Chartered Accountant acquitted after 19-year disciplinary saga over alleged misconduct.

Case Name:

The Institute of Chartered Accountants of India v. CA Gordhanbhai Madhabhai Savalia (High Court of Bombay)

Key Takeaways:

- The court highlighted the importance of timely conclusion of disciplinary proceedings to ensure fairness and avoid prolonged mental agony for the accused.

- The court criticized the ICAI’s casual and negligent attitude in taking 19 years to complete the disciplinary process without any explanation.

- The court found the evidence against the CA insufficient to hold him guilty of misconduct, especially considering his acquittal in a related criminal case.

- The court emphasized the need for reasoned and transparent decision-making by adjudicatory bodies.

Issue:

Whether the Chartered Accountant, CA Gordhanbhai Madhabhai Savalia, should be held guilty of professional misconduct and his name removed from the Register of Members for one year, as recommended by the ICAI.

Facts:

- In 1992-1994, CA Savalia was alleged to have fabricated payment challans, certificates, and misappropriated funds while handling sales tax matters for a client company.

- A complaint was filed with the ICAI in 2004, and disciplinary proceedings were initiated in 2007.

- After multiple hearings and remands, the ICAI’s Disciplinary Committee found CA Savalia guilty of “other misconduct” in 2015.

- The ICAI Council accepted the Committee’s report in 2018 and recommended removing CA Savalia’s name from the Register for one year.

- The ICAI filed a reference in the Bombay High Court in 2019, which remained pending until 2023 due to objections.

- CA Savalia was acquitted in a related criminal case in 2018.

Arguments:

The ICAI argued that CA Savalia was guilty of professional misconduct based on the Disciplinary Committee’s report and the Council’s acceptance of the same.

CA Savalia denied the allegations, contested the decision-making process, and highlighted his acquittal in the criminal case.

Key Legal Precedents:

- State of Madhya Pradesh v. Bani Singh (1990) Supp. SCC 738

- State of A.P. v. N. Radhakrishnan (1998) 4 SCC 144

- Institute of Chartered Accountants of India v. Sudhir M. Desai (2023) SCC OnLine 2209

- D.K. Agrawal v. Council of the Institute of Chartered Accountants of India (2021) 131 taxmann.com 103

Judgement:

The Bombay High Court found the ICAI’s inordinate delay of 19 years in concluding the disciplinary proceedings against CA Savalia unjustified and prejudicial. The court criticized the ICAI’s casual and negligent attitude and found the evidence against CA Savalia insufficient to hold him guilty of misconduct, especially considering his acquittal in the related criminal case. The court also noted the lack of independent analysis and reasoning by the ICAI Council in accepting the Disciplinary Committee’s report. Considering these factors, the court directed the proceedings against CA Savalia to be filed, effectively acquitting him.

FAQs:

Q1: What was the main issue in this case?

A1: The main issue was whether CA Gordhanbhai Madhabhai Savalia should be held guilty of professional misconduct and his name removed from the Register of Members for one year, as recommended by the ICAI.

Q2: Why did the court acquit CA Savalia?

A2: The court acquitted CA Savalia primarily due to the ICAI’s inordinate delay of 19 years in concluding the disciplinary proceedings without any justification, which caused prejudice to CA Savalia. The court also found the evidence against him insufficient to hold him guilty of misconduct, especially considering his acquittal in a related criminal case.

Q3: What legal principles did the court emphasize?

A3: The court emphasized the principles of timely conclusion of disciplinary proceedings, reasoned and transparent decision-making by adjudicatory bodies, and the need to balance the interests of clean administration with the rights of the accused.

Q4: What was the significance of CA Savalia’s acquittal in the criminal case?

A4: CA Savalia’s acquittal in the related criminal case, where a higher standard of proof is required, cast doubt on the ICAI’s finding of guilt against him in the disciplinary proceedings, which require a lower standard of proof.

Q5: What was the court’s view on the ICAI’s decision-making process?

A5: The court criticized the ICAI’s casual and negligent attitude in taking 19 years to complete the disciplinary process without any explanation. The court also noted the lack of independent analysis and reasoning by the ICAI Council in accepting the Disciplinary Committee’s report.

1. This is a reference made by Petitioner. The Institute of Chartered Accountants of India (“the Institute”) under the provisions of Section 21(v) read with Section 22 of the Chartered Accountants Act, 1949 (pre-amended as applicable to the present case) against Respondent, viz., the Chartered Accountant concerned.

2. The Institute received a complaint dated 20th April 2004 from one Bhuvnesh Chandra, Mumbai (“Complainant”) the Director of M/s. Twincity Glass Pvt. Ltd. (“the Company”) making certain allegations against Respondent more particularly that Respondent used to calculate the sales tax liability and collect money from the Company to deposit in the authorized bank and used to send to the Company the photocopies of the original payment challan. Respondent used to tell the Company that the originals were required to be retained by him for assessment. Respondent used to claim reimbursement from the Company in cash for tax payments purportedly done by him on behalf of the Company. Respondent fabricated bogus payment challans by putting forged stamp of Dena Bank, Vile Parle (W) Branch and gave photocopy of the same as proof of payment to the Company. It is also alleged that Respondent fabricated certificates of Sales Tax Authorities showing completion of assessment and sent photocopies of the same as proof thereof. Respondent is further alleged to have collected account payee cheques for making payment of sales tax dues which he misappropriated by depositing in his own bank account. The alleged incident has taken place during the period 1992-1994.

3. Upon receipt of the complaint, the Institute called upon Respondent to send his response and by a written statement dated 16th December 2004, Respondent defended himself firstly by denying each and every allegation against him and referring to the complaint as sweeping, reckless and containing unsubstantiated allegations. He claimed to have an unblemished record of professional integrity for as many as 20 years. Complainant rebutted the written statement by its own rejoinder reiterating the allegations.

The Council of the Institute (“Council”) at its meeting held in September 2007 at New Delhi, prima facie, found Respondent guilty of professional misconduct and/or other misconduct and accordingly referred the case to Disciplinary Committee (“Committee”) constituted under the Chartered Accountants Act, 1949 (“the Act”).

4. The Committee held various meetings and concluded the hearing on 1st August 2008. Report was submitted to the Council holding Respondent guilty for ‘other misconduct’ falling within the meaning of Section 22 read with Section 21 of the Act. The Council in its meeting held in November 2010, upon consideration of the Committee’s report along with Respondent’s written representations dated 29th August 2009 and 8th March 2010, remanded the matter to the Committee for an enquiry denovo.

5. The Committee conveyed two hearings for the purpose of inquiry on 5th April 2013 and 22nd April 2013. After hearing the parties, recording evidence and on perusal of the documents produced before the Committee, the Committee gave its report on 27th February 2015 holding Respondent guilty of ‘other misconduct’ under Sections 21 and 22 of the Act. The Council considered the report at its 374th meeting held between 21st to 24th March 2018 at New Delhi. The Council on the basis of the contents of report, written representation and oral submissions made by Respondent accepted the conclusion of the Committee and decided to recommend to this Court that the name of Respondent be removed from its Register of Members for a period of one year. The present Reference has been thus filed on 25th September 2019. The same remained under objections till 2023 and was ultimately registered as Reference No.1 of 2023. It is this Reference that arises for our consideration today.

6. Mr. Prerak Choudhary, learned Counsel appears for Petitioner and Mr. Sujit Shelar, learned Counsel appears for Respondent. Mr. Choudhary took us through the report of the Committee as well as the deposition of Respondent. He also took us through the written statement, written representation of Respondent before the Council as well as the decision of Council. We have perused the material placed on record and considered the submissions of Petitioner.

7. The Institute of Chartered Accountants of India is a statutory body created by an Act of Parliament that is the Chartered Accountants Act, 1949. In accordance with Section 9 of the Act, the management of the affairs of the Institute are vested in the Central Council. The Council performs its function through three different standing committees constituted under Section 17 of the Act and various other committees. One of the standing committees of the Institute is the Disciplinary Committee. The function of the Institute is to regulate the provisions of the Act and it is also empowered to take action against its members for any misconduct as contemplated in the Act and relevant regulations framed thereunder. Section 21 of the Act prescribes the procedure to be followed with regard to an inquiry relating to the misconduct of the members of the Institute. Section 22-A provides for filing of an appeal by a member against imposition of penalty. The Act was amended on 8th August 2006 by Act 9 of 2006. However, since the alleged other misconduct relates to the period prior to the amendment, we are concerned with the unamended Sections 21 and 22, which are as under:

“21. Procedure in inquiries relating to misconduct of members of Institute:

“(1) Where on receipt of information by, or of a complaint made to it, the Council if prima facie is of the opinion that a member of the Institute has been guilty of any professional or other misconduct, the Council shall refer the case to the Disciplinary Committee, and the Disciplinary Committee shall thereupon hold such inquiry and in such manner as may be prescribed, and shall report the result of its inquiry to the Council.

(2) If on receipt of such report the Council finds that the member of the Institute is not guilty of any professional or other misconduct, it shall record its finding accordingly and direct that the proceedings shall be filed or the complaint shall be dismissed, as the case may be.

(3) If on receipt of such report the Council finds that the member of the Institute is guilty of any professional or other misconduct, it shall record a finding accordingly and shall proceed in the manner laid down in the succeeding subsections.

(4) Where the finding is that a member of the Institute has been guilty of a professional misconduct specified in the First Schedule, the Council shall afford to the member an opportunity of being heard before orders are passed against him on the case, and may thereafter make any of the following orders, namely:

(a) reprimand the member;

(b) remove the name of the member from the Register for such period, not exceeding five years, as the Council thinks fit:

Provided that where it appears to the Council that the case is one in which the name of the member ought to be removed from the Register for a period exceeding five years or permanently, it shall not make any order referred to in Clause (a) or Clause (b), but shall forward the case to the High Court with its recommendations thereon.

(5) Where the misconduct in respect of which the Council has found any member of the Institute guilty is misconduct other than any such misconduct as is referred to in Sub-section (4), it shall forward the case to the High Court with its recommendations thereon (6) On receipt of any case under sub-section (4) or subsection (5), the High Court shall fix a date for the hearing of the case and shall cause notice of the date so fixed to be given to the member of the Institute concerned, the Council and to the Central Government, and shall afford such member, the Council and the Central Government an opportunity of being heard, and may thereafter make any of the following orders, namely :

(a) direct that the proceedings be filed, or dismiss the complaint, as the case may be;

(b) reprimand the member;

(c) remove him from membership of the Institute either permanently or for such period as the High Court thinks fit;…..”

8. Regulation 13 of the Chartered Accountants Regulations, 1964 (“Regulation”) provides for the procedure of an inquiry before the Committee. Regulations 14 and 15 which are relevant for the purpose of this case are as under:

“14. Report of the Disciplinary Committee.

(1) The Disciplinary committee shall submit its report to the Council.

(2) The Council shall consider the report of the Disciplinary Committee and if, in its opinion, a further enquiry is necessary, shall cause such further enquiry to be made whereupon a further report shall be submitted by the Disciplinary Committee.

(3) The Council shall, on the consideration of the report and the further report, if any, record its findings.

(4) If the finding is that there is no case for passing one of the orders specified in clauses (a) or (b) of subsection (4) of section, the complainant and the respondent shall be informed accordingly.

15. Procedure in a hearing before the Council.

(1) If the Council, in view of its findings, is of opinion that there is a case for passing one of the orders specified in clauses (a) or (b) of sub-section (4) of Section 21, is shall—

(a) furnish to the respondent a copy of the report of the Disciplinary Committee and a copy of its findings: and

(b) give him a notice indicating the order proposed to be passed against him and calling upon him to appear before it on a specified date or if he does not wish to be heard in person, to send within a specified time, such representation in writing as he may wish to make against the proposed order.

(2) The scope of the hearing or of the representation in writing, as the case may be, shall be restricted to the order proposed to be passed.

(3) The Council shall, after hearing the respondent, if he appears in person, or after considering the representation, if any, made by him, pass such orders as it may think fit.

(4) The orders passed by the Council shall be communicated to the complainant and the respondent.”

9. It is clear from the above provisions that the stipulated procedure required the Committee report to contain a statement of allegations, the defense entered by the delinquent Chartered Accountant, the recorded evidence and the conclusions of Committee. The Council is to apply its mind to the report of Committee and is empowered to conclude regarding the guilt of its member or otherwise. A perusal of Committee report indicates that there was also a criminal case pending against Respondent before the Additional Chief Metropolitan Magistrate, 47th Court, Esplanade Court, Mumbai (“ACMM”)regarding the same allegations made in the present complaint and he was prosecuted for offences under Sections 406, 420, 465, 467, 468, 471 and 204 of the Indian Penal Code (“the criminal complaint”) which was pending when the Committee gave its report and also when the Council met and accepted the report of Committee. The Committee indicted Respondent holding that although complainant was unable to produce sufficient evidence against Respondent, he was able to show that books of accounts and other documents were in the custody of Sales Tax Enforcement Branch, Mumbai and the Economic Offence Wing. Further, the Committee noted that though complainant was unable to establish that Respondent withdrew money from the bank and altered the names and figures on the cheque and complainant gave money to Respondent to deposit the same against the sales tax liability, yet Respondent gave an undertaking that in case the Company failed to discharge its sales tax liabilities, he shall personally shoulder the same. The Committee went on to observe that no professional such as Respondent will give an undertaking while at the same time denying his involvement in the act of forging the challans. The Committee further accepted complainant’s affidavit which confirmed that Respondent has made several payments on behalf of the Company to the Sales Tax Department. On the basis of this evidence and the fact that Respondent failed to give an explanation regarding the circumstances and reasons compelling him to give an undertaking as aforesaid, the Committee held him guilty of ‘other misconduct’.

10. Respondent has filed his affidavit in reply and placed on record subsequent events. He states that the trial against him in the criminal complaint by judgment and order dated 5th May 2018 passed by the ACMM, he stands acquitted of all the charges. He has placed the order of acquittal on record. He has also denied the allegations made by the Institute in the Reference and has categorically denied the execution of the so-called undertaking which was relied upon by the Committee to indict him. He says that it is the complainant Company that has forged the undertaking. He further contests the decision making process of the Committee and the Council on the ground that the report of the Committee was never served on him.

11. We have perused the documents, the Reference memo and the affidavit in reply carefully. Noteworthy is the sequence of events in the present matter.