TaxTMI 
TaxTMI 
2017 (11) TMI 1489
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....dealing in shares of BFSL, as also the role of Shri S.K. Gupta, Chairman of BFSL and Shri Ashok Chawla, Chartered Accountant ('CA'), who is also a member of the ICAI. SEBI informed ICAI that the Chairman, SEBI had approved issuance of intimation to the ICAI to proceed against both these persons, who are CAs, for misconduct, under the Act. 3. The request made by SEBI as contained in the letter dated 10th June, 1999 is set out herein below: "Investigations revealed that 27 applications to the Public Issue were accompanied by stock invest issued by Sangli Bank, Karol Bagh, New Delhi. The stock invests were got issued by Shri Ashok Chawla from the bank on 23.11.95 whereas the issue of BFSL closed on 5.10.95. Though these stock invest were issued for amounts ranging between Rs. 1.00-1.20 lacs each, they were used at a multiple of Rs. 10 in the applications i.e. stock invest actually issued for Rs. 27 lacs was used for Rs. 270 lacs, resulting in an irregular allotment of 1,17,200 shares. These allotments were made despite the bank having received a request from Shri Ashok Chawla for cancellation of the stock invests and withdrawal of the applications. The shares so allotted were subseq....
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....n 10th April, 2006. 5. Both the information and the written statement were placed before the ICAI Council in its 282nd meeting held from 5th to 7th November, 2008. The ICAI Council arrived at a prima facie opinion that the respondent was guilty of professional and other misconduct. The extract from the minutes of the aforesaid meeting reads as under:- "Item No.24: "Information" Cases under Section 21 11. Ashok Kumar in Re: (M.No. 084122) [25-CA-S34B/2005] The Council considered the Information letter and the written statement submitted by the Respondent. The Council on consideration of the aforesaid documents/submissions observed that the Respondent was failed to produce any documentary evidence to prove that he has not connived with other persons to defraud the public. The Council, therefore, was prima facie of the opinion that the Respondent was guilty of professional and/or other misconduct. It was, therefore, decided to refer the case to the Disciplinary Committee for inquiry." (emphasis supplied) 6. Accordingly, the matter was sent to the Disciplinary Committee ('DC') for an enquiry. The DC held several hearings. On 10th January, 2012, the DC recorded the statement of ....
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....n dated 2"'' June, 2013 received from the Respondent and also the oral submissions made by his authorized representative before it, the Council decided to accept the said Report and accordingly held that the Respondent was guilty of "Other Misconduct" under Section 22 read with Section 21 of the Chartered Accountants Act, 1949. 10. The Council also decided to recommend to the High Court that the name of the Respondent be removed from the Register of Members for a period of one year........................." (emphasis supplied) 8. Pursuant to the said decision of the ICAI Council, the present reference was received by this Court on 4th August, 2014. Upon receipt of the reference, notice was issued to the respondent and to the Central Government. Notice to the Central Government stands served. The respondent has appeared through counsel. Arguments have been addressed on behalf of the petitioner by Mr. Rakesh Agarwal and on behalf of the respondent by Ms. Reena Jain Malhotra. Relevant provisions of the Chartered Accountants Act, 1949: 9. The relevant provisions of the Act are set out herein below for ready reference: "Section 21 (1) to (4)........... (5) Where the misc....
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....at facts alleged against the member, if proved, would justify the exercise of disciplinary jurisdiction against the member that the Council is required to hold an inquiry. The conduct alleged must be such as, if proved, would render the member unfit to be a member of the Institute. The other case of cases has reference to the complaint received by the Council from the Central Government. In regard to this class of cases, the Council is not required, - and indeed has no jurisdiction to apply the prima facie test - before holding an inquiry. The Council is required to cause an inquiry to be held on such complaint straightaway. In both the cases when the inquiry is concluded, the findings of the Council are to be forwarded to the High Court. Section 22 purports to define the expression "conduct which, if proved, will render a person unfit to be a member of the Institute". It is an inclusive definition; it includes any act or omission specified in the schedule but the latter portion of s. 22 clearly lays down that nothing contained in this section shall be construed to limit or abridge in any way the power conferred on the Council under sub-s. (1) of s. 21. The position thus appears to....
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....t under s. 21, sub-s. (3). It is true that the High Court would take action against the offending member only if the High Court accepts the finding made by the Council and not otherwise. This conclusion is strengthened if we bear in mind the extended meaning of the expression "to be in practice" given in s. 2, sub-s. (2), which we have already dealt with. In this view of the matter we must reverse the conclusion of the learned Judges of the Calcutta High Court that the conduct proved against the respondent does not fall within Sections 21 and 22 because it is not conduct connected with the exercise of his profession as a chartered accountant in the narrow sense of that term." Thus, professional misconduct includes any misconduct as enumerated in the Schedules to the Act as well as any other misconduct. Submissions of the Petitioner: 11. The counsel for the petitioner has taken us through the various documents on record to submit that the findings against the respondent, both by SEBI as also the findings of the DC, clearly establish that he has indulged in misconduct. He specifically relies upon the order of Chairman, SEBI dated 12th December, 2002 passed against the respondent u....
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.... and its promoters in which Mr. Chawla plays no part. Insofar as the ante-dating of documents is concerned, Ms. Malhotra submits that he was not responsible for ante-dating the documents. The same were issued by the bank and hence the bank will have to explain how it was dated differently - especially in comparison with the copies which were available with the respondent. Thus, on both counts, it is the submission of the respondent, that he is not liable. 17. It is further submitted by Ms. Malhotra that the respondent's conduct does not constitute misconduct as stipulated in Schedule-I and Schedule-II of the Act and hence the punishment meted out to him is extremely harsh. Ms. Malhotra, on the merits of the allegations submits that, in any event, letters for withdrawal of the allotment were submitted even prior to the allotment of the shares and hence no benefits were derived from the irregularities in the forms or the so called ante-dating. She further submits that the respondent is not guilty of any professional misconduct and hence his conduct deserves to be viewed sympathetically. Analysis and Findings: 18. Stock invests are monetary instruments that are deposited in banks i....
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....Bank said according to their records these are issued on 22nd November so they are antedated. I have to submit that for issuing the stock invests somebody had to remit money with the banker then only the stock invests can be issued. SEBI did not have any finding to the effect that the money was received on November and we are sure the money was remitted long long before. It was very much within 5th October and stock invest is valid for three months. So the stock invests has peculiarity, it is a paper just like a pay order or draft, however, its validity has speciality where the drawees name is not filled, it is quite possible that the Bank must have made some mistake in their record or after three years when they informed the SEBI there must be some around part but if it is said that the stock invests were issued on 5th October without corroborating the evidences that the money received against this issue, I think, it would be very prematurity to take that into account number one I have to submit about the antedated point." * The respondent denied knowledge as to how the stock invests came to be dated 23rd November, 1995 when the public issue closed on 5th October, 1995. * Again ....
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.... He did not have any explanation as to why the shares have been allotted in his name; * When he was confronted with the fact that in 1997, he had accepted before SEBI that he had ante-dated stock invests and why he was resiling from the same before the DC, the respondent states as under: "Vice President: In 1997 he had agreed antedated and later on he denied that, do you have the date when he denied? Counsel for the Respondent: In 2001. in 1997, when they started inquiry naturally they had their version and once he got opportunity to oppose it, he is relying upon the stock invests themselves by that the stock invests have come back and then he said that look, these are carrying 5.10.1995 date, how you are saying that the banker is saying something else? So there is nothing more to do on this. I would like to draw Your Honours attention to page No. 11 of this booklet. I would read the second paragraph. The investigations revealed that BFSL acting through its Chairman Mr. S.K. Gupta in connivance with Ashok Chawla made irregular allotments in the public Issue of BFSL involving irregular subscription for shares by way of application accompanied by stock invests issued after closu....
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....wo main allegations against the respondent. Issue No. 1: Irregular allotment of 1,17,200 shares of BFSL involving irregular subscription for 27,00,000 shares with an application money of Rs. 2.7 crores by way of stock invests issued by Sangli Bank, Karol Bagh, New Delhi. 23. On this issue, the investigation of SEBI had revealed that there were 27 applications for 1 lakh to 1.2 lakh shares each, involving the application money of Rs. 10 to 12 lakh each. These applications were accompanied by stock invests issued by Sangli Bank, Karol Bagh, New Delhi and were allotted 4,000-4,800 shares each. The public issue of BFSL had closed on 5th October, 1995, but the stock invests were issued on 23rd November, 1995. The stock invests were 10 times more than what they were issued for namely, they were meant for 10,000 to 12,000 shares each involving share application money of 1 lakh to 1.20 lakh but were irregularly converted into higher stock invests i.e. 10 times more, resulting in allotment of 4000 to 4800 shares each. The findings of SEBI are contained in the investigation report and the conclusions therein. SEBI's report was forwarded to the ICAI which conducted its own enquiry and ....
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....ock invests belonged to the respondent. This is clear from both SEBI's investigation as also the statement recorded by the DC of the ICAI. The respondent admitted that the fixed deposits that were given as security for the issuance of stock invests. Thus there can be no doubt that the respondent was guilty of the misconduct and has failed in his professional duty of maintaining a distance between him and the promoter. His conduct leading upto the irregular allotment of shares is blameworthy and at fault. The conduct clearly constitutes `misconduct'. Issue No. 2: Allotment of 7,000 shares against applications accompanied by ante-dated stock invests issued by Sangli Bank. 27. On this issue there was a clear finding of SEBI that 80-90 stock invests of Rs. 10,000/- each were issued to Mr. Ashok Chawla by Sangli Bank, Karol Bagh after the closing of public issue by BFSL. The respondent had also admitted before SEBI that 7000 shares allotted against these applicants were sold through Mr. Gautam Rohatagi, member of Delhi Stock Exchange. The respondent, in his statement recorded on 5th September, 1997 before SEBI, had admitted that he had obtained ante-dated stock invests. Throu....