The Secretary vs K. Venkatacharyulu Chartered Accountant

L. Narasimha Reddy, J.—This reference is made under Section 21(5) of the Chartered Accountants Act, as it stood in the year 2000. The facts, in brief, are as under:

The sole respondent is a Chartered Accountant and he is a partner in M/s. Bapuji & Venkat. Chartered Accountants, functioning at Hyderabad (for short the firm). The firm was undertaking the auditing of accounts of a company, by name South India Mercantile Private Limited. In the audited accounts for the year 1988-89, one of the shareholders by name Smt. Urmila G. Bhupta submitted a complaint to the Council of the Institute of Chartered Accountants, New Delhi, petitioner herein, pointing out six acts of alleged irregularities. Since the work of auditing in the firm was undertaken by the respondent herein, a show cause notice was issued to him on 24.07.1991. On receipt of the same, the respondent submitted a reply on 04.12.1991. The complainant filed her rejoinder. The Council referred the matter to its Disciplinary Committee. The Committee, in turn, conducted a detailed enquiry, duly giving opportunity to both the parties and submitted a report, dated 15.01.1995. It was observed that out of the six allegations made against the respondent, five can be taken as proved. The report was taken into account by the Council. Through its proceedings, dated 13.06.1996, the Council came to a provisional conclusion to impose the punishment of removal of the respondent from the Registrar of Members for a period of three months. Accordingly, it recommended the same to this Court, through reference.

Heard Sri C.V. Rajiv Reddy, learned counsel for the petitioner. Obviously because the matter was pending for the past several years, there is no representation for the respondent.

We have carefully gone through the complaint submitted against the respondent, reply thereto, the detailed report of the disciplinary committee and the order passed by the Council recommending punishment. The allegations made against the respondent are as under:

The auditors M/s. Bapuji & Venkat had neglected their duties in reporting all the matters to be reported in their audit report of the company, M/s. South India Mercantile Pvt. Ltd. for the year 1988-89 in respect of the MAOCARO ORDER, 1988, issued by the Company Law Board in terms of Section 227(4-A) of the Companies Act, 1956.

The auditors had wrongly certified the Fixed Assets Schedule in which the gross block of assets had been wrongly reported by the Company.

Depreciation of Fixed Assets had not been calculated as per the schedule XIV of the Companies Act, 1956. Further, the matter had not been reported by the auditors in their report, which showed their negligence towards their duties.

Valuation of closing stock had not been reported by the auditors and they had not associated themselves with the stock verification and these mattes were not reported or qualified, which was not as per the norms. Further, quantitative details of each class of goods traded by the Company had not been given in the accounts which was also against Schedule VI requirements.

Auditors fee had not been shown under different heads as the auditors had given different services to the Company, as statutory auditors, tax auditors, Income-tax representation and Company Law matters which was also against the Schedule VI requirement of the Companies Act, 1956.

The auditors had signed the final accounts of March, 1989 before the accounts of 1987 and 1988 were approved in the Annual General Meeting, which was not correct and they had failed to verify the Board Minutes and General Meeting Minutes.

The respondent submitted his explanation item wise as under:

The allegation of the petitioner is that the Auditor have neglected in reporting all the mattes under MAOCARO 1988 is not correct. The MAOCARO 1988 has come into effect from 1st November, 1988 and there was no clarification about its applicability to the Companies for a part of the year. Therefore I was of the opinion that the order applies to the Company''s accounts for the year 1989-90 and not for the year 1988-89. Hence I have not included particulars required under MAOCARO 1988 in my report in the accounts for the year ended 31.03.1989.

I admit that the Fixed Assets Schedule attached to the Balance Sheet did not contain some of the Particulars as required by the Companies Act. In this connection I would like to submit that during the period in which I was finalizing the accounts of the Company my mother was hospitalized for about two months due to Heart problem. As such I entirely depended on my assistants in completion of the audit. As the mistake that has occurred is a technical one only but has not resulted in any wrong statement of figures either in Profit and Loss Account nor in Balance Sheet. This lapse on my part may kindly be condoned, in view of my mental condition at that time due to ill health of my mother. In this connection I would also like to state that the Fixed Assets Schedule for the years ended 31.03.88 and 31.03.90 were in accordance with the requirements of the Companies Act, 1956.

The Schedule XIV of the Companies Act came into force in the middle of the year 1988-89 and there was controversy regarding applicability of the rates for the part of the year. I honestly considered that the rates of depreciation prescribed under Schedule XIV would be applicable for the accounting year ended 31.03.1990 and onwards.

That the allegation of the petitioner that the Auditors were not associated with the Stock Verification is far from truth. The allegation is incorrect and physical verification of stocks was carried out. Regarding reporting of the quantitative particulars the Management has been consistently stating the quantitative particulars need not be given by them as the Company is a Trading Company. I have concurred with the views expressed by the Management and therefore not furnished the quantitative information.

That the allegation about not mentioning payments to Auditors for different services given to the Company as Statutory Auditors, Tax Auditors, I.T. Representation and Company Law matters is incorrect. It is clearly indicated in the accounts that the Fee paid to me is towards Statutory Audit. There were no other Fees paid to me during the year for any other Services.

That the allegation that the accounts for the year ended 31.03.1989 were signed before the accounts for the years ended 31st March, 1987 and 1988 were approved in the AGM is not correct. The accounts for the years ended 31.03.1987 and 31.03.1988 were approved by the members in the Annual General Body Meetings of the Company held on 8th July, 1987 and 26th July, 1988 respectively.

Before we proceed to express our opinion on the allegations made against the respondent, we intend to take into account certain aspects.

Even according to the complainant, the company in question i.e., South India Mercantile Private Limited is a closely held company, in which the shareholders are mostly family members. It appears that differences have arisen among certain groups and the distrust against each other has been, in a way, ventilated against the Chartered Accountant. The reason for the complainant, who submitted the complaint, was that the company was posting losses year after year, though according to her, profits were being earned.

In the Annual General Body Meetings of any company, the audited accounts constitute an important part. The very purpose of placing the audited accounts of the company in the General Body Meeting is to enable the shareholders to get acquainted with the state of affairs and to raise their doubts or to seek clarifications, if any. A Chartered Accountant is required to deal with the various aspects of accountancy and at the end, certify the accuracy thereof. Notwithstanding the onerous duty cast upon a chartered accountant, he cannot be elevated to the level of an adjudicator nor any matter pertaining to the legality or correctness assumes finality at his hands. The accounts certified by a Chartered Accountant are subject to scrutiny by not only the shareholders of the company but also by the authorities like the Registrar of Companies and in certain cases, by the authorities under the Income Tax Act. The mistakes, if any, pointed out during the Annual General Body Meeting can certainly be corrected. The Chartered Accountant or for that matter, even a statutory authority can vouch for 100% accuracy of accounts, particularly when there exist several variables.

Misconduct can be attributed to a Chartered Accountant mostly when he has resorted to certain exercise knowing fully well that the same is contrary to law. An opinion formed by him, which ultimately turns out to be not correct, cannot be treated as an act of misconduct. It is only when mala fide intention exists in him either to mislead his client or to defraud the Government that an act of misconduct can be said to have occurred.

For example, in the instant case, the first charge was about the compliance with MAOCARO order, 1988 issued by the Company Law Board in exercise of power under Section 227 of the Companies Act, 1956. The explanation offered by the respondent was that in respect of the said order, several clarifications came to be issued and he kept them in view while certifying the accounts of the company in question. Assuming that the understanding of the respondent was not proper, he cannot be said to have resorted to the act of indiscipline. As regards other allegations, the explanation offered by the respondent is acceptable and we do not find any malice on his part.

The record does not disclose that the complainant made any effort to question the persons in management of the company, such as Managing Director or other Directors about the state of affairs. Unfortunately, the respondent is being made scapegoat in the family disputes of the owners of the company. On a perusal of the report of the Disciplinary Committee and the resolution of the Council, we find that they have mechanically arrived at the conclusions as to the misconduct. We intend to add here that every inadvertent omission cannot be treated as an act of misconduct. The implication of even the minute punishment imposed against a Chartered Accountant is far-reaching.

Having regard to the facts and circumstances of the case, we dismiss the complaint.