Due diligence in concurrent audit: failure to promptly report banking irregularities amounted to misconduct, but penalty was reduced to reprimand.

Failure by a chartered accountant to promptly report material banking irregularities during concurrent audit constituted professional misconduct, because due diligence and timely reporting were required and gross negligence was sufficient even without proof of mala fide intent. The explanation offered on the facts was rejected, and the delay in disclosure did not cure the breach. The disciplinary consequence was then moderated: although misconduct was sustained, the prolonged pendency of proceedings justified a lesser sanction, and the proposed removal from membership for six months was reduced to a reprimand as a proportionate response.

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Issues: (i) whether the respondent's failure to promptly report material banking irregularities in the course of concurrent audit constituted professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949; and (ii) whether the proposed penalty of removal from membership for six months should be sustained or modified.

Issue (i): whether the respondent's failure to promptly report material banking irregularities in the course of concurrent audit constituted professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Analysis: The governing framework treated a chartered accountant as guilty of professional misconduct if he did not exercise due diligence or was grossly negligent in the conduct of professional duties. The respondent was under a duty to detect and report serious irregularities promptly, yet the record showed that the irregularities were not reported until after the bank's internal inspection and after a substantial delay. The explanation based on family circumstances was found unacceptable on the facts, and the contention regarding non-supply of the inspectors' report did not displace the admitted lack of prompt reporting. The absence of a proved mala fide intention did not exclude the application of the clause, because failure to exercise due diligence was itself a distinct ground of misconduct.

Conclusion: The respondent was guilty of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Issue (ii): whether the proposed penalty of removal from membership for six months should be sustained or modified.

Analysis: The finding of misconduct was upheld, but the Court took note of the long lapse of time consumed in the proceedings. In exercising its power under Section 21(6) of the Chartered Accountants Act, 1949, the Court considered that a lesser sanction would adequately meet the ends of justice at that stage, and that continued exposure to removal from membership after such delay would be unduly harsh.

Conclusion: The proposed penalty of removal from membership for six months was modified to reprimand.

Final Conclusion: The misconduct finding was sustained, but the disciplinary consequence was reduced to a reprimand, resulting in a substantially lesser penalty than the one recommended by the Council.

Ratio Decidendi: A chartered accountant's failure to exercise due diligence in promptly reporting material audit irregularities constitutes professional misconduct even without proof of mala fide intention, and the disciplinary sanction may be moderated by the court where the delay in proceedings renders a lesser punishment just and proportionate.

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