Pranab Kumar Chattopadhyay, J.:— This is a reference under Section 21(5) of the Chartered Accountants Act, 1949 (hereinafter referred to as the ‘said Act’) by the Council of the Institute of Chartered Accounts of India. The Council of the Institute of Chartered Accountants of India (hereinafter referred to as the ‘said Council’) has found the respondent, a member of the said Institute and a partner of the firm of Basu Dey Kapur, guilty of certain misconduct which was found to have been committed by him by the disciplinary committee of the said Council.
2. Certain irregularities in Securities and Call Money Transactions of UCO Bank during the year 1991-1992 were reported by the Joint Parliamentary Committee (JPC) and a committee was set up to enquire into irregularities in Securities and Banking Transactions and the committee thereafter enquired into Securities Transactions of banks and financial institutions (Janakiraman Committee). In the first interim report and report No. 5 and the annual audited accounts of UCO Bank for the year 1991-1992, certain irregularities and deficiencies were observed and by letters dated 20th May, 1994 and 2nd May, 1995, the respondent's firm was asked to submit comments and/or clarifications.
3. The respondent's firm sent its clarifications vide letter dated 31st October, 1994 and 9th May, 1995 respectively. Since those clarifications were not found satisfactory, the matter was treated as ‘information’ in terms of Section 21(1) of the C.A Act and an ‘information letter’ dated 15th May, 1997 framing certain charges of misconduct was sent to the firm of the respondent. The said firm was asked to name the member answerable for the said charges. The said firm replied to the ‘information letter’ by its letter dated 7th November, 1997. Upon a perusal of the written statement, the Council was prima facie of the opinion that the respondent was guilty of professional misconduct and decided to refer the case to the Disciplinary Committee for enquiry. The Disciplinary Committee enquired into the matter and submitted report on 4th February, 2003.
4. A copy of the aforesaid report of the Disciplinary Committee was sent to the respondent, Shri Somnath Basu and he was informed that the said report would be considered by the Council at one of its forthcoming meetings. The respondent submitted his written representation on 16th July, 2003 and further written representation on 10th September, 2003.
5. On consideration of the report of the Disciplinary Committee along with the aforesaid written representations of the respondent dated 16th July, 2003 and 10th September, 2003 the Council decided to accept the report of the Disciplinary Committee and accordingly held that the respondent was guilty of professional misconduct falling within the meaning of:
(i) Clauses (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 with regard to charges 3, 4, 5 and 10.
(ii) Clauses (6), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 with regard to charges 6 and 7; and
(iii) Clauses (5), (6), (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 with regard to charge 8; and
(iv) Clauses (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 with regard to charge 11.
6. The Council, accordingly, decided to recommend to the High Court that the name of the respondent be removed from the Register of Members for a period of one year. Therefore, the Council applied before this Court for approving the aforesaid recommendation regarding removal of the name of the respondent from the Register of Members for a period of one year.
7. On examination of the findings of the disciplinary committee which were accepted by the petitioner Council it appears that the respondent was found guilty in respect of the Charges 3, 4, 5, 6, 7, 8, 10 and 11.
8. Charges 3, 4 and 5 arise out of irregular entries in the Security General Ledgers (SGL) of the UCO Bank.
9. Charge No. 3 relates to crediting of securities purchased for Bank's own investment account into broker's SGL (Security General Ledger) account.
10. While summarising the said charge it has been alleged that the auditors have failed to report the discrepancies arising out of crediting investment in Government securities purchased on UCO Bank's own account into broker's account and the consequential effect on maintenance of SLR (Statutory Liquidity Ratio). It has been alleged that the said auditors have failed to report that the bank management did not produce them proper documents relating to SLR (Statutory Liquidity Ratio) securities.
11. Charge No. 4 relates to transfer of Securities from the broker's account to UCO Bank's own account of the face value of Rs. 37 crores without documents showing that the Bank had purchased those securities from the brokers.
12. While proceeding with the said charge it has been specifically alleged that the auditors have failed to report transfer of securities from broker's SGL (Security General Ledger) A/c. to Bank's SGL A/c. without supportive purchase documents.
13. Charge No. 5 relates to shortfalls in Statutory Liquidity Ratio (SLR) on account of diversion of securities to broker's account.
14. It has been specifically alleged that the auditors have failed to report the wrong credit of investment transaction to broker's account for bank's own investment and the consequential shortfall in the SLR.
15. Charge Nos. 6, 7, 8 and 10 arise out of ready forward contracts.
16. Charge No. 6 relates to crediting of interest to broker's account in ready forward contracts.
17. It has been alleged that the statutory auditors of UCO Bank for the year 1991-1992 have failed to report that UCO Bank paid a share of interest in ready forward transaction to the brokers and thereby they have failed to assess the impact of such wrongful sharing on the reported loss of UCO Bank. It has further been alleged that the said auditors have failed to comply with the requirements of SAP-4 (Standard Auditing Practices) (Paras 17-20) issued by ICAI.
18. Charge No. 7 relates to crediting of difference in rates to broker's account.
18. It has been alleged in this regard that the statutory auditors have failed to report that the Bombay Hamam Street branch transacted securities at the rates different from the rates contracted and advised by the Head Office and credited the resultant difference in broker's account. Accordingly, it has been specifically alleged that the said auditors represented by the respondent have failed to assess the impact of the wrongful loss to UCO Bank on its reported loss for the year ended 31-3-92 and have violated the requirements of SAP4 (Standard Auditing Practices) as contained in Paras 17-20.
20. Charge No. 8 relates to ready forward deals with State Bank of India (SBI)/ANZ Grindlays Bank (Grindlays). The amount involved is Rs. 93.15 crores.
21. It has been alleged that the said auditors have failed to report the outstanding ready forward transaction of Rs. 93.15 crores with SBI/Anz Grindlays Bank and contingent loss, if any, arising thereof. It has also been alleged that the said auditors have failed in conducting post balance sheet review as regards the completion of such year-end-transaction to ascertain the implications thereon on the financial statement.
22. Charge No. 10 relates to funding of the broker HSM (Harshad Mehta) through issue of BRs (Bank Receipts) by UCO Bank.
23. It has been alleged that the said auditors have failed to report funding of broker HSM (Harshad Mehta) by UCO Bank through issue of BRs (Bank Receipts) and also they have failed to assess wrongful loss, if any, caused to UCO Bank by such funding.
24. Charge No. 11 arises out of insufficient internal controls in UCO Bank while dealing with investments. Various procedural irregularities with regard to the securities transactions have been specifically mentioned in the said Charge No. 11.
25. It has been alleged that the said respondent auditors have failed to report to the management as regards lax internal control of UCO Bank in procedural irregularities in securities transactions and thereby they have failed to comply with the requirements of SAP-6 (Standard Auditing Practices) (Para 26).
26. The respondent's defence to these charges was that the relevant accounts were maintained at the Hamam Street Branch of the UCO Bank in Mumbai of which the firm of the respondent was not the auditors and as such the said auditors had no means of detecting the irregularities in relation to which the charges were made.
27. While dealing with the Charge No. 3 it has been specifically alleged that the auditor firm of the respondent in spite of having knowledge regarding irregularities in the transactions have failed to carefully scrutinise the correctness of the maintenance of SLR (Statutory Liquidity Ratio) securities. It has also been alleged that the said auditors did not indicate in the audit report that the head office management was not able to produce before them proper documents as regards purchase of SLR securities and on the contrary it has been specifically mentioned that all the informations and explanations necessary for the purpose of audit were furnished and the same were also found to be satisfactory. According to the Council, the respondent auditors did not act fairly and honestly while discharging its professional duties relating to the auditing of the accounts of the bank.
28. Out of the eight charges, Charge No. 3 is most important and detailed submissions were made by the learned Counsel representing the Institute of Chartered Accountants and also by the Counsel of the respondent. It is significant that the other charges arise out of or are relatable to the Charge No. 3.
29. It has been mentioned in the Charge No. 3 that UCO Bank purchased for its own investment securities for Rs. 20 crores which were credited to broker's SGL (Security General Ledger) account No. 065 instead of SGL account No. 032 maintained for UCO Bank's own investment. The said transaction was recorded at Hamam Street Branch, Bombay on 5th of April, 1991 and discrepancy of wrong recording was discovered on 25th October, 1991. It is on record that during the said period of 6 months, the broker took advantage of the discrepancy as aforesaid and traded in the loan freely without actually holding the security.
30. Mr. P.K Mullick, learned Senior Counsel of the respondent, submits that Mohit Jain and Co., the stftutory auditor of the Hamam Street Branch of the UCO Bank, submitted the audit report on 23rd April, 1992 and did not indicate any irregularities and on the contrary gave a clean audit report. It has been specifically submitted on behalf of the respondent auditor that during the relevant period i.e at the time of auditing and submission of audit report on 19th June, 1992 the said respondent was not aware of the irregularities of Bombay Hamam Street Branch relating to Bank's investment and as such the respondent could not be charged with negligence in discharging the professional duty as auditor or otherwise.
31. Referring to the allegation mentioned in Charge No. 3 that one of the joint auditors had requested the bank management at head office to produce all the documents for purchase and sales relating to SGL (Security General Ledger) account which the head office was unable to produce and the said fact was duly covered in the Consolidated Long Form Audit Report for the year 1991-1992 in Para 8.1.6, Mr. Mullick, learned Senior Counsel of the respondent submits that the said transaction mentioned in Paragraph 2 of Charge No. 3 is a different transaction about which no charges have been brought against the charged auditor and the same was related in respect of the period September, 1992 which has nothing to do with the Charge No. 3. Mr. Mullick further submits that Paragraph 2 of the Charge No. 3 is not at all related with Paragraph No. 1 of the said Charge No. 3.
32. The learned Counsel of the respondent categorically submits that the inference drawn that the charged auditor was aware of the irregularities in such transactions are wholly untrue and incorrect as the said inference was drawn on the basis of the wrong finding mentioned in Paragraph 2 of the said Charge No. 3. Mr. Mullick, therefore, submits that such inference must be held to be incorrect as the transaction mentioned in the Paragraph 2 of the Charge No. 3 is different from the transaction mentioned in the Paragraph 1 of the Charge No. 3 and furthermore, on the basis of the transactions mentioned in paragraph 2 of the said Charge No. 3, no charge has been brought against the charged auditor. It was also specifically submitted on behalf of the respondent auditor that the said auditor in the audit report did not indicate that the head office management was unable to produce proper documents before or at the time of audit.
33. Mr. Mullick, learned Senior Counsel representing the respondent auditor submits that both the Paragraphs 2 and 3 of the Charge No. 3 are misleading since Paragraph 2 of Charge No. 3 cannot be related to Paragraph 1 of the said Charge No. 3 and the inference drawn in Paragraph 3 is improper as the alleged inference cannot be drawn against the charged auditor on appreciating the facts properly. Mr. Mullick specifically urged before this Court that the charges mentioned in Charge No. 3 are not only incorrect but the same has also not been substantiated and in fact were misleading.
34. On close examination of the aforesaid Charge No. 3 along with the supporting records we find that the transactions mentioned in Paragraphs 1 and 2 are not the same and identical transactions. As a matter of fact, the transaction mentioned in Paragraph 2 of the said Charge No. 3 is totally different transaction and not related with the Charge No. 3 and therefore, it cannot be said that the respondent Chartered Accountant was aware of the irregularities in such transactions as has been specifically mentioned in the concluding Paragraph of the Charge No. 3. In our opinion, the inference drawn in respect of the charged auditor with regard to Charge No. 3 is based on misleading facts and therefore, it cannot be said that the said Charge No. 3 has been proved or substantiated against the charged auditor.
35. In Charge Nos. 4 and 5 it has been specifically alleged that the respondent auditor failed to report the transfer of securities from broker's SGL account to Bank's SGL account without the purchase documents showing that the bank had purchased those securities from the brokers and also the shortfalls in SLR (Statutory Liquidity Ratio) on account of diversion of securities to broker's account.
36. It has been urged on behalf of the respondent auditor that any irregularity in this regard relates to the account of Bombay Hamam Street Branch of the bank and the same was noticed by the Janakiraman Committee at the time of checking the SGL accounts maintained at Hamam Street Branch of the bank at Bombay. The learned Counsel of the respondent auditor submits that in absence of any advice from Bombay Hamam Street Branch or any specific instruction with regard to the transfer of Rs. 37 crores, it was not possible for the charged auditor to identify such transaction. It has also been submitted on behalf of the respondent auditor that the aforesaid dis crepancies with regard to the transfer of securities were recorded in the letter dated 23rd June, 1995 of Mohit Jain and Co., the other auditor of the bank, which was concealed from the respondent auditor herein and the aforesaid fact was duly recorded by the respondent auditor in the letter dated 16th/17th July, 2003.
37. It has been specifically submitted on behalf of the respondent auditor that the transactions in the broker's SGL account was maintained by Bombay Hamam Street Branch of the bank and did not fall within the scope of audit of the charged auditor. Mr. Mullick, learned Senior Counsel of the respondent auditor specifically submits that the alleged irregularities mentioned in Charge No. 4 were in respect of Bombay Hamam Street Branch of the bank which was audited by the concerned branch auditor at the relevant time and therefore, the respondent auditor herein is not accountable in respect of the said irregularities under any circumstances.
38. Mr. Arijit Chaudhuri, learned Senior Counsel of the petitioner submits that the disciplinary committee specifically observed on examination of the relevant records that all the investment activities of the UCO Bank were controlled, monitored and administered at the head office and only voucher transactions took place at the Bombay Hamam Street Branch. Mr. Chaudhuri also submits that according to the said committee since the branch accounts did not have any investment account in their balance sheet and the investment account is appearing only in the Head Office account of UCO Bank, the accountability rests only on the auditor who was looking after the investment area at the Head Office of the UCO Bank which was allotted to Basu Dey and Kapur represented by the respondent herein.
39. Mr. Chaudhuri further submits that it has been alleged before the disciplinary committee that the SGL Account No. 65 though was operated and maintained at Hamam Street Branch, yet the Head Office was fully aware of the transactions of SGL Account No. 065 which were being reported every day whenever any transaction took place. Referring to the report submitted by the disciplinary committee Mr. Chaudhuri, learned Senior Counsel of the petitioner submits that the said disciplinary committee refused to accept the contention of the auditors represented by the respondent that the investment transactions were not within their purview and it was only within the purview of the branch. It has been specifically urged on behalf of the petitioner that the respondent failed to review the branch Audit Report in proper perspective and while planning the auditing job in respect of the investments at Head Office, the said charged auditor did not consider it appropriate to visit the branch personally for review of the maintenance of records and documents at Hamam Street Branch.
40. The disciplinary committee has also specifically observed in this regard that the respondent auditor did not plan his work which enabled him to conduct effective audit of investment transactions in an efficient and timely manner. The said disciplinary committee also observed that the respondent auditor also failed to understand the manner in which the investment transactions were carried out by the bank and its branches and also failed to assess as to how the documentation was maintained at the branch level as the Head Office level.
41. On examination of the observations of the disciplinary committee we find that the said committee arrived at a conclusion that the respondent auditor failed to check the necessary documents which were required in order to assess the real nature of transactions of various accounts and thus failed to report the wrong credit of investment transactions to broker's account for Bank's own investment and the consequential shortfall in the SLR (Statutory Liquidity Ratio). The said disciplinary committee held the respondent auditor guilty of Charge Nos. 3, 4 and 5 within the meaning of Clauses 7 and 8 of Part I of the Second Schedule to the Chartered Accountants Act, 1949 and the aforesaid finding of the disciplinary committee was also accepted by the petitioner Council.
42. With regard to Charge Nos. 6 and 7 it has been submitted on behalf of the charged auditor that the transactions in question were of Hamam Street Branch of the bank at Bombay and clean audit report was given by the concerned branch auditor of Bombay.
43. It has been submitted on behalf of the respondent auditor herein that the report of Mohit Jain and Co. for the year 1995 came long after the audit report submitted by the charged auditors in June, 1992. The respondent auditor herein claimed that following the instructions of the Institute, audit was completed strictly in accordance with law. It has also been submitted on behalf of the charged auditor that the broker's current account maintained at the branch office is an off balance account and not a part of the investment of the Bank's Head Office and the respondent had no scope to verify such current account of the brokers. The learned Counsel of the charged auditor herein submits that although it was alleged that the charged auditor had failed to comply with the requirements of SAP-4 (Standard Auditing Practices) but paragraph 17 to 20 of SAP-4 (Standard Auditing Practices) inter alia talk about fraud or significant error.
44. Mr. Mullick, learned Counsel of the respondent auditor submits that neither any charge of fraud has been alleged against the charged auditor nor such fraud had been investigated by the disciplinary committee of the Institute. Mr. Mullick specifically submits that the aforesaid Charge Nos. 6 and 7 have not at all been proved and the disciplinary committee arrived at a wrong finding in this regard. However, from the records it appears that the disciplinary committee on examination of the records came to the conclusion that the respondent auditor failed to bring out in the report that the Bombay (Hamam Street) Branch transacted the Securities at the rates different from the rates contracted and advised by the Head Office and credited the resultant difference in broker's account which according to the said committee was to the tune of Rs. 65 lakhs. Therefore, in view of the Committee, the respondent Auditor is guilty of the Charges 6 and 7 within the meaning of Clauses (6), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
45. With regard to Charge No. 8 it has been submitted on behalf of the respondent auditor that the first leg of the transactions took place during the audit of the concerned period and was held as investments on 31st March, 1992 which was also confirmed by the report of Janakiraman Committee. In paragraph 25(iv) of the said report it has been stated that the said amount had been credited to UCO Bank SGL Account on 30th March, 1992. Referring to paragraph 8.4 of the Accounting Standard-4 “Contingencies and Events Occurring after the Balance Sheet Date”, the learned Senior Counsel of the respondent auditor submits that the events occurring after the balance sheet date, which do not affect the figures stated in the financial statements, would not normally require disclosure in the financial statements although they may be of such significance that they may require a disclosure in the report of approving authority to enable users of financial statements to make proper evaluation of the same. In the letter dated 16th July, 2003 addressed to the petitioner Institute, the respondent auditor clearly mentioned that the transaction was partially completed as outright sale of securities of the value of Rs. 50 crores on 18th April, 1992. The contract for the sale of balance amount of Rs. 50 crores was outstanding on the date of the audit report i.e 19th June, 1992 and the same was cancelled by UCO Bank on 31st August, 1992 which was beyond the date of the Audit Report. The above facts had also been confirmed by the Janakiraman Committee in paragraph 2.5(iii) of Report No. 5.
46. With regard to the aforesaid Charge No. 8 the disciplinary committee observed that the circumstances which were prevalent on the day of signing the Balance Sheet should have raised the doubt in the minds of the respondent and accordingly the said auditor should have assessed the nature and estimate of the financial effect of such transaction on the balance sheet of the UCO Bank for the year ended 31st March, 1992. Therefore, in view of the committee the respondent failed to carry out the post balance sheet review as regards the completion of such year end transaction to actually ascertain the implication of the said transactions on the financial statement of the UCO Bank, knowing the fact that the documentation which was checked by them was inadequate for coming to a concrete conclusion.
47. The said disciplinary committee therefore, arrived at the opinion that the respondent auditor is guilty of the charge within the meaning of Clauses (5), (6), (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
48. The respondent auditor also took the identical defence while dealing with the other charges regarding funding of broker, Harshad Mehta (HSM) through issue of Banker Receipts (BRs) by UCO Bank and other proceudral irregularities as specifically mentioned in Charge Nos. 10 and 11.
49. The learned Counsel representing the respondent auditor submits that the aforesaid irregularities were not within the knowledge of the charged auditor nor the same was brought to the notice of the auditor by anybody before submission of the audit report. It has been submitted on behalf of the respondent auditor that the said auditor relied upon the clean audit report given by the other auditor entrusted with the auditing job of the Hamam Street Branch of the bank. Mr. Mallick, learned Senior Counsel of the respondent auditor submits that the said auditor acted with best of ability and without any negligence and therefore, the aforesaid charges levelled against the charged auditor cannot be sustained or said to be proved.
50. In our opinion, the aforesaid submissions made on behalf of the respondent auditor cannot be said to be devoid of any merit. We are also of the opinion that the Charge Nos. 10 and 11 have not been established against the respondent auditor beyond all reasonable doubt.
51. Although it has been submitted on behalf of the respondent that it is impossible to check the transactions in various branches of the bank but the learned Counsel of the petitioner submits that the audit responsibility of the respondent auditor was limited to the investments which are normally dealt with at the head office of the bank and apart from the transactions relating to the investments which are normally dealt with at the head office, the said auditor had to examine some records available at only one branch i.e Hamam Street Branch of the bank. It has also been submitted on behalf of the respondent that the petitioner Council made the respondent a scapegoat and inflicted punishment although in the identical circumstances all other joint auditors have been exonerated. The learned Counsel of the petitioner, however, submits that the respondent auditor herein has only been found negligent in carrying out the duties by the disciplinary committee and the petitioner Council did not find anything wrong with the aforesaid findings of the disciplinary committee and accepted the said findings in respect of the respondent auditor herein.
52. Section 21 of the Chartered Accountants Act, 1949 enumerates the procedures for conducting enquiries relating to misconduct of the members of the Institute. Part I of the Second Schedule of the said Act defines professional misconduct in relation to Chartered Accountants in practice requiring action by a High Court and in the present case, reliance has been placed in Item (7) of Part I of the said Second Schedule which is set out hereunder:
“A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he—
(1) - (6) …………………………………………
(7) is grossly negligent in the conduct of his professional duties.”
53. Referring to the Division Bench judgment of this Court reported in AIR 1964 Calcutta 178 (Chief Controller of Exports, New Delhiv. G.P Acharya), Mr. Chaudhuri, learned Senior Counsel of the petitioner submits that this Hon'ble Court should not interfere with the findings of the professional bodies like the Council of the Institute of Chartered Accountants of India and its disciplinary committee in the facts of the present case. In the aforesaid decision P.B Mukharji, J., speaking for the Bench, observed as hereunder:
“11. Wide are the powers, therefore, of this Court in dealing with references under Section 21 of the Chartered Accountants Act Nevertheless it appears that some well settled principles should guide this Court in exercising this ample power. It is essential to remember that this Court in such jurisdiction as under Section 21 of the Chartered Accountants Act is dealing with not so much a private dispute or a private litigation but is dealing with the findings of a professional body of people who are intended to be the best judges of what their own standard of professional conduct should be. Unless, therefore, there is a gross violation or disregard of the provisions of the Chartered Accountants Act or the Regulations made thereunder or a gross and utter disregard of certain well known principles of natural justice and fairness or obvious disregard of essential considerations of law or fact, this High Court should not be too eager to interfere with the findings of professional bodies like the Council of the Chartered Accountants of India and its Disciplinary Committee.”
54. Mr. Chaudhuri also relied on the decision of the Hon'ble Supreme Court in the case of West Bengal Electricity Regulatory Commission v. Cesc Ltd.. reported in (2002) 8 SCC 715 : AIR 2002 SC 3588) (paragraphs 69 & 71) In support of his aforesaid contentions. The relevant observations of the Hon'ble Supreme Court in the aforesaid paragraphs are set out hereunder:
“69. We have perused the above judgments as also the arguments of learned Counsel, and we have no hesitation in holding that the appellate of the High Court statutorily is not hedged in by any restriction, but in our opinion, the High Court merely because it has unrestricted appellate power, should not interfere with the considered order of the Commission unless it is satisfied that the order of the Commission is perverse, not based on evidence or on misreading of evidence, keeping in mind the fact that the Commission is an expert body…………
“71. …………… Further, in regard to the exercise of appellate power against the orders of expert tribunals, on facts, the appellate Court which is not an expert forum should be doubly careful while interfering with such expert forum's findings on facts………..”
55. Mr. Muliick, learned Senior Counsel, of the respondent auditor, however, submits that the powers of Court under Section 21 of the Chartered Accountants Act, 1949 are undoubtedly wide enough to enable the High Court to adopt any course in order to do complete justice between the parties. Mr. Mullick relied on the decision of the Hon'ble Supreme Court in the case of Council of the Institute of Chartered Accountants v. B. Mukherjea reported in AIR 1958 SC 72 in this regard wherein Gajendragadkar, J. observed as hereunder:
“6. ……………….The powers of the High Court under S. 21, sub-sec. (3) are undoubtedly wide enough to enable the High Court to adopt any course which in its opinion will enable the High Court to do complete justice between the parties……..”
56. Mr. Mullick also referred to and relied upon a Division Bench judgment of the Madhya Pradesh High Court in the case of Council of the Institute of Chartered Accountants of India v. C.H Padliya and Co. reported in (1979) 49 Company Cases page 478.
57. In the present case, we are to consider whether the allegations relating to professional misconduct on the part of the respondent auditor have been proved beyond all reasonable doubt. It has been alleged by the petitioner Council that the respondent auditor was grossly negligent in the conduct of his professional duties.
58. On examination of the records including the report of the disciplinary committee and scanning the charges levelled against the respondent auditor we find that the basic allegations against the respondent auditor are failure to report the transfer of securities from Broker's account to Bank's SGL account and also not to report the wrong credit of investment to broker's account and furthermore, failure to report several irregularities in the transactions relating to investments of the bank. However, it was never alleged that the respondent auditor was willfully and deliberately negligent in the conduct of his professional duties.
59. Failure to rise to the expected level of efficiency in discharging professional duties — cannot be regarded as misconduct treating such failure as negligent act in the conduct of the professional duties. In the Division Bench judgment of this Court in the case of S. Ganesan…Complainant; v. A.K Joscelyne…. reported in AIR 1957 Calcutta 33, Chief Justice Chakravartti observed as hereunder:
“33. ……….. Professional misconduct on the part of the person exercising one of the technical professions cannot fairly or reasonably be found, merely on a finding of a bare non-performance of a duty or some default in performing it. The charge is not one of inefficiency, but of misconduct and in an allegation of misconduct an imputation of a certain mental condition is always involved. I think, it would be impossible for any professional man to exercise his profession if he was to be held guilty of misconduct simply because he had not, in a given case, been able to do all that was required in the circumstances or that had misconceived his duty or failed to perform a part of it. I think the test must always be whether in addition to the failure to do the duty, partial or entire, which had happened, there had also been a failure to act honestly and reasonably.”
60. In the present case, admittedly, it has not been alleged that the respondent auditor failed to act honestly and therefore, it is difficult to hold that the said auditor is guilty of any misconduct. It is difficult to hold that lack of efficiency or attainment of expected standards while discharging professional duty would automatically constitute misconduct.
61. Misconduct arises from ill-motive and mere acts of negligence, innocent mistake or errors of judgment do not constitute the misconduct. Even if there is any negligence in performance of duties or errors of judgment in discharging of such duties, the same - cannot constitute misconduct unless ill-motive in the aforesaid acts are established.
62. In case of proved carelessness and negligence also, this Court administered severe warning on the auditor instead of inflicting severe punishment to the Chartered Accountant as sought to have been done in the present case. The Division Bench of this Court in the case of Chief Controller of Exports (supra) rejected the contention of the Institute and administered severe warning to the effect that the auditor concerned should be more responsible in future. In the present case, the element of doubt is so large that it cannot be said that the charges levelled against the charged auditor have been established and/or proved beyond reasonable doubt.
63. As we have already observed that failure to meet the expected standard of efficiency by a professional cannot be regarded as misconduct and since we are also satisfied on examination of the available records including the report of the disciplinary committee that the charges of gross negligence in the conduct of the professional duties as alleged against the charged auditor have not been established and/or proved beyond reasonable doubt, the recommendations of the petitioner Council on the basis of the report submitted by the disciplinary committee in respect of the respondent auditor cannot be approved. Accordingly, the findings of the disciplinary committee in respect of the charged auditor and subsequent acceptance of the same by the petitioner Council and also recommendations of the said Council in respect of the charged auditor cannot be sustained and the same are, therefore, rejected.
64. We are, therefore, of the opinion that for the ends of justice no step should be taken against the respondent auditor and prayer of the petitioner Council for approving the recommendation regarding removal of the name of the respondent auditor from the Register of Members for a period of one year is rejected.
65. In the aforesaid circumstances, there will be no order on this reference as prayed for and the same is accordingly disposed of without any order as to costs.
66. All parties concerned are to act on a Xerox signed copy of this judgment and order on the usual undertaking.
Order accordingly.
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