TaxTMI 
TaxTMI 
2026 (3) TMI 1585
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....ch, Ahmedabad for the period 01.07.2003 to 30.06.2004. As per the appointment letter / guidelines, he was required to scrutinize the following aspects:: (a) Loans sanctioned/excess allowed beyond the delegated powers of the Branch Manager. (b) Are all the documents correctly executed in the latest revised document formats and properly stamped wherever necessary in terms of Stamp Act and as per book on "Guidelines on the loan documents". (c) Whether there is a shortfall in the securities/missing of securities or deterioration in the quality of chargeable current assets. (d) Whether the excesses granted have been reported in OD reports on the same day? (e) Whether the excess reported in the OD reports is within the delegated powers, whether approval has been obtained in such cases? (f) Other irregularities / defects if any. (g) Whether interest is recovered properly, if not period (no. of quarters) during which it was not recovered in detail. Whether credits in the account are sufficient to cover the interest, if not what is the amount of shortfall. (h) Report on overdue irregular inland bills, purchased, CBP, DB....
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.... Controlling Office. vi) SBP account of M/s. Paramount Industries Branch Manager has purchased 2 bills under Supply Bills Purchased account for Rs. 90,12,750/- which is still outstanding without sanction and beyond delegated power which are overdue and not reported to Controlling Office. vii) Branch has allowed TOD's in 18 current accounts amounting to Rs.41.86 lakhs beyond the delegated powers and also not reported to the Controlling Office. 8 accounts amounting to Rs.13.57 lakhs are still pending for recovery. 4. Accordingly, the Complainant filed complaint against the Respondent on 16.03.2004. A copy of the complaint was sent to M/s. Jignesh V. Shah & Co. Chartered Accountants vide petitioner's letter dated 02.07.2004 with a request to disclose the name of the member(s) who is / are answerable to the charge of misconduct and to send copies of this letter with its enclosures to the said member/s with a request to send directly to the Petitioner his / their written statement, if any, as required under Regulation 12(7) of the Chartered Accountants Regulations, 1988. 5. The respondent submitted his written statement, duly verified on 09.08 2004. The c....
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....ed that there was serious negligence amounting to misconduct on his behalf in failing to file timely reports pointing out the serious deficiency. It is submitted that the only excuse given by the respondent was about his family circumstances and there is no contest on merits. 11. While referring to the questionnaires of the Disciplinary Committee to the respective parties, it is contended that before the Disciplinary Committee, the respondent has categorically admitted that he did not submit the flash report of the irregularities, and the same were only submitted on 30.12.2003 after the inspection was carried out by the Bank through its internal Inspectors. It is submitted that the family circumstances such as the death of his father and surgery of his wife, is an afterthought, as his father had passed away in September, 2003 and the inspection was undertaken by the Inspectors in October, 2003 and thereafter also till 30.12.2003, the respondent did not file the flash report, indicating serious irregularities in the aforementioned cases. 12. While placing reliance on the judgment of the Supreme Court in the case of State Bank of India and others vs. Ramadhar Sao, 2025 SCC OnLi....
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....f Clause-7 of IInd Schedule cannot be invoked. In support of his submission, he has placed reliance on the decision of Calcutta High Court in the case of Council of Institute of Chartered Accountants vs. Somnath Basu, AIR 2007 Calcutta 29. It is submitted that as held by the Calcutta High Court, in case of proved carelessness and negligence but in absence of ill-motive, the recommendation of the Council for removal of the name from the Register of Members is uncalled for. 14. It is also contended that the report of the Inspectors out of which the proceedings emanated has not been supplied to the respondent and is neither placed before the Disciplinary Committee nor before the Council. It is submitted that the non-production of internal Inspectors Report, which reported negligence, will vitiate the entire proceedings. 15. It is also contended that the irregularity in case of two entities being M/s. Varsha Textiles and M/s. Shree Umiya Enterprises, the irregularities were already committed before the respondent was appointed and hence it was the earlier Auditor who was responsible for not reporting the irregularity committed by such entities and hence the respondent cannot be f....
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.... (a) direct that the proceedings be filed, or dismiss the complaint, as the case may be; (b) reprimand the member; (c) remove him from membership of the Institute either permanently or for such period as the High Court thinks fit; (d) refer the case to the Council for further inquiry and report." 19. It is not in dispute that the respondent was appointed as concurrent Auditor for the period from 01.07.2003 to 20.06.2004 and as per the Appointment Letter/ Guidelines, he was required to point out the irregularity, defects or shortfalls and report the same to the Bank. It appears that the Bank took an internal inspection of the Branch on October, 2003 when the various irregularities, which are briefly reiterated as under: (a) CCH limited of M/s. Varsha Textiles in which it is alleged that Branch has allotted excess limit against the sanctioned limit of Rs.260.00 lakhs and the excess overdraft report was not submitted to Controlling Office for approval. (b) CCM limit of M/s. Shree Umiya Enterprises, the Branch allowed excess continuously without submitting Overdraft report to Controlling Office against the sanctioned limit of Rs. 1....
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....out his family circumstances. His sole defence is that he was unable to highlight the deficiency/ irregularities through his flash report since his father had passed away somewhere in September, 2003 and his wife had undergone surgery for cyst in August, 2003. 23. At this stage, we may mention that, subsequently, the respondent has reported the irregularities vide his flash reports on 31.12.2003. The respondent was very well aware about the Bank's internal audits by the Inspectors in the month of October, 2003. The defence of the respondent taking shelter under family circumstances is not palatable since it is accepted that his father has passed away in September, 2003 and his wife had undergone surgery in August, 2003, much prior to the internal inspection of the Branch conducted in October, 2003. Even after the irregularities surfaced in October, 2003, the respondent reported the irregularities vide flash report No.14/03-04 on 30.12.2003 and the quarterly report of quarter ending on December, 2003, i.e after a period of almost two months. Thus, the defence taken by the respondent before the Disciplinary Committee citing his family circumstances, is not palatable and appears to....
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....i Combustion P. Ltd., along with 26 entities appeared in such reports. However, the fact remains that the respondent never reported vide flash report. The respondent failed to carry out the concurrent audit effectively on daily basis and it was only done after the Bank's internal experts' report. The Committee and the Council have examined the facts in detail along with the defence taken by the respondent and ultimately has recommended the removal of the respondent from the Register of Members for a period of 6 months. READING OF CLAUSE-7 OF PART-I OF SECOND SCHEDULE : 25. The entire case of the respondent hinges on the provisions of Clause-7 of Part-1 of Second Schedule of the Act, which reads as under: "THE SECOND SCHEDULE [See Sections 21(3), 21-B(3) and 22] Part I Professional misconduct in relation to chartered accountants in practice A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he (1) discloses information acquired in the course of his professional engagement to any person other than his client so engaging him, without the consent of his client or otherwise than as required by any law ....
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....ll depict that the same is divided in two parts by ","(coma) and word "or", i.e, "does not exercise due diligence," or "is grossly negligent in the conduct of his professional duties". 28. Thus, the use of 'coma' before word "or" used in Clause 7 is a disjunctive particle to express an alternative. The intention of Clause 7 in the first part of failure to exercise due diligence forms a separate class of misconduct, and cannot be read as "and" to connect with gross negligence. Both the words "diligence" and "negligence" are forms of conduct/behaviour and hence are used in a single sentence instead of making a separate clause. Therefore, the respondent, who has not shown due diligence in highlighting the deficiencies/irregularities promptly, can be said to have committed professional misconduct. 29. Thus, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he does not exercise due diligence or he is grossly negligent in the conduct. The Disciplinary Committee and the Council is not required to examine the professional misconduct by including both the contingencies as prescribed in Clause-7, i.e, failure to exercise due diligence and gro....
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....mnath Basu, (supra). However, we do not agree with the view expressed by the Calcutta High Court to the extent it holds that the auditors cannot be held to be guilty of any misconduct bereft of any charge of dishonesty committed by him in discharge of his duties. We also do not agree with the view expressed by the Calcutta High Court to the extent that the negligence in performance of duties or error of judgment in discharging of such duties, cannot constitute misconduct unless ill-motive in the aforesaid acts are established. Such observation if applied in the present case or in the cases of auditor who has failed to exercise his due diligence or is gross negligent in performing his professional duties; the provision of Clause-7 of Part-1 of Second Schedule will become redundant. The Part-1 of 2nd Schedule enumerates professional misconduct in relation to Chartered Accountant in practice and there are 10 eventualities which are prescribed therein. The elements of ill-motive and dishonesty, as expressed by the Calcutta High Court, cannot be introduced in the comportments as prescribed in Part-1 of the Second Schedule. The Chartered Accountant who is engaged by the Bank is supposed ....