Gross negligence under the Chartered Accountants Act, 1949 requires a serious case of misconduct with an element of moral culpability. Mere negligence or an excusable error of judgment does not amount to gross negligence.

Satyabrata Sinha, J. : This reference has been made under section 21 of the Chartered Accountants Act, 1949 (hereinafter referred to and called for the :sake of brevity as 'the Act') for directing imposition of a punishment of reprimand to the respondent No. 1 herein. The 1st respondent is a member of the Institute of Chartered Accountant. A compliant was made by Sri C.R.Das, Regional Director, Company Law Board, Calcutta, a copy whereof is contained in Annexure 'A' to the application, the relevant portion whereof reads thus :-

"Opening and Closing Stock of tea, as well as turnover of tea are not correctly reflected in the Profit & Loss Accounts and/or Notes on Accounts for the years 1982, 1983 and 1984-Failure on the part of Auditors to bring out these material discrepancies in his reports on the relevant years' Accounts-violation of section 21(5) and section 22 of the Chartered Accountants Act, 1949 under clauses (7) and (8) of the Second Schedule-Part I read with Regulation 12 of the Chartered Accountants Regulations, 1988.

Material details to these effects have already found place in the Show Cause Notice dated 1.1.1990 to the Auditors, and so also, in the relevant extracts of the Inspection Report, as annexed."

2. A Show-Cause Notice dated 1.1.1990 was issued to the Auditors, M/s A.C. Roy & Company of which the 1st respondent was a partner, pursuant whereto an inspection was made and a report submitted on 23.3.1989. It was, inter alia, held :

"10.1(b). It is noticed from Note No.6 of Notes on Accounts forming part of the Annual Accounts for the year ended 31st December, 1982 that the turnover of the Company was Rs. 19,01,297-59 during the year 1982 whereas in the Profit & Loss Account for the said period the turnover (sales) of tea has been shown to the extent of Rs. 2,84,43825. The difference (in figures of Rs. 19,01,297-59 minus Rs. 2,84,438-25) of Rs. 16,16,859-34 has been shown as stock of tea of Season 1982 on estimated value in the Profit & Loss Account for the year ended 31st December, 1982 when there was no stock of tea of Season 1982 consequent on sale of entire saleable tea of 1,81,270 kgs. produced during the year ended 31st December, 1982. This fact of sale of entire quantum of tea produced during 1982 Season during the year ended 31st December, 198.2 itself is also supported by the following remarks contained in Para 1(e) of the Auditors Report dated 18th May, 1985 annexed to the Annual Accounts for 1982 :

1(e) Tea of Seasons 1978, 1980 & 1981 have been shown as 'stock on estimated value as the account sale of the invoices of those teas were not available but the advances against those invoices have been received. Further, in the light of Notes No.3 and 6 of Notes on Accounts forming part of the Annual Accounts for the year ended 31st December, 1982, the closing stock of tea can be only 1,68,225 kgs. and not 2,95,296 kgs. as stated in Note No. 3(f). Thus the entire position of tea, including sale and closing stock, as reflected in the Profit & Loss Account and Notes on Accounts forming part of the Annual Accounts for the year ended 31st December, 1982 are misleading. The Directors of the Company have thus withheld the true and fair view of the state of affairs of the Company as on 31st December, 1982 and thereby made themselves liable for penal action under sub-section (7) of section 211 of the Act, for violation of the said section 211. The Company and its Directors were requested to show cause why prosecution under sub-section (7) of section 211 shall not be instituted against the Directors of the Company for violation of the provisions of section 211 of the Act, vide the Inspecting Officer's letter dated 14th February, 1989. The reply of the Company/Directors has not been received as yet.

10.1(c.). It is revealed from Notes No.3(d) and 6 of the Notes on Accounts forming part of the Annual Accounts for the year ended 31st December, 1983 that while the opening stock of tea was 2,95,296 kgs. worth Rs