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2012 Supreme(Ker) 350
High Court of Kerala
S. SIRI JAGAN
T.O. Aleyas
Versus
The Institute Of Chartered Accounts Of India, ''Icai Bhawan'', Indraprasth Marg, Post Box No.7100, New Delhi & Others
WP(C).No. 29211 of 2011 (B)
Decided On : 21-05-2012
For the Petitioner:P.K. Suresh Kumar, Senior Advocate, Mrs. N.P. Asha, Advocate.
For the Respondents:R1 to R3, E.K. Nandakumar, K. John Mathai, P. Benny Thomas, P. Gopinath, R4, Bechu Kurian Thomas, Advocates.
Headnote:
CHARTERED ACCOUNTANTS ACT, 1949 - SECTION 21, 21A, 21B, 22 - CHARTERED ACCOUNTANTS (PROCEDURE OF INVESTIGATIONS OF PROFESSIONAL AND OTHER MISCONDUCT AND CONDUCT OF CASES) RULES 2007 - RULE 3, 4, 5, 6, 7, 8, 9, 13, 14, 15, 16, 17, 18, 19 - PRINCIPLES OF NATURAL JUSTICE - REASONED DECISION - TRANSPARENCY - BOARD OF DISCIPLINE - DISCIPLINARY COMMITTEE - DIRECTOR (DISCIPLINE) - COMPLAINT - PROCEDURE - JURISDICTION - POWERS - AUTHORITY - PROFESSIONAL MISCONDUCT - AUDIT - COMPANY - SHARE CAPITAL - APPOINTMENT OF AUDITOR - DISPUTE - JURISDICTION - QUASI-JUDICIAL PROCEEDINGS - SUMMARY DISPOSAL PROCEDURE - PREJUDICE - FAILURE OF JUSTICE - APPEAL - COMPANY LAW BOARD - FIRM - PARTNERSHIP - SUSTAINABILITY - JUDICIAL REVIEW.
Fact of the Case:
Petitioner, a shareholder and Managing Director of a company, filed complaints before the Institute of Chartered Accountants of India (ICAI) against two chartered accountants, partners of a firm of chartered accountants, alleging several specific acts of misconduct in the audit of the company's accounts. The Director (Discipline) of ICAI, after considering the complaints, arrived at a prima facie opinion that one of the chartered accountants was guilty of professional misconduct, while the other was not. The Disciplinary Committee, on consideration of the prima facie opinion, disagreed with the Director's opinion in respect of the first chartered accountant and closed the matter, while agreeing with the Director's opinion in respect of the second chartered accountant. The petitioner challenged the decisions of the Disciplinary Committee and the Board of Discipline in two separate writ petitions.
Finding of the Court:
1. The Board of Discipline and the Disciplinary Committee are quasi-judicial authorities and their decisions must be supported by reasons. 2. The requirement to give reasons is a mandatory requirement of natural justice and is essential for ensuring transparency and fairness in decision-making. 3. The Disciplinary Committee failed to give any plausible reasons for disagreeing with the prima facie opinion of the Director (Discipline) in respect of the first chartered accountant. 4. The Board of Discipline failed to consider the apparent contradiction between the prima facie opinions of the Director (Discipline) in respect of the two chartered accountants, who were partners of the same firm, and failed to apply its mind to the materials before it. 5. The decisions of the Disciplinary Committee and the Board of Discipline were unsustainable and were quashed.
Issues: 1. Whether the Board of Discipline and the Disciplinary Committee are required to give reasons for their decisions. 2. Whether the Disciplinary Committee's decision to disagree with the prima facie opinion of the Director (Discipline) was sustainable. 3. Whether the Board of Discipline's decision to agree with the prima facie opinion of the Director (Discipline) was sustainable.
Ratio Decidendi: 1. The Board of Discipline and the Disciplinary Committee are quasi-judicial authorities and their decisions must be supported by reasons. 2. The requirement to give reasons is a mandatory requirement of natural justice and is essential for ensuring transparency and fairness in decision-making. 3. The Disciplinary Committee failed to give any plausible reasons for disagreeing with the prima facie opinion of the Director (Discipline) in respect of the first chartered accountant. 4. The Board of Discipline failed to consider the apparent contradiction between the prima facie opinions of the Director (Discipline) in respect of the two chartered accountants, who were partners of the same firm, and failed to apply its mind to the materials before it.
Final Decision: The writ petitions were disposed of. The Disciplinary Committee was directed to pass fresh orders giving reasons for their decision in respect of the first chartered accountant, and the Board of Discipline was directed to pass fresh orders in respect of the second chartered accountant, both within specified time frames.
S. Siri Jagan, J.
1. The issues involved in these two writ petitions area as to whether, on a complaint received from an aggrieved person, the Board of Discipline and the Disciplinary Committee (the respective 3rd respondent in these two writ petitions), constituted by the Institute of Chartered Accountants of India, (the 1st respondent herein), under Sections 21A and 21B of the Chartered Accountants Act, 1949 (hereinafter referred to as the Act), can, without giving any reasons, decide not to initiate disciplinary action against two chartered accountants, especially when the Director (Discipline), the 2nd respondent herein, without giving any reasons in exercise of powers under Section 21 (2) of the Act, arrives at a prima facie opinion on the commission of misconduct by one of them, who are partners of a firm of chartered accountants, which firm was engaged for auditing the accounts of a company, in respect of which audit, the complaints were raised, while exercising statutory powers under Section 21 (3) of the Act and also whether in respect of the identical misconduct one of the partners can be absolved, when the allegations are in respect of audit for which the firm was engaged. The short facts leading to the two writ petitions may be summarised as under.
2. The 4th respondent in each of these two writ petitions were partners of a firm of chartered accountants by name M/s. Abraham & Kurian. They conducted audit of the accounts of a company by name St. Mary's Hotels Pvt. Ltd., of which the petitioner is a shareholder/Managing Director. Alleging several specific acts of misconducts on the part of the 4th respondent in each of these two writ petitions, the petitioner filed complaints before the 1st respondent, seeking initiation of disciplinary action as per the provisions of the Act. As enjoined by Section 21 (2) of the Act, the 2nd respondent considered the complaints first and arrived at a prima facie opinion that the 4th respondent in W.P. (C) No. 29211/2011 is guilty of professional misconduct, falling within the meaning of clause 9 of Part I of the First Schedule and Clause 7 of Part I of the Second Schedule of the Act and that the 4th respondent in W.P. (C) No. 29212/2011 is not guilty of professional misconduct falling within the meaning of Clause 7 of Part I of the Second Schedule of the Act. The 2nd respondent placed his prima facie opinion before the respective 3rd respondent in each of the writ petitions as required under Sub Section 3 of Section 21 of the Act. Thereafter, as per Exts. P4 in each of the two writ petitions, the Deputy Secretary of the Disciplinary Directorate of the 1st respondent informed the petitioner as follows:
W.P. (C) No. 29211/2011
"I have been directed to inform you that your Complaint, Written Statement of the Respondent, your Rejoinder and additional documents along with the prima facie opinion formed by the Director (Discipline) under Rule 9(1) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules 2007, were considered by the Disciplinary Committee. The Committee on a consideration of the same did not agree with the prima facie opinion of the Director (Discipline).
In view of the above, the Disciplinary Committee decided to close the matter.
Accordingly, under Rule 9(2)(c), the Committee passed order for closure of the aforesaid Complaint.
Your above mentioned Complaint thus stands closed."
W.P. (C) No. 29212/2012
"I have been directed to inform you that your Complaint, Written Statement of the Respondent and your Rejoinder along with the prima facie opinion formed by the Director (Discipline) under Rule 9(1) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules 2007, were considered by the Board of Discipline. The Board of Discipline on a consideration of the same agreed with the prima facie opinion of the Director (Discipline) that t
