TaxTMI 
TaxTMI 
2025 (12) TMI 212
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....hich is well known as MMCB scam in the year 2001. The Registrar of Cooperative Societies, Gujarat State upon instructions from the Central Registrar had allotted re-audit of the bank for the year 1999-2000. During the re-audit, it was found that the respondent had not disclosed and reported serious irregularities in the accounts of the Bank and he failed to disclose the material misstatements known to him in the financial statement. It was alleged that the respondent failed to report material misstatements known to him to appear in the financial statements of the Bank, with which he is concerned in his professional capacity, and thus, had shown gross negligence in performing his professional duties. The charges levelled against the respondent, as per the complaint were very serious in nature. The relevant dates in the present reference are as under: Date Event 19.09.1999 Respondent was appointed as Auditor of Madavpura Mercantile Cooperative Bank ( MMCB) for FY 1999-00 u/s 67 of the Multi state Co-operative Societies Act and order of Registrar Early 2001 Re-audit of MMCB was carried out under the order of Registrar dated 20. 04. 2001 which revealed severe irregula....
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....) 12 Irregularities in sanctioning vehicle loans Not Guilty 13 irregularities in sanctioning loans to NBFC Guilty (5), (6), (7), (8) 14 Loans granted for share trading without any kind of lien or hypothecation Guilty (5), (6), (7), (8), (9) 15 Loans granted to directors and their relatives Guilty (7), (8), (9) 16 Financial irregularities as per Para 26 of re-audit report Not Guilty 4. The charges were framed under the 2nd Schedule of the Act. After the disciplinary committee submitted its report, the Council arrived at a finding and made recommendation to the High Court on 24. 03. 2005 for removal of name of the respondent for a period of five years. SUBMISSIONS ON BEHALF OF THE COUNCIL 5. Learned advocate Mr. Soparkar appearing for the Council has submitted that the recommendation of removal of the respondent for a period of 05 years is required to be affirmed in view of the categorical findings of the disciplinary committee recorded in its report dated 16. 11. 2004 and the findings of the Council in its report dated 24. 03. 2005. It is submitted that the respondent was heard by the disciplinary com....
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....ade to the High Court was upheld by the High Court in its decision dated 03.11.2017 passed in Chartered Accountant Reference No. 2 of 2006. It is submitted that in the present case, the Notings of the disciplinary committee would exposit that the respondent was also assisted by C.A Shri Manubhai Panchal in the proceedings, however he was prevented by the committee, and hence, similar order may be passed upholding the recommendation of the applicant-Council in the case of the present respondent. It is submitted that the Special Leave Petition filed by Shri Manubhai Panchal being SLP No. 165 of 2018 was dismissed by a reasoned order by the Apex Court on 12.01.2018. 9. Learned advocate Mr. Soparkar, while placing reliance on the judgement of the Apex Court in the case of Union of India and Ors. vs. P. Gunasekaran, (2015) 2 S.C.C. 610 and State Bank of India and Ors. VS Ramadhar Sao, 2025 SCC Online SC 1752, has submitted that the scope of interference by the High Court in the findings of disciplinary committee is very restricted and the Council is not required to record detail reason, when it agrees with the findings recorded by the disciplinary committee. Hence, it is urged that t....
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....port of the disciplinary committee relating to the findings of the misconduct and holding him guilty and hence, it is urged that the reference made to the High Court by the Council may be accepted. ANALYSIS OF SCOPE AND POWER OF THE COUNCIL 13. Before dealing with the submissions of the learned advocates appearing for the respective parties, we may deal with the scope and power of the Council under section 21 of the Act and Regulation 16. Section 21 reads as under: "["21. Procedure in inquiries relating to misconduct of members of Institute - ( 1) Where on receipt of information by, or of a complaint made to it, the Council is prima facie of opinion that any member of the Institute has been guilty of any professional or other misconduct, the Council shall refer the case to the Disciplinary Committee, and the Disciplinary Committee shall thereupon hold such inquiry and in such manner as may be prescribed, and shall report the result of its inquiry to the Council. (2) If on receipt of such report the Council finds that the member of the Institute is not guilty of any professional or other misconduct, it shall record its finding accordingly and direct ....
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....nd to the general convenience of the parties, it may so transfer the case, subject to such conditions, if any, as it thinks fit to impose, and the High Court to which such case is transferred shall deal with it as if the case had been forwarded to it by the Council. Explanation I − In this Section "High Court" means the highest civil court of appeal, not including the Supreme Court, exercising jurisdiction in the area in which the person whose conduct is being inquired into carries on business, or has his principal place of business at the commencement of the inquiry: Provided that where the cases relating to two or more members of the Institute have to be forwarded by the Council to different High Courts, the Central Government shall, having regard to the ends of justice and the general convenience of the parties, determine which of the High Courts to the exclusion of others shall hear the cases against all the members. Explanation II − For the purposes of this Section "member of the Institute" includes a person who was a member of the Institute on the date of the alleged misconduct although he has ceased to be a member of the Institute at th....
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....ary to the report of the Disciplinary Committee. (5) The finding of the Council shall be communicated to the Complainant and the Respondent." 16. The provisions of section 21 of the Act read with Regulation 16 of the Regulations elaborate the role of disciplinary committee as well as the Council. Regulation 16(2) prescribes the action, after the disciplinary committee submits its report to the respondent and it also mandates of giving an opportunity of making the representation in writing to the Council. Further, Regulation 16(3) empowers the Council to consider the report and pass necessary orders for further inquiry, if necessary, after perusing the report of the disciplinary committee. Regulation 16(4) directs the Council to record its findings, after consideration of the report and the representation in writing of the respondent and ultimately, Regulation 16(5) further directs the Council to communicate its finding to the complainant and the respondent. 17. A close reading of the provisions of section 21 (3) of the Act read with the provisions of Regulation 16 (2) and (4) indubitably establish two facets i. e. (i) inquiry conducted by the disciplin....
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.... Council however, the Council is also further required to consider the defence or the points raised by the respondent in his representation presented before it. ANALYSIS OF report OF THE COUNCIL 22. The following features emerge from the record of the Reference: A. Under Section 21(1), the Council formed a prima facie opinion finding the respondent guilty of misconduct and referred the case to the disciplinary committee on 5. 02. 2003. B. Section 21(2) is not attracted in the present case and hence, not relied upon by the either of the parties. C. Under Section 21(3), the Council received the report of the disciplinary Committee on 16. 11. 2004. The provision mandates that on the receipt of the report in case the Council finds that the Member of the Institution is guilty of any professional or other misconduct "it shall record a finding accordingly and shall proceed in the manner laid down in the succeeding sub-sections" i. e. sub-sections 4, 5 and 6. The report of the disciplinary committee was forwarded to both the parties. D. Clause (b) of section 21(4) stipulates the removal of the name of the member from the Register for such period, n....
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....ng can be both; a finding of fact or a finding of law. It may even be a finding on a mixed question of law and fact. In the case of the finding on a legal issue the Arbitrator may on facts that are proved or admitted explore his options and lay bare the process by which he arrives at any such finding. It is only when the conclusion is supported by reasons on which it is based that one can logically describe the process as tantamount to recording a finding. It is immaterial whether the reasons given in support of the conclusion are sound or erroneous. That is because a conclusion supported by reasons would constitute a "finding" no matter the conclusion or the reasons in support of the same may themselves be erroneous on facts or in law. It may then be an erroneous finding but it would nonetheless be a finding. What is important is that a finding presupposes application of mind. Application of mind is best demonstrated by disclosure of the mind; mind in turn is best disclosed by recording reasons. That is the soul of every adjudicatory process which affects the right of the parties. This is true also in the case of a finding of fact where too the process of reasoning must be disclos....
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....rities, and we find that it is a cut-paste job. The report runs from page No. 308 to 361. * After producing/incorporating the report of the disciplinary committee, verbatim, ultimately, as canvassed by learned advocate Mr. Soparkar before us, the applicant-Council has recorded its findings, which we incorporate as under: "6. The Complainant submitted his written representations dated 17th January, 2005 and 20th January, 2005, on the report of the Disciplinary Committee. Neither he nor his authorised representative appeared before the Council for making oral submissions. 7. The Respondent submitted his written representation dated 17th March, 2005 on the report of the Disciplinary Committee. He along with his authorised representative Shri R. Muralidhar, Chartered Accountant appeared before the Council for making oral submissions. 8. The Council considered the report of the Disciplinary Committee along with written representations dated 17th January, 2005 and 20th January, 2005 received from the Complainant and written representation dated 17th March, 2005 received from the Respondent and also the oral submissions made by the authorised representa....
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....d not guilty and also to accept the report, wherein the respondent has been held guilty of professional misconduct with the charges as mentioned hereinabove. "Except these observations, we do not find any findings or reasons dealing with the representations or the oral submissions advanced on behalf of the respondent. There are absolutely no independent reasons recorded by the Council, and the report is bereft of independent findings on the report of the disciplinary committee by dealing the contentions/submissions raised by the respondent. The Council has done merely a cut-paste job and produced the entire report of the disciplinary committee in its report. 27. We may also refer to the decision of the Apex Court in case of Price Waterhouse and Anr. (supra), wherein the Apex Court, after examining the provisions of Regulation 16 of the Regulations and the provisions of section 21 of the Act has held as under: "14. ... ... ... Regulation 16 is only an enabling provision to conduct by the Disciplinary Committee which is a fact-finding subordinate delegated body whose finding is not conclusive on the non-guilt of the professional or other misconduct of the member of ....
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....reated as findings. At best, they may be termed as the material which falls within the domain of consideration by the Council. The Council has failed to give its own independent findings. The recommendations made by the Council are not supported by independent reasons. The recommendations, in our opinion, have been made mechanically by the Council. 22. Recording of reasons is a principle of natural justice and every judicial/quasi-judicial order must be supported by reasons to be recorded in writing. It ensures transparency and fairness in the decision-making process. The person who is adversely affected wants to know as to why his submissions have not been accepted. Giving of reasons ensures that a hearing is not rendered as a meaningless charade. Unless an adjudicatory body is required to give reasons and make findings of fact indicating the evidence upon which it relied, there is no way of knowing whether the concerned body genuinely applied itself to and evaluated the arguments and the evidence advanced at the hearing. Giving reasons is all the more necessary because it gives satisfaction to the party against whom a decision is taken. It is a well-known principle that ....
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.... to be accepted. 33. The reliance placed by the Council in the case of Shri Manubhai Panchal, the colleague of the respondent, who was also embroiled in the scam and was also subjected to the disciplinary action, which culminated into the Chartered Accountant Reference No. 2 of 2006 decided on 03.11.2017, will not come to the rescue of the Council, since on a threadbare examination of the decision of the Coordinate Bench of this Court dated 03. 11. 2017 accepting the recommendation of the applicant-Council to remove Shri Manubhai Panchal from the Register of Members for a period of 02 years, reveals that the issue which is raised in the present reference has been neither raised nor dealt with by the Coordinate Bench. Against the aforesaid judgement, the Apex Court has also dismissed the SLP however, the grounds, which have been raised by the respondent with regard to the non-speaking order and non-application of mind by the applicant-Council on the representations and the submissions advanced by him before the applicant-Council, have not been raised in the case of Shri Manubai Panchal and Co. Hence, we do not subscribe to the submissions of learned advocate Mr. Soparkar in this ....