2017 (8) TMI 1713 - HC - Money Laundering

Chartered accountant's discharge plea denied despite disciplinary committee exoneration in fraud case involving forged financial statements

MAHESH AGARWALLA Versus ASSISTANT DIRECTOR, DIRECTORATE OF ENFORCEMENT (E.D.), GOVERNMENT OF INDIA, CENTRAL BUREAU OF INVESTIGATION (C.B.I.)

The HC rejected the petitioner's discharge application despite exoneration by a Disciplinary Committee. The petitioner, a chartered accountant, allegedly ... Rejection of prayer for discharge of the petitioner - exoneration of the petitioner by the Disciplinary Committee - whether the exoneration would render the allegations against him in the impugned prosecution groundless so as to justify his discharge at this stage? - HELD THAT:- The role of the petitioner is not restricted to mere certification as to the nature of business of the accused borrowers as claimed by the Committee in its reports dated 8th February, 2016. He had been employed by the accused borrowers to prepare projected financial statements of the firms and there is ample materials on record to show that such projected financial statements were based on forged and fabricated documents and had been generated to create a false impression with regard to the financial viability of the said firms. Such financial statements were kept on record by the principal accused, that is the branch manager, Atanu Kr. Mitra, as a facile cover-up to justify his unauthorized extension and/or enhancement of cash credit facilities and other financial benefits to the borrowers in utter disregard to prudent banking procedure and his permissible lending limits thereby causing wrongful loss to the bank. It is nobody’s case that the instant prosecution was initiated on the finding of the disciplinary authority which has been set aside by a superior authority. On the other hand, the instant prosecution and the proceeding under the Chartered Accountants Act have completely different scope and arena of enquiry and adjudication. While the former involves a prosecution into allegations of conspiracy with a public servant to misappropriate public funds of a bank, the latter is restricted to professional misconduct alone. The findings of the Disciplinary Committee by no stretch of imagination can be said to be binding on the criminal court where the accusation is to be proved on the basis of evidence adduced before it in accordance with law - The Committee was not at all concerned with the allegations of criminal conspiracy and/or criminal misconduct which are the material issues in the impugned prosecution. Thus, no reliance could be placed on the findings of the Committee to negate the substantial materials on record which give rise to a strong suspicion as to the involvement of the petitioner in the alleged offences - the prayer for discharge of the petitioner from the instant case was rightly turned down. The petitioner, however, shall be at liberty to raise all just defences in the course of trial of the instant case in accordance with law. Petition disposed off. Issues involved:1. Allegations against the petitioner in a criminal prosecution for conspiracy and financial fraud.2. Exoneration of the petitioner by the Disciplinary Committee under the Chartered Accountants Act.3. Whether exoneration by the Disciplinary Committee justifies discharge from criminal prosecution.Detailed Analysis:Issue 1: Allegations against the petitioner in a criminal prosecution for conspiracy and financial fraud:The petitioner, a chartered accountant, was accused of preparing false financial statements in collusion with others to obtain cash-credit facilities from a bank through fraud and fabricated documents. The loans were advanced in violation of banking procedures, causing a loss to the bank. The petitioner's role extended beyond mere certification, as he was involved in preparing false statements and loan applications, indicating a deeper involvement in the conspiracy.Issue 2: Exoneration of the petitioner by the Disciplinary Committee under the Chartered Accountants Act:The Disciplinary Committee exonerated the petitioner from professional misconduct allegations, emphasizing that his role was not that of a professional tax auditor. However, the Committee acknowledged his involvement in preparing financial reports and loan applications for the accused borrowers. This finding reinforced the prosecution's case of a special relationship between the petitioner and the accused borrowers, indicating his complicity in the fraudulent transactions.Issue 3: Whether exoneration by the Disciplinary Committee justifies discharge from criminal prosecution:The court held that exoneration in a departmental proceeding does not automatically lead to exoneration in a criminal case. The scope of the Disciplinary Committee's inquiry was limited to professional misconduct, not criminal conspiracy. The findings of the Committee were not binding on the criminal court, and the substantial evidence against the petitioner raised a strong suspicion of his involvement in the alleged offenses. Therefore, the court rejected the petitioner's prayer for discharge, allowing him to present defenses during the trial.In conclusion, the court dismissed the petitioner's request for discharge, emphasizing that the findings of the Disciplinary Committee were not conclusive in the criminal prosecution. The court highlighted the distinct scopes of the disciplinary and criminal proceedings, emphasizing that exoneration in one does not absolve liability in the other. The petitioner was directed to participate in the trial and present defenses as per the law, with the observations made in the order not influencing the trial proceedings.