IMPORTANT POINT
Professional misconduct under the Chartered Accountants Act includes gross negligence in duties, requiring due diligence in verification of financial documents.

JUDGMENT :

SWARANA KANTA SHARMA, J.

1. This reference has been made under Section 21(5) of the Chartered Accountants Act, 1949 (prior to the Amendment Act, 2006) [hereafter “the Act?] by which the Council of Institute of Chartered Accountants of India [hereafter “the Council?] has forwarded the case to this Court after finding the respondent no. 1, Chartered Accountant (CA) Sh. Subhajit Sahoo, who is the member of Institute of Chartered Accountants of India [hereafter “ICAI”], guilty of professional misconduct falling within the meaning of clause (7) of Part-1 of Second Schedule to the Act, and has recommended the removal of his name from the Register of Members of the ICAI for a period of one year.

FACTUAL BACKGROUND

2. The present reference emanates from a complaint filed on 29.11.2005 by the Additional Development Commissioner (Handicrafts), Government of India, Ministry of Textiles, R.K. Puram, New Delhi [hereafter “the complainant?] against the respondent no. 1.

3. The complainant alleged that it had sanctioned a loan of Rs.11,18,000/- to one M/s Maokot Handloom & Handicrafts Cooperative Society Ltd., Churachandpur, Manipur [hereafter “the Society?]. It had also released a sum of Rs.6,84,000/- as the first instalment in advance to enable the Society to conduct capacity building-cum-training programme at Common Facility Centre, Imphal, Manipur. In this regard, the Society, on 29.11.2003, had submitted an undated Utilisation Certificate, issued by respondent no. 1 for expenditure of Rs.6,84,000/-. On 15.03.2004, an officer of the complainant’s office had inspected the activities of the Society and had found that the Additional Essential Machinery of only Rs.41,000/-had been procured by the Society, as against claimed expenditure of Rs.2,50,000/-. The Society could not explain the reason for this variation. Thereafter, the Society submitted an updated statement of expenditure vide letter dated 15.04.2004, along with another Utilisation Certificate dated 28.01.2004 for Rs.9,02,500/-, issued by respondent no. 1. However, this Certificate reflected the expenditure incurred on Additional Essential Machinery as Rs.41,000/-. It was thus alleged that this certificate appeared to be a back-dated certificate since it reflected the expenditure incurred on Additional Essential Machinery as was detected during the inspection conducted on 15.03.2004. Upon enquiry, the respondent no. 1, by way of letter dated 27.11.2004, informed that the Utilisation Certificate dated 28.01.2004 supersedes the other certificates signed by him earlier; however, no reasons for such supersession were furnished. Therefore, it was alleged that since the expenditure of Rs.2,50,000/- on procurement of Additional Essential Machinery was already verified and certified by respondent no. 1, the downward revision in the same expenditure to Rs.41,000/- by way of another certificate appeared to be inappropriate.

4. A copy of the complaint was forwarded to respondent no. 1 on 22.02.2006 with a request to send a written statement, if any, as required under Regulation 12(6) of the Chartered Accountants Regulations, 1988 [hereafter “the Regulations?]. Respondent no. 1 submitted his written statement on 20.03.2006. The complainant submitted his rejoinder on 03.10.2006. Thereafter, respondent no. 1 submitted his comments on 30.10.2006.

5. In accordance with Regulation 12(11) of the Regulations, the aforementioned documents were considered by the Council at its meeting held on 10.01.2008 and 12.01.2008 at New Delhi. The Council was prima facie of the opinion that respondent no. 1 was guilty of professional and/or other misconduct and therefore, the matter was referred to the Disciplinary Committee for inquiry.

6. The effective hearing before the Disciplinary Committee took place on 08.04.2008, in presence of the complainant’s representatives, and of respondent no. 1, his counsel and two witnesses. The respondent no. 1 did not plead guilty and opted to defend his case. The witnesses n