The Council of the Institute of Chartered Accountants of India and Others vs R. Ayyavoo, Tamil Nadu State Transport Corporation (Kumbakonam Division I) Ltd. and Joint Secretary to the Government of Tamil Nadu, Transport Department, Office of the Commissioner and Secretary to Government

R. Jayasimha Babu, J.

1 We are rather surprised at the order under appeal by which the Institute of Chartered Accountants has been prevented from taking disciplinary

proceedings against auditors whose alleged failure to perform their duties had resulted in loss of several millions of rupees to the Transport

Corporation owned by the State.

A complaint in that regard was made by the Joint Secretary to the State Government which owns all the shares in the Corporation. That

complaint names all the persons who were responsible for the misconduct. The persons so named were internal auditor, as also the statutory

auditors. It sets out the nature of the omissions committed by them namely their failure to verify the cash, their failure to verify the records, etc. as a

result of which the defalcation that had occurred was not brought to light. Had the internal auditors and statutory auditors been diligent, such

defalcation would not have occurred and as a result of their proper scrutiny had they brought the facts to light at the earliest instance, proper

remedial action could have been taken.

This complaint, by its very nature, is a serious complaint. It refers to the failure on the part of the auditors to perform their professional duties.

The complaint was made to the professional body which is concerned with the maintenance of high standard among its members. After scrutiny of

the complaint the Council was of the prima facie view that the matter required a closer examination and enquiry by the disciplinary committee. Even

before that step could be taken by the Council, the writ petitioner, who was the internal auditor, approached the Court by filing a writ petition. The

writ petition remained pending in this Court for ten years and came to be heard in the year 1997. By the order under appeal, the proceedings

initiated against the petitioner, which was in reality, yet to be gone into by the disciplinary committee, were quashed. We see no justification

whatsoever for the order so made.

The Chartered Accountants Act 1949 is an Act which is intended to regulate the profession of Chartered Accountants. The Chartered

Accountants play a vital role in monitoring finances of and ensuring financial discipline in businesses more particularly of companies registered under

the Companies Act. They are the watchdogs for the shareholders of the Companies and it is on their responsible discharge of their duties that the

shareholders'' interest are adequately protected. If those professionals fail to perform their duties in the manner required of them, such failure would

not be merely a case of serious misconduct on the part of a professional but also prejudices the trust which the society has reposed in those

professionals with regard to the competent discharge of the duties entrusted to them. In this case, the monies defalcated are from Corporation

owned by the State. The funds are clearly public funds. That defalcation was made possible by reason of the failure on the part of the professional

Chartered Accountants to perform their functions in the manner that was required of them. An enquiry into their conduct with a view to take

appropriate disciplinary action was warranted not only to ensure that their misconduct did not tarnish the image of the profession of Chartered

Accountants in general, but also to protect public who had reposed confidence in their professional competence and had employed them for the

purpose of performing auditing and various other functions which a Chartered Accountant is required to do under the provisions of the Act.

The action taken by the Council on the report of the disciplinary committee is required to be brought to the notice of the High Court which

would scrutinise the record to make sure that the professional Chartered Accountant has not been unfairly or improperly treated. There are

sufficient safeguards under the provisions of the Act. This Court, which is the ultimate guardian of the profession of the Chartered Accountants, in

matters of their discipline, should not at the very threshold prevent the Council from enquiring into a complaint properly made by a responsible

senior officer of the State Government.

We set aside the order under appeal and dismiss the writ petition. The writ appeal is allowed.