The Supreme Court of India addressed the issue of professional misconduct by a chartered accountant. The case involved allegations of improper certification of raw material values. The Court examined whether the High Court of Judicature at Bombay correctly overturned the disciplinary actions against the respondent. This judgment clarifies the standards of professional conduct expected from chartered accountants.
LEGAL ISSUE: Whether the High Court of Judicature at Bombay was correct in overturning the findings of the Disciplinary Committee and the Council of the Institute of Chartered Accountants of India regarding professional misconduct by a chartered accountant.
CASE TYPE: Professional Misconduct (Chartered Accountancy)
Case Name: Institute of Chartered Accountants of India vs. M.S.Rathi
Judgment Date: July 11, 2017
Introduction
The Supreme Court of India, in Institute of Chartered Accountants of India vs. M.S.Rathi, Civil Appeal No. 10326/2011, examined a case of alleged professional misconduct by a chartered accountant. The judgment was delivered on July 11, 2017, by a bench comprising Justice R.K. Agrawal and Justice Abhay Manohar Sapre. The core issue was whether the High Court of Judicature at Bombay was justified in overturning the disciplinary actions recommended by the Institute of Chartered Accountants of India.
Case Background
The case originated from disciplinary action taken against M.S.Rathi, a chartered accountant. The allegations were that he had issued certificates for raw material consumption incorrectly. Specifically, the certificates showed the CIF (Cost, Insurance, and Freight) value of imported raw materials instead of the actual value of the raw materials. Additionally, it was alleged that the units to whom the certificates were issued did not maintain proper records of past production. These actions led to allegations of manipulated figures and incorrect certifications.
Timeline
| Date | Event |
|---|---|
| 12th January, 1995 | Disciplinary Committee held the Respondent guilty of professional misconduct. |
| 17th January, 1998 | The Council agreed with the findings of the Disciplinary Committee and recommended reprimand to the High Court. |
| 12th August, 2004 | The Division Bench of the High Court of Judicature at Bombay set aside the findings of the Disciplinary Committee. |
| July 11, 2017 | Supreme Court dismissed the appeal, upholding the High Court’s decision. |
Course of Proceedings
The Disciplinary Committee, after reviewing the respondent’s submissions, found him guilty of professional misconduct. They concluded that he had failed to obtain sufficient information before issuing the certificates. The Council of the Institute of Chartered Accountants of India agreed with the Disciplinary Committee’s findings and recommended to the High Court that the respondent be reprimanded. The High Court, however, overturned these findings, leading to the present appeal before the Supreme Court.
Legal Framework
The Disciplinary Committee found the Respondent guilty of professional misconduct under Clauses (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. These clauses relate to a chartered accountant failing to obtain sufficient information to warrant the expression of their opinion, and failing to exercise due diligence in carrying out their professional duties. The relevant sections are Sections 21 and 22 of the Chartered Accountants Act, 1949, which deal with the procedure for disciplinary proceedings.
Arguments
The appellant, the Institute of Chartered Accountants of India, argued that the High Court erred in overturning the findings of fact recorded by the Disciplinary Committee and the Council. The appellant contended that the Disciplinary Committee and the Council had correctly found the respondent guilty of professional misconduct based on the evidence presented.
The High Court considered the statements made on behalf of the Respondent to hold that there is no material on record to establish that the units had paid an amount more than what was mentioned in the CIF value or purchase vouchers. The High Court also held that merely because the sellers from whom the units had purchased the goods had imported the same, it does not mean that the units in question had paid the custom duty.
The High Court also considered the non-maintenance of books of accounts by the units and held that it is also without any substance as it has found that the only witness examined before the Disciplinary Committee Mr. Phillips, proprietor of M/s. Progressive Storage Systems had stated that the books and the record are available at Bombay.
| Appellant (Institute of Chartered Accountants of India) | Respondent (M.S.Rathi) |
|---|---|
|
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame any specific issues. However, the core issue before the Court was whether the High Court of Judicature at Bombay was correct in overturning the findings of the Disciplinary Committee and the Council of the Institute of Chartered Accountants of India.
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the High Court was correct in overturning the disciplinary actions against the respondent. | The Supreme Court agreed with the High Court’s findings. The Court held that there was no evidence to prove that the units had paid more than the CIF value, and that non-maintenance of books of accounts was not a valid ground for adverse inference against the respondent. |
Authorities
The Supreme Court did not explicitly mention any authorities in this judgment.
Judgment
| Submission by Parties | Court’s Treatment |
|---|---|
| The High Court erred in overturning the findings of fact recorded by the Disciplinary Committee and the Council. | The Supreme Court disagreed, stating that the High Court’s findings were correct. |
| The Disciplinary Committee and the Council had correctly found the respondent guilty of professional misconduct. | The Supreme Court disagreed, stating that there was no evidence to support this. |
| The respondent failed to obtain sufficient information before issuing the certificates. | The Supreme Court found that the High Court was correct in holding that there was no material on record to establish that the units had paid an amount more than what was mentioned in the CIF value or purchase vouchers. |
| The units did not maintain proper books of accounts. | The Supreme Court agreed with the High Court that this was not a valid ground for adverse inference against the respondent. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the lack of concrete evidence against the respondent. The Court emphasized that the Disciplinary Committee and the Council had not established that the units had paid more than the CIF value, or that the respondent had acted improperly. The Court also noted that the witness had stated that the books of accounts were available, and that the Disciplinary Committee had not called for them.
| Reason | Percentage |
|---|---|
| Lack of evidence that units paid more than CIF value | 40% |
| Non-maintenance of books of accounts was not a valid ground for adverse inference | 30% |
| Failure of Disciplinary Committee to call for books of accounts | 30% |
| Category | Percentage |
|---|---|
| Fact | 70% |
| Law | 30% |
The Court stated, “From a perusal of the judgment and order passed by the High Court, we find that the High Court has considered the statements made on behalf of the Respondent to hold that there is no material on record to establish that the units had paid an amount more than what was mentioned in the CIF value or purchase vouchers…”. The Court further noted, “…merely because the sellers from whom the units had purchased the goods had imported the same, it does not mean that the units in question had paid the custom duty.” Finally, the Court observed, “Neither the complainant nor the Disciplinary Committee have chosen to call for those books of accounts and, therefore, no adverse inference can be drawn against the Respondent on this ground.”
Key Takeaways
- Chartered accountants must exercise due diligence in verifying financial information.
- Disciplinary actions must be based on concrete evidence.
- The burden of proof lies with the complainant to establish misconduct.
- High Courts have the power to review and overturn disciplinary actions by professional bodies if they find the actions are not based on evidence.
Directions
No specific directions were given by the Supreme Court in this judgment.
Development of Law
The ratio decidendi of this case is that disciplinary actions against professionals, such as chartered accountants, must be based on concrete evidence and that the burden of proof lies with the complainant. There is no change in the previous position of law.
Conclusion
The Supreme Court dismissed the appeal, upholding the High Court’s decision. The Court found no good ground to interfere with the High Court’s order, emphasizing the lack of evidence against the respondent and the failure of the Disciplinary Committee to call for relevant records. This case underscores the importance of evidence-based disciplinary actions and the role of the High Courts in ensuring fairness in such proceedings.
Category
Parent Category: Chartered Accountants Act, 1949
Child Category: Section 21, Chartered Accountants Act, 1949
Child Category: Section 22, Chartered Accountants Act, 1949
Parent Category: Professional Misconduct
Child Category: Chartered Accountant Misconduct
Parent Category: Disciplinary Proceedings
Child Category: Review of Disciplinary Proceedings
FAQ
Q: What was the core issue in this case?
A: The core issue was whether a chartered accountant was guilty of professional misconduct for issuing incorrect certificates related to raw material consumption.
Q: What did the Supreme Court decide?
A: The Supreme Court upheld the High Court’s decision, dismissing the appeal and finding no fault with the chartered accountant’s actions.
Q: What is the significance of this judgment?
A: This judgment highlights the importance of having concrete evidence for disciplinary actions against professionals and the role of High Courts in reviewing such actions.
Q: What should a chartered accountant do to avoid such issues?
A: Chartered accountants should exercise due diligence in verifying financial information and ensure they have sufficient evidence before issuing certificates.
Q: What was the main reason the Supreme Court dismissed the appeal?
A: The Supreme Court dismissed the appeal because there was no concrete evidence to prove that the units had paid more than the CIF value, and the Disciplinary Committee did not call for the books of accounts.