CA in Practice can be director simplicitor in a Company: ICAI Board of Discipline

The Ministry of Corporate Affairs reported that during the course of the inspection of books of accounts and other records etc., the Inspecting Officer reported adversely that CA. Girish Ravindra Amonker was a director in the Company for the period from 01/09/2018 to 22/03/2014. However, he had not taken permission from ICAI. He was requested by Inspecting Officer to produce a copy of permission if any taken by him from ICAI for appointment as director. However, he did not produce the permission obtained from ICAI.

The Respondent being the-Executive Director in the Company during the period 01/09/2008 to 22/3/2014 was also holding full time Certificate of Practice without obtaining the prior and specific permission of the Council of ICAI in this regard.

The Institute of Chartered Accountants of India initiated disciplinary action against the Respondent and instructed him to submit the relevant documents relating to his appointment. At the time of submission, the incorrect Form 32 stating Respondent status as ‘Executive Director’, which was lying in the file was erroneously submitted. Due to which, the matter was misrepresented and the disciplinary action was initiated against the Respondent for holding office as ‘Executive Director’. The Respondent was a member of the Board of Directors in his capacity as ‘Independent professional Director’ and there were other directors who were managing the business of the company. The Respondent did not draw any remuneration and also did not accept any Sitting fees or Professional fees during his association with the company.

This is further corroborated by the Annual Returns and Form 20B filed by the company to the ROC’s site for Financial Years 2008-09, 2009-10, 2010-11 and 2011-12. In none of these, the Respondent was mentioned as Executive Director. In all the documents uploaded on the ROC website, the Respondent was always mentioned as Additional Director. This can be verified independently by referring to the ROC’s website. It was a mistake committed by him due to oversight on the part of office staff that wrong Fann No. 32 of the company was submitted to the Disciplinary Directorate. The said Form wrongly mentioned the Respondent’s status as ‘Executive Director’. Due to this mistake, wrong conclusion was drawn by Shri. Ramesh Gholap, Dy. Registrar of Companies, Maharashtra, Mumbai that Respondent has committed misconduct. The Respondent sincerely apologized for this mistake on his part which led to misunderstanding of the matter by the learned Shri. Ramesh Gholap, Dy. Registrar of Companies, Maharashtra, Mumbai.

Regarding signing of Directors’ Report and Financial Statements, the Respondent stated that it was only for the sake of compliance. The Respondent had an honest belief that this in itself would not be treated as indicating his active involvement in the management of the company. He never signed any cheques, contracts or other documents for the company. The Respondent never chaired any of the Board meetings. The Respondent was genuinely active in his profession and had really no time to get himself involved in the management of the company. It was the genuine feeling of the other directors that since Respondent is a Chartered Accountant, it would be better that he signs the Financial Statements on behalf of the company.

A Member in Practice is permitted generally to be a Director Simplicitor in any Company including a Board-Managed Company and as such he is not required to obtain .:rny specific permission of the Council in this behalf irrespective of whether he and/or his relatives hold substantial interest in that Company. Further, there is no bar for a Member to be a Promoter/Signatory to the Memorandum and Articles of Association of any Company. There is also no bar for such a promoter/signatory to be a Director Simplicitor of that Company irrespective of whether the objects of the Company include areas that fall within the scope of the profession of Chartered Accountancy. Therefore, members are not required to obtain specific permission from the Council in such cases.

In the said connection, the Board noted that the Ethical Standards Board of ICAI at its Meeting held on 23rd April, 2011 after discussions decided as under:

“A CA in practice can be a ‘Director Simplicitor’, which includes an independent director. The independent directors are part of the Board where the Accounts are approved, they being party to approval of financial statement. As such, there is no bar in their signing the financial statement. However, they cannot be involved in the day to day affairs of the company.”

The Board also noted the Financial Statements of the Company for financial years 2008-09, 2010-11, 2011-12, 2012-13 were authenticated by the Respondent in the capacity of one of the directors of the company. Also, the Directors’ Report of the Company for the Financial Year years 2008-09 to 2012-13 was signed by the Respondent in the capacity of one of the directors of the company. The Board noted that the name of the Respondent was included in the list of Key Managerial Personnel (KMP) in the Notes to Accounts attached to the audited Financial Statement of the said company for the F.Y. 2011-2012 and 2012-13.

Also, on perusal of Form No.DIR-11 filed by the Respondent with the ROC on 24th December 2014 as regards his resignation from the directorship of the company with effect from 22nd March 2014, the Board noted that his designation was shown as ‘Professional Director’. Also, on perusal of Form No. DIR-12 filed by the company with the ROC on 30th January 2015 as regards the resignation of the Respondent from the directorship of the company with effect from 22nd March 2014, the Board noted that his designation was shown as ‘Director’.

The Board also perused the Income Tax Return of the Respondent filed for the Assessment Year 2009-10 to 2014-15 and noted that the Respondent never drew any remuneration or received any Sitting Fees from the company.

The Board also noted that the Respondent filed an Affidavit dated 26th July, 2022 before the Board affirming that he was appointed as an ‘Independent Professional Director’ by the company and he was neither an Executive Director of the company nor was ever a shareholder of the company.

Thus, the Board observed that apart from authenticating the Financial Statements of the company or signing the Directors’ Report from 1st September 2008 to 22nd March 2014, there was no other document signed/authenticated by the Respondent in the capacity of the director of the company. Thus, there was no evidence to indicate that the Respondent was involved in the management of the day-to-day affairs of the company. Accordingly, the Board held that the Respondent was only a Director Simplicitor in the company and was not required to obtain the prior and specific permission of the Council before holding such a position along with holding the full-time Certificate of Practice. Thus, the Board held the Respondent not guilty in respect of the charge alleged.

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