The main legal point established in the judgment is that the disclosure of confidential information acquired during professional engagement without consent and without legal requirement constitutes professional misconduct under the Chartered Accountants Act, 1949.

Headnote:
Chartered Accountants Act - Professional Misconduct - Section 21(5), Second Schedule - The judgment discusses the professional misconduct of a Chartered Accountant under Clause 1 of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
Fact of the Case:

The respondent, a Chartered Accountant, disclosed confidential information acquired during his professional engagement to the Registrar of Companies without the consent of the client, leading to a complaint of professional misconduct.
Finding of the Court:

The court found the respondent guilty of professional misconduct under the Chartered Accountants Act, 1949, but deemed the recommended penalty of removal from the register of members for six months too harsh, opting to reprimand the respondent instead.
Issues: The main issue was whether the respondent's disclosure of confidential information to the Registrar of Companies without the client's consent constituted professional misconduct under the Chartered Accountants Act, 1949.
Ratio Decidendi: The court held that the respondent's disclosure of confidential information without consent and without legal requirement constituted professional misconduct under the Act. However, the recommended penalty was deemed too harsh and the respondent was reprimanded instead of being removed from the register of members for six months.
Final Decision: The court accepted the findings of professional misconduct but directed the reprimand of the respondent instead of removal from the register of members for six months.

JUDGMENT - DEVADHAR J.P., J.: - This reference is made under section 21(5) of the Chartered Accountants Act, 1949 ('Act' for short).

2.Mr. S.R. Khanna, the respondent herein, a Chartered Accountant, carrying on the practise of accountancy profession in the name and style of "S.R. Khanna Co." is a registered member of the Institution of Chartered Accountants of India ('the institute' for short). In view of the complaints made by the Director of Shree Industrial Rubber Works (P) Ltd. ('complainant' for short) against the respondent, the Council of Institute of the Chartered Accountants of India ('the Council' for short) had referred the said complaints to the Disciplinary Committee constituted under the Act for enquiry. The Disciplinary Committee on completion of the enquiry submitted its report to the Council holding that the respondent is guilty of professional misconduct set out in Clause 1 of Part I of the Second Schedule to the Act. The Council considered the report of the Disciplinary Committee and recorded its finding under section 21(3) of the Act that the respondent is guilty of professional misconduct. Thereafter, as per section 21(5) of the Act, the Council has forwarded the case to this Court for appropriate orders with its recommendations that for the above professional misconduct, the name of the respondent be removed from the Register of members for a period of 6 months.

3.The facts relevant for the present reference are as follows :--

The respondent from time to time was appointed by Shree Industrial Rubber Works (P.) Ltd. to audit its accounts. It is an admitted fact that the accounts of the said company has been audited by the respondent upto 30th June, 1978 and the accounts for 30th June, 1979 and 30th June, 1980 have remained to be audited and/or authenticated by the respondent.

4.Admittedly, the complainant and the respondent were not getting along well with each other for over a number of years. The respondent was ultimately removed from the auditorship of the company with effect from 14th December, 1982. Even thereafter there were disputes between the parties regarding the non payment of professional fees/returning of books of accounts, etc. On 28th December, 1982 the respondent wrote a letter to the Registrar of the Companies (R.O.C. for short), Mumbai which reads as under:

"S.R. Khanna Co.

Chartered Accountants

28th December, 82.

The Registrar of companies,

100, Everest,

Marine Drive,

Bombay 400 002.

Sub : Shree Industrial Rubber Works Pvt. Ltd.

(i) Appointment of Auditor No. 18982 of 1976-77.

(ii) Opinion

---------------------

Dear Sir,

This is with reference to letter addressed to M/s. Shree Industrial Rubber Works Pvt. Ltd., whose annual general meeting was held on 14-12-82, as per notice received by me. Though, the letter is self explanatory, we wish to inform that we had made certain notes on the balance sheet both for the year 79 and 80, which was apparent :

Notes

1) The company has surrendered the tenancy rights of premises with no consideration and legal fights.

2) Large amounts of money, has been credited in the books of accounts- for which no confirmations are available.

3) Confirmations of debtors/creditors are not forthcoming.

Other points.

i) The company has not maintained fixed assets register for those years and sold machinery apparently with minor considerations.

ii) Two Directors have resigned during the year accountant has not been employed for last very many years.

iii) Company is reporting loss for so many years wiping out the capital.

iv) Factory has been shifted to Poona, where Managing Director who is sick is reportedly staying.

v) The majority shareholders do not take interest in the company for fear of taking liability/responsibility, and the company is being managed by the minority shareholders, who continue to show loses.

vi) The Directors have drawn no salaries for last years/and apparently living in luxury, with no other sources of visible Income/activity.

vii) No notice/B/Sheet/Profit and loss A/c a

Click Here to Read the rest of this document

Judicial Analysis