Judgement

RAMASWAMI, J. : This appeal is brought, by special leave, from the judgment of the Calcutta High Court dated December 5, 1962 in matter No. 78 of 1959.

2. Ananda Bazar Patrika Limited is a Joint Stock Company, hereinafter referred to as the Company , and has got an employees Provident Fund Scheme which was being managed by a Board of Trustees. Respondent No. 1 is a Chartered Accountant and was appointed by the Board of Directors of the Company to audit the accounts of the Provident Fund for the years 1953 and 1954. It appears that in the year 1954 the Trustees of the Fund had made certain advances amounting to about Rs. 6,21,864/- to the Company in contravention of the Rules of the Fund. The Directors of the Company issued various cheques in repayment of the advance, but at the request of the management of the Company the cheques were kept with the Trustees of the Fund uncashed and not credited in the account of the Fund. After receipt of the cheques the Trustees of the Fund made book entries showing the repayment of the loan so granted to the Company, though in fact none of these cheques had been cashed when such entries were made. In his letter dated May 25, 1955 respondent No. 1 wrote to the Company as follows :

"It appears that certain loans were granted by the Trustees of the Fund to the Company in l954 which although adjusted within the accounting year, does not appear to be in accordance with the Provident Fund Rules. We disapprove such transaction and believe it will not recur in future. Cheques issued by you to the Fund should also be cleared promptly."

After receipt of the letter from respondent No. 1 a meeting of the Board of Trustees was held oh May 27, 1955 when a resolution was passed to the following effect :

"This meeting records with regret that the cheques amounting to Rs. 6,21,864/- could not be presented to the bank on the verbal request of the management of the Ananda Bazar Patrika Ltd., this meeting considering all the relevant facts resolves that all the cheques be returned to the Company to the debit of the loan account bearing an interest of 6% per annum with effect from the date of issue of the cheques". Respondent No. 1 signed the statement of Accounts ending December 31, 1953 on May 14, 1954, and the Statement Accounts ending December 31, 1954 on June 30, 1955. The Statement was signed by the Trustees of the Fund and respondent No. 1 after signing the statement gave the following certificate:

"Checked with the books and account produced and found correct."

Though respondent No. 1 pointed out in his letter dated May 25, 1955 that loans were granted and adjustment was made during the accounting year, he did not disclose this fact in his note when he signed the statement of account on June 30, 1955 knowing fully well that the cheques were not only encashed but were returned to the Company in pursuance of the resolution of the Trustees dated May 27, 1955. Respondent No.1 also failed to point out in the statement of account that adjustment of loans was made by showing in a very vague manner cash in hand (Cheques and cash) as Rs. 6,21,864/- and the proportion of the cheques to the cash was not specified. Later on Kishori Lal Dutta, respondent No. 2. President of the Employees Union filed a complaint against respondent No. 1 before the Institute of Chartered Accountants of India, hereinafter referred to as the Institute . It was alleged in the complaint that (1) the loan granted to the Company was in contravention of Rule 12 of the Provident Fund Rules and the auditor failed to disclose this in the statement of account, and (2) the auditor failed to invite attention to the fact that huge amount was shown as cash in hand in the financial statement for the years 1953 and 1954 in contravention of Rule 11 of the Fund. The complaint was referred by the Council of the Institute to the Disciplinary Committee for an inquiry under S. 21 of the Chartered Accountants Act (Act 38 of 1949), hereinafter called th