TaxTMI 
TaxTMI 
2017 (10) TMI 565
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....d Accountants of India, (hereafter "ICAI"). 3. The context in which the controversy involved in the present petition arises, is briefly set out hereafter: 3.1 PwC was the statutory auditor of the banking company - Global Trust Bank Limited (hereafter "the Bank") - for the year ended 31.03.2003. The petitioners in their respective capacities as a constituting partner and a Senior Manager of the firm, conducted the statutory audit and signed a qualified audit report on 30.09.2003 in respect of the affairs of the said Bank. The audit report for the year ended on 31.03.2003 estimated the gross non performing assets (NPAs) as Rs.915.8 crores and accounts were qualified to the extent of Rs.311.61 crores. 3.2 Prior to the audit of the Bank for the financial year ended 31.03.2003, The Reserve Bank of India (hereafter "the RBI") had appointed a special auditor, M/s M Bhaskar Rao & Co., to conduct an independent review of the account of certain major borrowers - thirty six in number - of the Bank for the year ended 31.03.2002. The special audit report was submitted on 09.05.2003 and directions were issued to the Bank to follow the recommendations contained in the report after adjust....
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....also indicated the procedure to be followed by the Disciplinary Committee (ICAI). 3.7 It is stated that no substantial progress was made in the disciplinary proceedings between December 2007 to April 2010 as the petitioners were unable to submit the relevant documents; this was so as the RBI had instructed that confidentiality of the borrowers" accounts be maintained. The documents were finally submitted under the cover of a letter dated 31.07.2008. Thereafter, there was a change in the constitution of the Disciplinary Committee (ICAI) and the proceedings were required to be held de novo. 3.8 Thereafter, the petitioners successively filed three writ petitions, which are briefly noticed hereafter. 3.9 The petitioners filed a writ petition, being (Writ Petition (L) No. 634/2009), before the Bombay High Court, inter alia, alleging that the Disciplinary Committee failed to adhere to the prescribed procedure. It was alleged that the Disciplinary Committee recorded evidence of the witnesses (officers of the RBI and the special auditor) in the absence of working papers or other relevant documents in support of their respective reports. By an order dated 16.04.2009, the Division B....
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....provisions of Sections 21, 22 and 22A of the Act would be applicable to pending proceedings and information cases. In that case, the Supreme Court has not stayed the proceedings but had restrained ICAI from passing a final order as far as the appellant (therein) was concerned, until disposal of the appeal. By an order dated 23.06.2016, the Bombay High Court dismissed the petition on the ground that pendency of the matter in the Supreme Court concerning the applicability of the amendment of the Act, would not be a ground for granting an indefinite stay of the proceedings instituted against the petitioners. However, it was directed that respondents would not proceed until 17.12.2013. 3.14 At the hearing held on 07.07.2015, the petitioners once again submitted their objections on the prima facie opinion formed by the Council. Subsequently, hearings were fixed by the Disciplinary Committee on 30.05.2016 and 31.05.2016. The same were adjourned and the next hearing took place on 14.07.2016 and 15.07.2016. The petitioners again raised an objection on the jurisdiction of the Disciplinary Committee on the same ground as mentioned above. 3.15 On 23.06.2016, the petitioners filed an app....
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....eof and, therefore, the prima facie opinion that the petitioners were guilty of professional misconduct, was not legally valid. He further contended that this was a jurisdictional requirement and the failure of a valid prima facie opinion had rendered further proceedings as invalid. He relied on the decision of the Punjab and Haryana High Court in Institute of Chartered Accountants of India v. V.K. Verma: AIR 1965 Punjab 295 and the decision of the Kerala High Court in V.K.S. Narayanan Nambudiri v. Institute of Chartered Accountants and Anr.: AIR 2006 Kerala 1997 in support of its contention. He drew the attention of this Court to paragraphs 5 and 6 of the decision of the Kerala High Court and contended that formation of the prima facie opinion was a condition precedent for referring the matter to the Disciplinary Committee and further the formation of the opinion ought to be discernable from the proceedings of the Council. 7. At the outset, Mr Ramji Sriniwasan, learned Senior Counsel appearing for ICAI had raised an objection as to the maintainability of the present petition. He had submitted that the issue regarding the prima facie opinion was a subject matter of dispute in ea....
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....rt directed the Disciplinary Committee to pass a speaking order in relation to petitioner's application and to grant a fair opportunity of hearing . 12. Thereafter, the petitioners filed another petition (being W.P.(C) No. 1555 of 2009), inter alia, challenging the procedure adopted by the Disciplinary Committee and sought compliance with the orders dated 16.04.2009. The petitioners also sought directions for being provided certain documents. This was their second writ petition. It is relevant to state that the petitioners also reiterated their prayer (similar to the prayer "c" made in the earlier writ petition and as quoted above) to restrain the respondents therein from proceeding further or passing any order in the inquiry initiated against the petitioners pursuant to the Show Cause Notice dated 06.12.2006. 13. The aforesaid writ petition, being (WP (C) No. 1555 of 2009), was taken up for hearing on 18.08.2009 and the petitioners state that during the course of hearing, the counsel appearing for ICAI stated that the report of AFI 2003 as far as it relates to the petitioner and other documents would be furnished to the petitioner within a period of two weeks. According ....
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....the Respondent No. 3. Section 21(1) of the said Unamended Act, (as it stood prior to its amendment with effect from 17th November 2006) provided that only if the Respondent No. 2 has formed a prima facie opinion that a member of the Respondent No. 1 has been guilty of professional misconduct, that the case shall be referred to the Respondent No. 3. In other words, the formation of the prima facie opinion by the Respondent No. 2 is a sine quo non or jurisdictional condition precedent for the reference of the matter to the Respondent No. 3. The same provision is also contained in Regulation 12(11) of the Chartered Accountants Regulation, 1988 where it is specifically provided as under: "12(11)(i)- If on a perusal of the complaint, the written statement, if any, the complainant's rejoinder to the written statement, if any, and the Respondent's comments on the complainant's rejoinder, if any, and other relevant documents, the Council is prima facie of opinion that the Respondent is guilty of professional and or other misconduct, the Council shall cause an enquiry to be made in the matter by the Disciplinary Committee." From the perusal of the above, it is clear that an obligation....
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....proceedings are void ab initio and patently lacks jurisdiction. XX XX XX XX XX (T) The Petitioners submitted that Respondent No. 2 did not independently apply its mind to the case to arrive at the prima facie view about the alleged misconduct of the Petitioners. The Respondent No. 2 at that time did not even know the full details of the accounts such as the true name of the Borrowers, code number assigned to the Borrowers and working papers on the basis of which the charges of misconduct were made. In any event the Respondent No. 2 has till date not provided any material, records or any other evidenc....
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....t in the nature of prohibition or any other appropriate writ, order or direction prohibiting the Respondents herein from in any manner whatsoever conducting, proceeding further with or passing any order in the enquiry purported to be initiated against the Petitioners herein pursuant to the show cause notices dated 6th December, 2006 and 23th October 2007;" 17. It is apparent from the above that the petitioners had specifically challenged the validity of the prima facie opinion before the Bombay High Court. They had also urged that a fully reasoned opinion was necessary and in absence of the same, a prima facie opinion of the Council of ICAI could not be considered as one that measured up to the requirement of Section 21 of the Act. The letter dated 23.10.2007 informing the petitioners that the Council had formed a prima facie opinion that the petitioners were guilty of professional or other misconduct, was specifically challenged before the Bombay High Court. Thus, indisputably, the subject matter of the present petition (which also seeks to impugn the Show Cause Notice dated 06.12.2006 as well as the prima facie opinion formed by the Council) was also the subject matter of the ....