1956 Supreme(Cal) 75

High Court of Calcutta
Chakrabarti, Sarma Sarkar, JJ.
S. Ganesan – Appellant
Versus
A.K. Joscelyne – Respondent
Matter 111 of 1955
Decided On : Apr 19, 1956

Headnote:

CHARTERED ACCOUNTANTS ACT - REFERENCE UNDER SECTION 21(1) - COMPLAINT AGAINST A PARTNER OF A FIRM OF CHARTERED ACCOUNTANTS - CERTIFICATION OF A PROFIT AND LOSS ACCOUNT AS CORRECT AND PREPARED IN ACCORDANCE WITH LAW - MISCONDUCT - INTERPRETATION OF SECTION 132(3), INDIAN COMPANIES ACT AND REGULATION 107 OF TABLE 'A' - DISCLOSURE OF REMUNERATION PAID TO MANAGING AGENTS - MATERIAL FACT - MISSTATEMENT IN PROFIT AND LOSS ACCOUNT - BONA FIDES OF THE AUDITOR - PROFESSIONAL MISCONDUCT - GROSS NEGLIGENCE.

Fact of the Case:

A complaint was made against a partner of a firm of Chartered Accountants for certifying a Profit and Loss Account of a company as correct and prepared in accordance with law, when in fact, the account did not disclose the remuneration paid to the Managing Agents on account of their sales of the company's products elsewhere than in Madras City at or through their branches or agencies. The complainant alleged that the non-disclosure of this remuneration was a violation of Section 132(3), Indian Companies Act and Regulation 107 of Table 'A', and that the auditor had failed to report the misstatement in the Profit and Loss Account regarding the gross income. The auditor defended his actions by stating that he had relied on the legal opinion of his firm, which had advised that the remuneration paid to the Managing Agents for their services as Selling Agents was not required to be disclosed under Section 132(3) if there was a separate agreement for the Selling Agency. He also claimed that he had acted in accordance with the true view of the law and the agreement, and that he had not been guilty of any misconduct.

Finding of the Court:

The Court found that the auditor had not acted with reasonable care in informing himself of the true position under Section 132(3) and Regulation 107 in relation to the Agreement and the Profit and Loss Account, as drawn up. However, the Court also found that the particular charges laid against the auditor had not been established against him, as there was no charge of negligence and the allegation of deliberate accommodation of the Directors and the Managing Agents in the matter of concealing the payment of the selling commission had been withdrawn.

Issues: 1. Whether the auditor had acted with reasonable care in certifying the Profit and Loss Account as correct and prepared in accordance with law. 2. Whether the non-disclosure of the remuneration paid to the Managing Agents on account of their sales of the company's products elsewhere than in Madras City at or through their branches or agencies was a violation of Section 132(3), Indian Companies Act and Regulation 107 of Table 'A'. 3. Whether the auditor had failed to report the misstatement in the Profit and Loss Account regarding the gross income. 4. Whether the auditor had been guilty of professional misconduct.

Ratio Decidendi: 1. The Court held that the auditor had not acted with reasonable care in informing himself of the true position under Section 132(3) and Regulation 107 in relation to the Agreement and the Profit and Loss Account, as drawn up. The Court noted that the auditor had relied on the legal opinion of his firm, which had advised that the remuneration paid to the Managing Agents for their services as Selling Agents was not required to be disclosed under Section 132(3) if there was a separate agreement for the Selling Agency. However, the Court found that the auditor had not taken normal and reasonable care in informing himself of the true position under Section 132(3) and Regulation 107 in relation to the Agreement and the Profit and Loss Account, as drawn up. The Court noted that the auditor had not obtained any explanation from the Directors, which was obviously called for in view of the terms of the Agreement and the difficulty of reconciling the entries in the account with even his own view of the meaning of 'gross income'. 2. The Court did not decide whether the non-disclosure of the remuneration paid to the Managing Agents on account of their sales of the company's products elsewhere than in Madras City at or through their branches or agencies was a violation of Section 132(3), Indian Companies Act and Regulation 107 of Table 'A', as the particular charges laid against the auditor had not been established against him. 3. The Court did not decide whether the auditor had failed to report the misstatement in the Profit and Loss Account regarding the gross income, as the particular charges laid against the auditor had not been established against him. 4. The Court held that the auditor had not been guilty of professional misconduct, as the particular charges laid against him had not been established against him.

Final Decision: The Court held that the particular charges laid against the auditor had not been established against him, and therefore, no orders were necessary on the Reference. There was no order for costs.