Discipline; T.O. Aleyas Vs. Institute of Chartered Accounts of India [Kerala High Court, 21-05-2012]

Chartered Accountants Act, 1949 –¬†Sections 21 –¬†Whether the Disciplinary Committee ¬†without giving any reasons, decide not to initiate disciplinary action against chartered accountants, especially when the Director (Discipline), without giving any reasons arrives at a prima facie opinion on the commission of misconduct by one of them, who are partners of a firm of chartered accountants, which firm was engaged for auditing the accounts of a company, in respect of which audit, the complaints were raised?


IN THE HIGH COURT OF KERALA AT ERNAKULAM

S. Siri Jagan, J.

W.P(C) Nos. 29211 & 29212 of 2011 (B)

Dated this, the 21st day of May, 2012

FOR PETITIONER(S): BY SRI.P.K.SURESH KUMAR, SENIOR ADVOCATE. ADV. SMT.N.P.ASHA FOR RESPONDENT(S): R1 TO R3 BY ADVS. SRI.E.K.NANDAKUMAR, SRI.K.JOHN MATHAI, SRI.P.BENNY THOMAS, SRI.P.GOPINATH. R4 BY ADV. SRI.BECHU KURIAN THOMAS.

J U D G M E N T

The issues involved in these two writ petitions area as to whether, on a complaint received from an aggrieved person, the Board of Discipline and the Disciplinary Committee (the respective 3rd respondent in these two writ petitions), constituted by the Institute of Chartered Accountants of India, (the 1st respondent herein), under

Sections 21A and 21B of the Chartered Accountants Act, 1949

(hereinafter referred to as the Act), can, without giving any reasons, decide not to initiate disciplinary action against two chartered accountants, especially when the Director (Discipline), the 2nd respondent herein, without giving any reasons in exercise of powers under Section 21 (2) of the Act, arrives at a prima facie opinion on the commission of misconduct by one of them, who are partners of a firm of chartered accountants, which firm was engaged for auditing the accounts of a company, in respect of which audit, the complaints were raised, while exercising statutory powers under Section 21 (3) of the Act and also whether in respect of the identical misconduct one of the partners can be absolved, when the allegations are in respect of audit for which the firm was engaged. The short facts leading to the two writ petitions may be summarised as under.

2. The 4th respondent in each of these two writ petitions were partners of a firm of chartered accountants by name M/s. Abraham & Kurian. They conducted audit of the accounts of a company by name St. Mary’s Hotels Pvt. Ltd., of which the petitioner is a shareholder/Managing Director. Alleging several specific acts of misconducts on the part of the 4th respondent in each of these two writ petitions, the petitioner filed complaints before the 1st respondent, seeking initiation of disciplinary action as per the provisions of the Act. As enjoined by Section 21 (2) of the Act, the 2nd respondent considered the complaints first and arrived at a prima facie opinion that the 4th respondent in W.P. (C) No. 29211/2011 is guilty of professional misconduct, falling within the meaning of clause 9 of Part I of the First Schedule and Clause 7 of Part I of the Second Schedule of the Act and that the 4th respondent in W.P. (C) No. 29212/2011 is not guilty of professional misconduct falling within the meaning of Clause 7 of Part I of the Second Schedule of the Act. The 2nd respondent placed his prima facie opinion before the respective 3rd respondent in each of the writ petitions as required under Sub Section 3 of Section 21 of the Act. Thereafter, as per Exts. P4 in each of the two writ petitions, the Deputy Secretary of the Disciplinary Directorate of the 1st respondent informed the petitioner as follows:

W.P. (C) No. 29211/2011

“I have been directed to inform you that your Complaint, Written Statement of the Respondent, your Rejoinder and additional documents along with the prima facie opinion formed by the Director (Discipline) under Rule 9(1) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules 2007, were considered by the Disciplinary Committee. The Committee on a consideration of the same did not agree with the prima facie opinion of the Director (Discipline). In view of the above, the Disciplinary Committee decided to close the matter. Accordingly, under Rule 9(2)(c), the Committee passed order for closure of the aforesaid Complaint. Your above mentioned Complaint thus stands closed.”

W.P. (C) No. 29212/2012

“I have been directed to inform you that your Complaint, Written Statement of the Respondent and your Rejoinder along with the prima facie opinion formed by the Director (Discipline) under Rule 9(1) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules 2007, were considered by the Board of Discipline. The Board of Discipline on a consideration of the same agreed with the prima facie opinion of the Director (Discipline) that the respondent was not guilty of any professional or other misconduct under the Chartered Accountants Act, 1949 (as amended by the Chartered Accountants (Amendment) Act, 2006. Accordingly, under Rule 9(3)(a), the Board has passed order for closure of the aforesaid Complaint. Your above mentioned Complaint thus stands closed.”

The petitioner is challenging Ext. P4 decisions of the respective 3rd respondent in these two writ petitions.

3. The petitioner inter alia contends that the impugned orders are arbitrary and violative of the fundamental rights of the petitioner under Article 14 of the Constitution of India, as also principles of natural justice. In W.P. (C) No. 29211/2011, he contends that while exercising statutory functions in the matter of disciplinary action against a chartered accountant, the decisions of the Director (Discipline) and the Disciplinary Committee should be transparent, especially when instituted on the complaint of an aggrieved person, so as to inspire confidence in the minds of the public, in the 1st respondent institution and the procedure adopted by respondents 2 and 3. According to him, when the 3rd respondent gives a decision on his complaint without giving reasons, that too disagreeing with the prima facie opinion of the Director (Discipline), that amounts to arbitrary exercise of power. He submits that as a complainant, who has invoked the jurisdiction of the 1st respondent, the petitioner has a right to know the reasons which prompted the 3rd respondent not to proceed with the complaint, when the 2nd respondent, who has after conducting an enquiry into the veracity of the complaint as prescribed under the Act, found a prima facie case for proceeding with disciplinary action against the 4th respondent. In the other writ petition, the petitioner would contend that when the complaint against the two 4th respondents in the two writ petitions were in their capacity as partners of the very same firm, which was engaged to audit the accounts of a company, in respect of their conduct in the audit of the company, in which the petitioner is a shareholder, both have to sail or sink together and the decision of the 2nd respondent to indict one and to absolve the other is clearly perverse and arbitrary. He would further point out that the circumstances prove that the 3rd respondent in that writ petition has not applied their mind while taking the decision on the complaint of the petitioner. The petitioner seeks the following prayers in these two writ petitions:

“i Issue a writ, order or direction to call for the records leading to Ext.P4 and set aside the order of respondents 2 and 3 in the matter relating to the 4th respondent.

ii. issue a writ, order or direction in the nature of mandamus directing respondents 1 to 3 to initiate action against the 4th respondent on the basis of Ext.P1 complaint and or reconsider the order referred to Ext.P4.”

4. The common 1st respondent and the respective 4th respondent in the writ petitions have filed counter affidavits supporting the impugned orders in both the writ petitions. They would contend that the scheme of the Act does not contemplate giving of reasons for the decisions of the 3rd respondent in each of the writ petition. It is contended that as a responsible statutory authority, the Board of Discipline and the Disciplinary Committee take decisions based on the materials collected by the 2nd respondent and if the records show that the respective 3rd respondent has taken the decision after taking into account the materials on record, that would be sufficient compliance with the procedure prescribed under the Act and the Rules framed thereunder. With the help of the prima facie opinions of the 2nd respondent and the resolutions of the respective 3rd respondent in each of the two writ petitions, copies of which are produced along with the counter affidavits of the 1st respondent, in the two writ petitions, the 1st respondent would contend that the decisions of the 3rd respondent in the two complaints, which are the subject matter of the two writ petitions are unimpeachable, especially in the absence of allegations of malafides. According to them, rules of natural justice cannot be confined to any strait-jacketed formula and without proving prejudice to the petitioner on account of the alleged violation of principles of natural justice, the petitioner cannot challenge the orders on the ground of violation of principles of natural justice. According to them, no civil consequences follow from the impugned decisions to the petitioner and therefore no prejudice is caused to him because of the alleged non- compliance with principles of natural justice and the impugned orders. The respondents rely on the following commentaries in page 285 of “Administrative Law” by David Foulkes, Seventh Edition (1990):