IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on : February 14, 2017
Judgment Delivered on : February 16, 2017
+ CHAT.A.REF.2/2010
COUNCIL OF INSTT. OF CHARTERED
ACCOUNTANTS OF INDIA …..Petitioner
Represented by: Mr.Rakesh Agarwal, Advocate
with Mr.Pulkit Agarwal, Advocate
versus
SUBODH GUPTA & ANR. …..Respondents
Represented by: Ms.Manita Verma, Advocate with
Ms.Riha Deb and Mr.Prateek
Gaurav, Advocates
CORAM:
HON’BLE MR. JUSTICE PRADEEP NANDRAJOG
HON’BLE MR. JUSTICE YOGESH KHANNA
PRADEEP NANDRAJOG, J.
1. The Institute of Chartered Accountants has made the instant
Reference under Section 21(5) of the Chartered Accountants Act, 1949 in
respect of the respondent being indicted for a misconduct other than such
misconduct which is referred to in sub-Section (4) of Section 21. It needs
to be noticed at this stage that with respect to the misconduct for which
the respondent has been indicted falling within sub-Section (4) of Section
21 the penalty levied : of removal of the name from the Member of
Register for a period of six months was challenged by the respondent in
Chat.A.C.No.5/2012 which he withdrew. Thus, we shall be referring to
such facts as would be relevant to decide the present Chat.A.Ref.
2. If we affirm the findings returned by the Disciplinary Committee
constituted by the Institute of Chartered Accountants which has been
Chat.A.Ref.No.2/2010 Page 2 of 10
accepted by the Council, the charge proved would be that of a
misconduct.
3. A complaint was received from the Punjab National Bank alleging
that the respondent : a practicing Chartered Accountant, had incorporated
three companies and a trust, with he being the founder director/president
and had opened accounts in the name of the companies and the trust with
the complainant’s branch at Agra. The three companies incorporated
were : M/s.Seeroo Foods Pvt. Ltd., M/s.G.K.Consultant Ltd. and
M/s.Jagrook Builders Pvt. Ltd. The trust set up was M/s.Nirogi
Charitable and Medical Research Trust. It was further alleged that in
connivance with the Branch Manager, funds were diverted to companies
and firms in which the respondent was associated directly as a director or
as a partner. The said entities were : M/s.Radha Raman Plastic Concern
Ltd., M/s.Himalayan Production & Estate (P) Ltd., M/s.A.B.Metal
Industries (P) Ltd., M/s.SAMD Cast (P) Ltd., M/s.Pratikar Finlease Pvt.
Ltd., M/s.Subodh Gupta & Associates, M/s.Utkarsh International and
M/s.Formex Forms (P) Ltd.
4. Copy of the complaint was sent to the respondent on June 06,
2007. He submitted a written statement of defence on July 17, 2002. The
complainant submitted the rejoinder on August 22, 2012. The respondent
submitted his comments on the rejoinder on September 18, 2002.
5. In accordance with the provisions of Regulation 12(11) of the
Chartered Accountant Regulations, 1988 the complaint, written
statement, rejoinder and respondent’s comments on the rejoinder were
placed before the Council, which at its meeting held in April, 2004
opined that prima-facie case was made out to proceed ahead for an
inquiry to be made by the Disciplinary Committee of the Council.
6. The Disciplinary Committee issued notice to the respondent to
appear before the Committee. The record of the Disciplinary Committee
Chat.A.Ref.No.2/2010 Page 3 of 10
would show that from August 25, 2004 the respondent, on one pretext or
the other, took adjournments and successfully managed to drag on the
proceedings till July 29, 2006. On a date which is not emerging from the
record the Committee heard the complainant and the respondent and
submitted a report on October 03, 2006 holding the respondent guilty of
professional misconduct within the meaning of Clause 11 of the First
Schedule to the Chartered Accountants Act, 1949 and with respect to the
charge of other misconduct observed that the same shall be decided after
the outcome of the verdict by the CBI Court. The reason being that
investigation qua the fraud committed by the Branch Manager was
investigated by CBI and a charge sheet was filed in the Court of
Competent Jurisdiction in which amongst others, the respondent was
named as an accused.
7. The report of the Disciplinary Committee was considered by the
Council which referred the matter to the Disciplinary Committee for
further inquiry and to submit a complete report.
8. In the remanded proceedings the respondent was heard. The
Committee gave its report on February 02, 2009 and the findings are in
paragraphs 13 to 23 of the report which read as under:-
“13. The Committee noted that the respondent was signing
the Balance Sheet of various companies i.e.
M/s.G.K.Consultants Limited, M/s.Seeroo Foods Private
Limited, M/s.Radha Raman Plastic Concern Ltd. etc. in the
capacity of as a Director of the said Companies. Further, it
is an admitted fact that the respondent was also operating
the bank account of the Companies.
14. The Committee noted that and it is an admitted fact
that the respondent was Director in several companies i.e.
M/s.Seeroo Foods (p) Ltd., M/s.Nirogi Charitable &
Medical Research Ltd., M/s.G.K.Consultant Ltd. etc.
However, the respondent have taken permission from the
Chat.A.Ref.No.2/2010 Page 4 of 10
Institute to be a Director only in one Company i.e.
M/s.G.K.Consultant Ltd.
15. The respondent submitted that he was honorary
Director in all the Companies and for that no specific
permission was required from the Institute. But the
Committee is not convinced with the contention of the
respondent as the respondent was actively involved in the
day to day operation of the Companies as he was involved in
signing the balance Sheets of the various Companies in the
capacity of a Director, operating the Bank account9s)
signing the Loan application/documents etc. The
Complainant has submitted the copies of resolution of the
Companies, authorizing the respondent to operate the Bank
accounts, Copies of the Memorandum & Article of
Association of various Companies in which the respondent
was shown as a promoter of the Companies. Further, the
respondent was actively involved in the Company‟s activities
relating to bank‟s transaction and he signed the documents
for over draft facility as well.
16. In view of the above, it is evident that the respondent
was involved in day to day activities of various Companies
namely, M/s.Seeroo Foods (P) Ltd., M/s.Nirogi Charitable
& Medical Research Trust, M/s.G.K.Consultant Ltd.,
M/s.Jagrook Builders (P) Ltd., M/s.Radha Raman Plastic
Concern Ltd., M/s.Himalayan Production & Estate (P) Ltd.,
M/s.A.B.Metal Industries (P) Ltd., M/s.SAMD Cast (P) Ltd.,
M/s.Pratikar Finlease Pvt. Ltd., M/s.Subodh Gupta &
Associates, M/s.Utkarsh International and M/s.Formex
Forms (P) Ltd. without obtaining the prior permission of the
Institute.
17. Thus, in view of above the Committee holds the
respondent guilty of professional misconduct falling with the
meaning of Clause (11) of Par 1 of First Schedule to the
Chartered Accountants Act, 1949.
18. The Committee noted that the second charges is that
the respondent is connivance with the then Branch Manager
had defrauded the Bank. It is an admitted fact that the Bank
has been cheated by the Companies in which the Respondent
was the Director and the branch manager was actively
Chat.A.Ref.No.2/2010 Page 5 of 10
involved in the said fraud. The Committee noted that the
bank has been defrauded to the tune of `3.50 crores and for
the same the Bank has filed recovery suit. The said suit has
been withdrawn as the Bank has entered into a compromise
with the Companies. The Committee noted that the Branch
manager had allowed the clean overdraft to the Companies
superseding his statutory powers.
19. The Committee noted that the criminal suit is still
pending in the Court and the charges have not been framed
despite the fact that more than 9 years have elapsed. The
Committee noted that the Respondent‟s contention was that
he was given clean overdraft based on the creditworthiness
of the Companies and he has not furnished any wrong
document.
20. The Committee observed that the contention raised by
the Respondent is not at all tenable as the charge sheet
which has been filed by the CBI wherein the Respondent is
one of the accused along with others, namely, Deepak
Kumar Nayyar, Manager, Punjab National Bank, (under
suspension). It has been pointed out in the charge-sheet that
Nirogi Charitable & Medical Research Trust was neither
availing any credit facility/loan nor there was any OD
account in the name of the said Society in the Punjab
National Bank, Kamla Nagar Branch, Agra. Further, it was
mentioned that Mr.Deepak Kumar Nayyar, Manager,
Punjab National Bank had abused his position as Branch
Manager by conspiring with the respondent to cause
wrongful loss to the Bank and wrongful gain to themselves
by fraudulent means and in furtherance of the said
conspiracy, the said Branch Manager debited a sum of
`85,12,750/- to a non-existence OD account of the Society
on 27th April, 1998 and got issued 11 demand drafts for a
total sum of `85 lacs drawn on CDPC, New Delhi favouring
various beneficiaries of Delhi on the basis of draft
application forms submitted by the respondent.
21. The Committee also observed that it was alleged in
the charge-sheet that M/s.Seeroo Foods Pvt. Ltd.
represented by the respondent as its Director was having an
Anupam Fixed Deposit Account No.489 and corresponding
OD account which was operated by the respondent himself.
Chat.A.Ref.No.2/2010 Page 6 of 10
On 16th December, 1997 while the Anupam Account was
showing a credit balance of `2,25,98,910/-, Mr.Nayyar
fraudulent made an excess credit of `7,11,715/- as interest
on 19.9.97. The said Manager further two fake credits for
`5,24,96,50/- on 13.11.97 and `80,50,000/- on 18.11.97
showing the same as being the amounts against FDR
No.589/97 and FDR No.603/97 respectively. It was further
alleged that all the aforesaid three entries were made by
Mr.D.K.Nayyar in connivance with the Respondent without
receipt of funds from or on behalf of M/s.Seeroo Foods Pvt.
Ltd. and the amount was withdrawn from Anupam OD
A/c.No.49 on the various dates by the respondent.
22. On perusal of the aforestated charge-sheet and the
involvement of the respondent in the entire matter, the
Committee felt that the respondent‟s contention that he was
not at all involved in this entire episode is not acceptable.
The Committee further noted that the respondent at each
stage was aware of the fact as to how the amounts were
credited to the Society‟s account and only at his instance 11
demand drafts were issued to various beneficiaries for
which the respondent himself had submitted the draft
applications.
23. Though the Committee noted that the Complainant
has not submitted any specific document before the
Committee yet the Committee on perusal of the charge-sheet
along with the various correspondence which has been
exchanged by the respondent with the Bank is of the view
that the respondent was dealing with the bank on day to day
basis and he was well aware about the security available to
the Bank and despite knowing that he enjoyed the clean
overdraft facility in contravention of the Rules of the Bank.
It is apparent that the Respondent was in connivance with
the then branch Manager and enjoyed the clean overdraft
facility without any security. Therefore, the Committee is of
the view that the Respondent is guilty of „Other Misconduct‟
under Section 22 read with Section 21 of the Chartered
Accountants Act, 1949.”
9. Considering the report of the Disciplinary Committee the Council
held that the respondent was : (a) guilty of professional misconduct
Chat.A.Ref.No.2/2010 Page 7 of 10
falling within the meaning of Clause (11) of the Part 1 of the 1st Schedule
to the Chartered Accountants Act, 1949; (b) guilty of other misconduct
under Section 22 read with Section 21 of the Chartered Accountants Act,
1949. Pertaining to the respondent being held guilty of other misconduct
the Council decided to recommend to the High Court that the name of the
respondent be removed from the Register of Members for a period of two
years.
10. At the hearing held by us on February 14, 2017 learned counsel for
the respondent urged that the respondent was an honorary director in the
three companies : M/s.Seeroo Foods Pvt. Ltd., M/s.G.K.Consultant Ltd.
and M/s.Jagrook Builders Pvt. Ltd. and associated in an honorary
capacity with the trust : M/s.Nirogi Charitable and Medical Research
Trust. As per learned counsel similar was the respondents association
with the companies and firms to which the funds were allegedly
transferred.
11. There is evidence on record that the respondent was operating the
bank accounts of the three companies. There is evidence on record that
the respondent was signing the balance sheet of various companies in the
capacity as a director and was also operating the bank accounts and
signing various applications submitted to the bank. Memorandum and
article of associations of various companies show the respondent to be the
promoter of the companies. There is also evidence that the respondent
had signed as the introducer when accounts of other companies were
opened and significantly the address of these other companies was the
same from where the respondent carried on his profession as a Chartered
Accountant. We shall be noting, in some detail, one such act of the
respondent which is indicative of what he was indulging in.
12. Relevant would it be to highlight that pertaining to the indictment
of having committed other misconduct, there is evidence that the
Chat.A.Ref.No.2/2010 Page 8 of 10
applications to issue eleven demand drafts were submitted by the
respondent. The trust was not enjoying any credit or loan or an overdraft
facility. There being no money in the account. The manager debited a
sum of `85,12,750/- in the account treating the same as having an
overdraft facility. Eleven demand drafts were issued favouring various
facilities.
13. There is evidence that M/s.Seeroo Foods Pvt. Ltd. of which the
respondent was acting as a director had an Anupam Fixed Deposit
Account No.489 in which account, on December 16, 1997 there was a
credit balance of `2,25,98,910/-. Excess credit of interest in sum of
`7,11,715/- was made in the account on September 19, 1997. Two other
credits in sum of `52,49,650/- and `80,50,000/- were made against two
fixed deposit receipts. The money was withdrawn from the Anupam
Accounts on various dates without actual receipt of funds.
14. It is thus not a case where the respondent has established his
involvement with the companies in an honorary capacity.
15. The second contention urged by learned counsel for the respondent
was that trial before the CBI Court is not get over. Nothing turns on that
because the charge in the criminal proceedings is one of conspiracy and
cheating. Instant proceedings relate to the charge of the respondent being
a Chartered Accountant and without permission from the Institute of
Chartered Accountant acting as a director in various companies. No doubt
the professional misconduct encompasses the acts of cheating, but that
was the subject matter of a separate indictment against which the appeal
filed by the respondent in this Court was withdrawn.
16. To bring home one illustrative point as to how the respondent was
involved, overlooking the names of the persons who were responsible, for
the reason this would relate to the charge of conspiracy, evidence shows
that on advise from Foreign Exchange Office of PNB, two FDRs under
Chat.A.Ref.No.2/2010 Page 9 of 10
FCNR Account No.12 were issued in sum of `99,62,526/- and
`47,34,921/- in the name of Tajinder Singh Sahni and Mrs.Jasbeer Kaur
Sahni. Two parallel sets of FDRs in same amount were also issued but
pertaining to FCNR Account No.11. The modus operandi was to tag the
name of Mrs.Jasbeer Kaur Sahni, wife of Surinderpal Singh and that of
Tajinder Singh Sahni. The actual beneficiaries ought to have been
Tajinder Singh and Jasbeer Kaur. A document was then introduced in the
record, allegedly pointing out aforesaid anomaly and the result was five
FDRs being issued in the correct names. The two sets of FDRs in the
joint name of Tajinder Singh and Jasbeer Kaur, which were required to be
cancelled outright, were not cancelled. Who did what would not be
relevant for the purposes of the present proceedings, but relevant would
be the fact that this siphoned-off funds was used for making 11 demand
drafts, 9 out of which in sum of `81 lacs were deposited in Current
Account No.130 maintained by Indian Overseas Bank, Preet Vihar in the
name of M/s S.A.Casting Industries Pvt.Ltd. The respondent was the
person who introduced the account holder. The address of M/s
S.A.Casting Industries Pvt.Ltd. is the same as that of M/s Seeroo Foods
Pvt.Ltd., which account with Indian Overseas Bank, being Current
Account No.117, was operated by the respondent. Aforesaid shows
respondent actively participating in businesses, which as a practicing
Chartered Accountant the respondent could not indulged in.
17. The third submission advanced by learned counsel for the
respondent was predicated on a decision dated August 16, 2016 delivered
by a Division Bench of this Court in Chat.A.Ref.No.4/2012 Council of
The Institute of Chartered Accountants of India Vs. Gurvinder Singh &
Anr. in which the view taken was that a Chartered Accountant would not
be amenable to any disciplinary proceedings while acting as an individual
and dealing with a complainant in a commercial matter. To wit : a
Chat.A.Ref.No.2/2010 Page 10 of 10
Chartered Accountant enters into an agreement to sell and receives an
earnest money which he claims to have forfeited alleging default by the
buyer. The buyer takes the stand that the Chartered Accountant never
intended to sell the property and thus has cheated the buyer. This dispute
cannot form the subject matter of a disciplinary proceedings because the
Chartered Accountant is not acting as a Chartered Accountant. He is
acting as the owner of the property.
18. In the instant case the admitted position is that the respondent is
registered with the Council to practice as a Chartered Accountant. He
cannot be a director of a company without the permission of the Council.
The appellant is the promoter of various companies of which he is a
director as per the evidence on record. Being a Chartered Accountant the
respondent cannot actively carry on business through companies, trusts
and firms. There is evidence that the respondent is doing so.
19. Affirming the verdict of guilt and keeping in view the gravity of
the misconduct we answer the reference by imposing the penalty of
removal of respondent’s name from the Register of Members of the
Institute of Chartered Accountants for a period of two years.
(PRADEEP NANDRAJOG)
JUDGE
(YOGESH KHANNA)
JUDGE
FEBRUARY 16, 2017