CA held guilty for certifying no overdues without verifying proper documents

The Disciplinary Committee of ICAI in the matter The Superintendent of Police Vs. CA. T.R. Sarathy held CA guilty for certifying no overdues without verifying proper documents.

Disciplinary Committee was of the opinion that CA. T.R. Sarathy (M. No. 025982) was GUILTY of Professional Misconduct falling within the meaning of Clauses (2) and (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949 as Respondent signed Balance Sheet and Profit & loss Account of M/s. Swastik Enterprises (hereinafter referred to as ‘the Concern’) for the year ending on 31.03.2008 and 31.03.2009 without verification of the relevant documents and also signed a certificate dated 10th March 2010 listing the credit limits of the Concern with Punjab National Bank, Nungambakkaam, Chennai and certifying that M/s. Swastik Enterprises had no overdues as on that date. It was noted that the extant complaint was based on a criminal case (RC MA1, 2013 A 00035) registered on complaint of DGM, Canara Bank, Chennai for the commission of criminal offences against the then Chief Manager, Canara Bank Guindy Branch), Shri S. Samraj (Proprietor, Swastik Enterprises) and others who entered into a criminal conspiracy and the Bank took over the liabilities of the Concern from PNB, Nungambakkam without adhering to the prescribed procedures. The said conspiracy had caused a wrongful loss of Rs.18.35 crores to the Canara Bank (Guindy Branch).

It was noted that Clause (2) and (7) of Part-I of the Second Schedule state as under:­

Second Schedule

PART I: Professional misconduct in relation to chartered accountants in practice

A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he-

(2) certifies or submits in his name, or in the name of his firm, a report of an examination of financial statements unless the examination of such statements and the related records has been made by him or by a partner or an employee in his firm or by another chartered accountant in practice.

(7) does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.

An action under Section 218 (3) of the Chartered Accountants Act, 1949 was contemplated against the Respondent and communication dated 27th March 2023 was addressed to him thereby granting him an opportunity of being heard in person and/or to make a written representation before the Committee on 12th April 2023 through video conferencing.

The Respondent appeared before the Committee on 12th April, 2023 through video conferencing and made his oral representations on the findings of the Disciplinary Committee. The Committee considered the oral as well as the written representation dated 31st March, 2023. The Respondent inter-alia submitted that the charge against him was with respect to two set of financials out of which he had signed one set of the financials well before the other CA and that the other CA was never called for even for clarification. As per him, the other CA had only taken printout of tally and signed. He argued that both the financials were exactly the same, so if he had been alleged to have not verified the facts and figures then how come that the other CA had checked it. The Respondent further submitted that the whole allegation against him was based on an unverified statement from an unqualified person who, as per him, seem to be the kingpin in the whole process. He, further, submitted that he was never asked to furnish any working paper or any other document prior to 2021or 2015, when the floods destroyed many parts of Chennai including his office. The Respondent further contended that the forensic report also was in his favour in the sense that his signature was forged. Even the seal which was used in the certificate was quite different from the one which he used to sign the financials of 2008 and 2009.

The Committee considered the oral as well as written representation of the Respondent and noted that in extant case the allegations clearly establish lacuna on the part of the Respondent in conduct of his duties. Regarding the first charge of signatures on Balance Sheet and Profit & Loss Account of M/s. Swastik Enterprises for the year ending on 31.03.2008 and 31.03.2009 without verification of the relevant documents, the Committee noted that the said allegation was evaluated on the basis of-

i. statement of Shri R Hariharan originally recorded before Inspector of Police, CBI, ACB, Chennai and thereafter before Ld. Metropolitan Magistrate, Egmore, Chennai wherein he stated that he took Mr. S. Samraj to the Respondent’s office and after discussion, the Respondent signed the balance sheet and P&L statements as on 31.03.2008 & 31.03.2009 without real auditing for cash of Rs.3000/-. It was noted that though the Respondent questioned on relying upon the said Statement but he never sought an opportunity from the Committee to cross-examine Mr. Hariharan.

ii. the fact that the Respondent had failed to produce his working papers in relation to alleged audits. It is noted that whereas before the Committee, he submitted that the same was destroyed in Chennai floods of 2015, when the working papers were sought by the Director (Discipline) before forming his Prima fade opinion vide letter dated 15th January, 2015 (D-2) followed by a reminder dated 5th May, 2015 (D-3), he then too failed to provide any working paper.

It was also noted that the Respondent had argued in context of facts that both set of financials were exactly the same and that it was him who had signed before the other auditor and thereafter the financials were fudged. However, on perusal of documents on record, it was amply evident that there were significant difference in the figures/parameters of both set of financials in each period and that the financials filed with the ITRs of the Concern were certified by Shri A. Srinivasan, other CA Further, it was noted that the Respondent never raised the issue of seeking any clarification from Shri A. Srinivasan, other CA.

Further, with respect to the second charge of issue of certificate dated 10th March 2010, the Committee perused the expert opinion report issued by the Central Forensic Science Laboratory dated 20th January 2015 which clearly reported similarity in the signature of the Respondent vis-a­vis the alleged certificate. Further, it was noted that the Respondent had failed to bring on record any document that show the action taken by him viz. F.I. R. lodged by him regarding misuse of his signature on the alleged certificate. Accordingly, the plea of the Respondent that the forensic report was in his favor lacks credibility. Regarding the plea that seal which was used in the Certificate was quite different, the Committee noted that the Respondent has failed to bring on record any evidence either before the Director (Discipline) or before the Bench to defend against the allegation in said context. Accordingly, the Committee held the Respondent guilty of Professional Misconduct falling within the meaning of Clause (7) of Part-1 of Second Schedule to the Chartered Accountants Act, 1949.

Keeping in view, overall facts and submissions of the Respondent, the Committee noted that though the Respondent had raised several issues to defend the allegations raised against him but he either failed to bring in necessary documentary evidence viz the working papers in his defense or failed to context on the grounds raised by him though sufficient opportunity was given to him for the same.

The Committee thus viewed that the misconduct on the part of the Respondent has been held and established within the meaning of Clause (2) and (7) of Part-I of the Second Schedule to the Chartered Accountants Act, 1949 and keeping in view the facts and circumstances of the case as aforesaid, ordered that the name of the Respondent CA. T.R. Sarathy (M. No. 025982) be removed for a period of 2 (Two) months from the Register of members.

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