Professional misconduct leads to removal from Accountants Register for 5 years

The court ordered the removal of the respondent's name from the Register of Members of the Institute of Chartered Accountants for five years based on findings of professional misconduct related to misrepresentation in certificates issued, unusual price movement of shares, and obstructive conduct during SEBI proceedings. The respondent did not challenge SEBI's order and was absent from the disciplinary proceedings, leading to the court upholding the penalty recommended by the Disciplinary Committee.

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Issues Involved:
1. Misrepresentation in Certificates Issued by the Respondent
2. Unusual Price Movement of Shares
3. SEBI Investigation and Findings
4. Respondent's Defense and Conduct
5. Disciplinary Proceedings and Penalty

Detailed Analysis:

1. Misrepresentation in Certificates Issued by the Respondent:
The company, initially named Padmini Packaging Pvt. Ltd., changed its name twice, ultimately becoming Padmini Technologies Ltd. On June 20, 1999, while named Padmini Polymers Pvt. Ltd., the company invited applications for 1,80,00,000 preferential shares, which were listed on the Delhi Stock Exchange and the Bombay Stock Exchange. The respondent issued three critical certificates. The first, dated June 30, 1999, certified receipt of Rs. 8,52,50,000/- as share money. The second was a due diligence certificate, and the third, dated November 13, 1999, detailed the receipt of share application money. Notably, the third certificate omitted the date of cheque encashment, which was crucial.

2. Unusual Price Movement of Shares:
SEBI noted an unusual increase in the company's share price from Rs. 60.95 on December 13, 1999, to Rs. 266/- by March 09, 2000, followed by a sharp decline to Rs. 47/- by May 15, 2000. This prompted SEBI to investigate the matter, revealing that 2,00,00,000 equity shares were allotted, with 1,80,00,000 shares allotted to various entities on June 20, 1999.

3. SEBI Investigation and Findings:
SEBI's investigation revealed discrepancies in the allotment and payment for the shares. For Kolkata-based entities, it was found that cheques issued were only cleared after the shares were listed and sold. For instance, a cheque dated May 21, 1999, issued by Contessa Commercial for Rs. 90 lacs, was cleared only on January 05, 2000. Similar patterns were observed for other entities. SEBI noted that the respondent's certificates falsely stated that the company had received the share application money by June 30, 1999, or November 30, 1999, while the actual realization of funds occurred much later.

4. Respondent's Defense and Conduct:
The respondent claimed to have issued the certificates based on the company's computerized records and the return of allotment in Form 2 submitted to the Registrar of Companies. However, SEBI found that the respondent failed to cross-check with the bank statements, which would have revealed the discrepancies. The respondent's obstructive attitude during SEBI proceedings and reliance on Form 2, dated after the certificates' issuance, further undermined his defense.

5. Disciplinary Proceedings and Penalty:
Following SEBI's findings, the Council of the Institute of Chartered Accountants initiated disciplinary proceedings against the respondent. The Disciplinary Committee's report, reflecting SEBI's order, found the respondent guilty of professional misconduct. The respondent did not challenge SEBI's order and was absent from the proceedings. The Committee recommended removing the respondent's name from the Register of Members for five years, a penalty concurred by the court.

Conclusion:
The court accepted the Disciplinary Committee's report and ordered the removal of the respondent's name from the Register of Members of the Institute of Chartered Accountants for five years, concluding the reference without costs.

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