statement that the Council had “considered” all materials was held to be incorrect in substance; the recommendations were made mechanically and without independent reasons.
• Recording reasons is a principle of natural justice; it ensures transparency, fairness, and demonstrates that the hearing was not a “meaningless charade”.

The Gujarat High Court uses D.K. Agrawal to underscore that:

• Merely reciting that material has been “considered” is not sufficient if the order does not show how it was considered.
• A non‑speaking or mechanical order violates natural justice and cannot stand.

4.3 Anand Brothers (P) Ltd. v. Union of India, (2014) 9 SCC 212 – Meaning of “Finding”

The Court relies heavily on Anand Brothers to interpret the term “finding” used in Section 21(3) and Regulation 16(4). The Supreme Court held:

“A legal conclusion qualifies as a 'finding' only when it is supported by stated reasons. … It may then be an erroneous finding but it would nonetheless be a finding. What is important is that a finding presupposes application of mind. Application of mind is best demonstrated by disclosure of the mind; mind in turn is best disclosed by recording reasons. That is the soul of every adjudicatory process which affects the rights of the parties.”

Applying this, the Gujarat High Court concludes that:

• A mere conclusion (“the Committee’s report is accepted”) without reasoned analysis of the member’s representation cannot be called a “finding”.
• Even a wrongly reasoned conclusion is still a finding; the Council’s problem here is not correctness but an absence of reasons showing independent application of mind.

4.4 Chairman, LIC v. A. Masilamani, (2013) 6 SCC 530 – Meaning of “Consider”

On the interpretation of the word “consider” (used in Regulation 16 and echoed in the Council’s own assertions), the Court cites A. Masilamani:

“The word ‘consider’ … means ‘to think over’, ‘to regard as’, or ‘deem to be’. … there must be active application of mind. … the order of the authority itself, should reveal such application of mind. The appellate authority cannot simply adopt the language employed by the disciplinary authority, and proceed to affirm its order.”

Using this, the Gujarat High Court reasons that:

• For the Council to legitimately say it has “considered” the member’s representation and the Committee’s report, its own order must demonstrate this by engaging with the material.
• Blindly adopting the Disciplinary Committee’s language and conclusions falls short of the statutory requirement of “consideration”.

4.5 Other Authorities Cited and Distinguished

• ICAI v. L.K. Ratna, (1986) 4 SCC 537: Cited by the respondent’s counsel (and accepted generally in the background) for propositions on fair procedure and right of hearing in disciplinary matters against CAs. Though not heavily analysed, its broad theme supports the requirement of procedural fairness.
• Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan, (2010) 9 SCC 496: Often cited for the principle that reasons are the heartbeat of every conclusion. This supports the Court’s emphasis on reasoned orders.
• Union of India v. P. Gunasekaran, (2015) 2 SCC 610 and State Bank of India v. Ramadhar Sao, 2025 SCC OnLine SC 1752: These were invoked by the Council to argue that judicial interference with disciplinary findings is limited. The High Court, however, holds them inapplicable because they concern judicial review in service law (employee disciplinary proceedings), whereas Section 21 of the CA Act creates a special statutory regime with specific duties for the Council and a distinct reference jurisdiction for the High Court.
• Gujarat High Court decisions:
  • CA Rajesh v. Disciplinary Committee, (2012) 28 taxmann.com 100 (Guj.)
  • ICAI v. Arun Purushottam Kapadia, (2014) 41 taxmann.com 308 (Guj.)
  These were distinguished because they did not directly address the specific ground raised here—namely, the absence of independent, reasoned findings by the Council despite a statutory duty to record such findings.
• Chartered Accountant Reference No. 2 of 2006 (Shri Manubhai Panchal): The Council argued that, as the co‑auditor’s suspension for two years had been upheld (and SLP dismissed by the Supreme Court), a similar outcome should follow here. The Court rejected that analogy because:
  • in Panchal’s case, the question of the Council’s failure to give a reasoned, independent order was neither raised nor decided;
  • a decision is binding only on the issues actually adjudicated, not on points never argued.

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5. Court’s Legal Reasoning

5.1 The Four‑Tier Structure under Section 21 and Regulation 16

The Court conceptualizes the statutory scheme as involving four stages:

1. Stage 1 – Prima facie opinion (Section 21(1)): The Council forms an initial opinion on the complaint and refers the matter to the Disciplinary Committee if a case of possible misconduct is seen.
2. Stage 2 – Inquiry and report by Disciplinary Committee: The Committee frames charges, holds inquiry, and submits a report recording its conclusions.
3. Stage 3 – Independent findings by the Council (Section 21(3), Reg. 16(2)-(4)):
   • The Committee’s report is sent to the respondent.
   • The respondent files a written representation and may be heard orally.
   • The Council must:
     • “consider” the report and the representation, and
     • record its own findings on guilt or non‑guilt.
4. Stage 4 – High Court’s jurisdiction (Section 21(4)–(6)):
   • Either the Council itself imposes minor penalties (for First Schedule misconduct up to 5 years), or
   • For graver misconduct (e.g. Second Schedule), the Council forwards the case with its recommendations to the High Court, which then decides the appropriate sanction or may remit the matter back.

This structure reveals that the Council is not merely an appellate forum over the Disciplinary Committee, nor a body with powers analogous to departmental appellate authorities in service jurisprudence. It has a specific, statutorily defined fact‑finding role of its own.

5.2 Examination of the Council’s Report

The Court notes the following salient features from the record:

• The Disciplinary Committee’s report, dated 16.11.2004, held the respondent guilty on 8 charges (nos. 4, 5, 8(iv), 9, 11, 13, 14, 15) and not guilty on the others.
• The report was forwarded to both parties; the complainant and the respondent both filed written representations.
• The respondent was heard orally through authorised counsel before the Council.
• The Council’s “report”:
  • reproduced the entire Disciplinary Committee report verbatim, spanning pages 308–361 of the paper book;
  • contained only a brief portion (paragraphs 6–9) that could be described as “findings”, where the Council simply:
    • recorded having received written and oral submissions, and
    • stated that it “decided to accept” the Committee’s report regarding guilt and non‑guilt.

Crucially, the Court points out that:

• There is no discussion whatsoever of the specific points raised in the respondent’s written representation.
• There is no analysis of the oral submissions made by his authorised representative.
• The report is thus “bereft of independent findings” and reflects no real application of mind by the Council.

On this basis, the Court characterises the Council’s exercise as a mere “cut‑paste job”, which cannot satisfy the statutory requirement of recording a “finding”.

5.3 Application of the Concepts of “Finding” and “Consideration”

Using Anand Brothers and A. Masilamani, the Court draws out two key interpretive threads:

1. “Finding” (Section 21(3), Reg. 16(4)):
   • Must be a reasoned conclusion demonstrating application of mind on facts and law.
   • Even if legally or factually wrong, it remains a “finding” as long as it is reasoned; what is fatal is the absence of reasons.
   • The Council’s statement that it “accepts” the Disciplinary Committee’s report, without more, is not a “finding” in this legal sense.
2. “Consider” (Reg. 16(3) and (4)):
   • Implies active application of mind—to “think over”, “regard as”, “deem to be”, not a ritualistic or formal endorsement.
   • The order itself must reveal such application of mind.
   • Here, the bare assertion that the Council “considered” the representations is contradicted by the absence of any engagement with the respondent’s arguments in the body of the report.

The Court, therefore, holds that the Council’s report fails the statutory test embedded in Section 21 and Regulation 16 and also violates broader principles of natural justice.

5.4 Natural Justice and the Duty to Give Reasons

Drawing on D.K. Agrawal, Kranti Associates, and general principles, the Court reiterates:

• Recording reasons is an integral component of natural justice in any judicial or quasi‑judicial decision which affects rights, reputation, or professional status.
• Affected parties are entitled to know why their submissions were not accepted; justice must not only be done but also be seen to be done.
• A decision lacking reasons—or where reasons are perfunctory or merely formulaic—is prone to being set aside, not necessarily because of the result it reaches, but because of how it reaches that result.

Applying these principles, the Court concludes that the Council’s recommendations were made mechanically, and that the process before the Council was reduced to a procedural formality, rendering the opportunity of representation largely illusory.

5.5 Rejection of Arguments Based on Co‑Auditor’s Case

The Council argued that the High Court had previously accepted its recommendations in the case of Shri Manubhai Panchal (Chartered Accountant Reference No. 2 of 2006, decided on 03.11.2017), arising out of the same MMCB saga, and that the Supreme Court had refused to interfere in SLP.

The Court declines to treat that decision as controlling:

• The specific issue raised here—non‑speaking, mechanical nature of the Council’s findings—was neither raised nor adjudicated in Panchal’s matter.
• A precedent is binding only as to questions actually argued and decided, not on issues that were never in issue.
• The mere fact of common factual background (MMCB scam, co‑auditors) does not mean the same outcome must follow, especially when the legal challenge is different.

5.6 Distinguishing Service Law Precedents on Judicial Review

The Council relied on P. Gunasekaran and Ramadhar Sao to argue that the High Court’s interference with disciplinary findings should be minimal, limited to jurisdictional or perversity grounds.

The Court distinguishes these authorities on two grounds:

• They deal with service law judicial review under Article 226/227 over departmental disciplinary proceedings, where the Court generally does not sit as an appellate authority.
• Here, the High Court is exercising a statutory jurisdiction under Section 21(6) of a special Act, which explicitly authorises the Court, upon reference, to make substantive determinations including:
  • reprimanding the member,
  • removing him from the register (temporarily or permanently), or
  • remitting the case for further inquiry.
  This is closer to an original or reference jurisdiction than to a narrow writ review.

Within this framework, the Court holds that it is fully competent—and indeed obligated—to examine whether the prescribed statutory procedure has been followed and whether the Council has performed its quasi‑judicial function in accordance with law.

5.7 The Final Relief

In light of the above reasoning, the Court:

• Sets aside the Council’s report and recommendation made under Section 21(5) seeking removal of the respondent’s name for five years;
• Remits the matter back to the Council for fresh consideration and disposal strictly in accordance with law, and in the light of the Court’s observations;
• Directs the Council to dispose of the matter within three months of receipt of a copy of the judgment;
• Leaves all merits‑based contentions of both parties open, given that the Court has not adjudicated on the correctness of the Disciplinary Committee’s factual conclusions.

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6. Complex Concepts Simplified

6.1 “Professional Misconduct” and the Schedules

The Chartered Accountants Act, 1949 categorises misconduct primarily through the First Schedule and Second Schedule:

• First Schedule: Generally relates to relatively less serious lapses (e.g. certain advertising, fee‑sharing, etc.). For such misconduct, the Council itself can impose penalties (reprimand, removal up to five years) under Section 21(4).
• Second Schedule: Covers more serious or grave misconduct (such as gross negligence, failure to report material misstatements, professional misconduct in audit engagements). These typically trigger the High Court’s jurisdiction under Section 21(5)–(6).

In this case, the charges on which the respondent was found guilty fell under Part I of the Second Schedule, for example:

• Clause (5): Failure to disclose a material fact known to him, which is not disclosed in a financial statement but disclosure of which is necessary.
• Clause (6): Failure to report a material misstatement known to him to appear in a financial statement.
• Clause (7): Gross negligence in the conduct of professional duties.
• Clause (8): Failure to obtain sufficient information to warrant the expression of an opinion or exceptions in financial statements.
• Clause (9): Failure to invite attention to material departures from generally accepted procedures of audit.

These are serious forms of professional delinquency, particularly in the context of bank audits where public interest and financial stability are at stake.

6.2 “Quasi‑Judicial” Function

A function is described as quasi‑judicial when:

• It involves determining rights, obligations, or liabilities of specific individuals;
• The authority must act fairly, following principles akin to a court (notice, opportunity of hearing, impartiality);
• The authority must base its decision on evidence and give reasons.

The Council, when acting under Section 21, is not formulating policy or exercising mere administrative discretion. It is deciding whether a particular chartered accountant is guilty of misconduct and what disciplinary consequences should follow. Therefore, it must behave like a tribunal: hear the parties, evaluate evidence, and pass a reasoned order.

6.3 “Finding” vs. “Conclusion” vs. “Rubber Stamping”

• A finding is a conclusion reached after consciously evaluating evidence and arguments, and it must be backed by reasons that show how and why the authority reached that conclusion.
• A bare conclusion (“guilty” or “not guilty”) without reasons is not, in law, a “finding” for purposes of Section 21 and Regulation 16.
• Rubber stamping or “cut‑paste” adoption occurs when a superior or statutory authority simply lifts a lower body’s reasoning or language without its own analysis. This is impermissible where the statute explicitly mandates the higher body to exercise its own judgment.

6.4 Natural Justice and Reasoned Decisions

Two core principles of natural justice that are implicated here are:

1. Audi alteram partem – the right to be heard:

• The respondent must have a meaningful opportunity to present his case, both before the Disciplinary Committee and the Council.
• This right becomes hollow if the authority then fails to address or engage with what he says.

2. Duty to give reasons:

• Reasons show that the authority has in fact considered the defence and evidence.
• They also enable effective judicial scrutiny and assure parties that the decision is not arbitrary.

In the present case, the Court holds that, though a hearing and representation were formally allowed, the absence of reasoned findings on the respondent’s submissions reduces that hearing to a near formality, offending natural justice.

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7. Impact and Implications

7.1 For ICAI and Its Disciplinary Process

This decision has direct implications for how the ICAI Council must conduct itself in disciplinary matters:

• The Council must always pass reasoned orders showing engagement with:
  • the Disciplinary Committee’s findings,
  • the member’s written representation, and
  • any oral submissions advanced on his behalf.
• Mere replication of the Disciplinary Committee’s report and a conclusory statement of “acceptance” will be legally inadequate.
• Internal minutes or assertions that submissions were “considered” will not cure the defect if the final order itself does not disclose the Council’s reasoning process.

In practical terms, ICAI will need to:

• revise its internal templates and drafting practices for Council orders in disciplinary cases;
• ensure structured reasoning—even if concise—against each major head of challenge in the member’s representation;
• train Council members in quasi‑judicial decision‑writing and natural justice standards.

7.2 For Chartered Accountants Facing Disciplinary Proceedings

For members subjected to disciplinary action, this judgment:

• reinforces the right to a genuine consideration of their defence at the Council stage;
• clarifies that a superficial or mechanical order can be challenged before the High Court (on reference) as being contrary to Section 21 and Regulation 16;
• offers a concrete benchmark: the Council’s order must engage with their written representation and cannot simply echo the Disciplinary Committee without analysis.

7.3 For Other Professional Regulatory Bodies

Although the judgment specifically concerns ICAI, its reasoning is squarely grounded in general administrative law and natural justice principles. It is therefore likely to influence:

• Bar Councils and disciplinary bodies for advocates;
• Medical, engineering, and company secretary institutes with similar multi‑tier disciplinary structures;
• Other tribunals and professional regulators where a primary inquiry body reports to a higher statutory council or board.

Any such body that:

• is required by statute/regulation to “consider” a report, hear the affected professional, and record its “findings”, and
• merely rubber‑stamps subordinate findings without independent reasons,

runs the risk of having its orders quashed on analogous grounds.

7.4 For Judicial Approach under Section 21(6)

The case also clarifies the nature of the High Court’s role under Section 21(6):

• The Court is not constrained to a narrow judicial review akin to service law cases; it is exercising a specific jurisdiction conferred by the CA Act, which allows it to:
  • examine the legality and propriety of the Council’s findings and recommendations, and
  • remit cases for further inquiry where procedural or substantive defects exist.
• This reinforces that High Courts remain an effective corrective forum in the disciplinary architecture governing chartered accountants, ensuring adherence to both statutory text and principles of fair procedure.

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8. Conclusion

The Gujarat High Court’s decision in Council of ICAI v. S.N. Valera does not pronounce on the respondent’s guilt for his role in the MMCB audit. Instead, it addresses a more structural and enduring issue: how the ICAI Council must discharge its quasi‑judicial responsibilities under Section 21 of the Chartered Accountants Act.

The key takeaways are:

• The Council’s duty to “record a finding” under Section 21(3) and Regulation 16(4) is not a formality. A “finding” must be a reasoned conclusion showing independent application of mind.
• The statutory requirement to “consider” the Disciplinary Committee’s report and the respondent’s representation demands active, demonstrable reasoning, not mechanical endorsement.
• Natural justice requires that when a professional’s reputation and livelihood are at stake, the adjudicating authority must engage with their defence and explain why it is accepted or rejected.
• Cut‑and‑paste adoption of subordinate findings, without independent analysis, will render the Council’s order unsustainable and liable to be set aside.

By setting aside the Council’s non‑speaking report and remitting the matter for fresh consideration, the Court has reaffirmed that disciplinary justice must not only be rigorous in uncovering misconduct, but also scrupulously fair in its decision‑making process. The precedent firmly positions the ICAI Council as a genuine quasi‑judicial body whose reasoned decisions are indispensable to the integrity and credibility of professional self‑regulation in India.