ICAI Disciplinary Committee Clears Statutory Auditor in Rs. 1.48 Crore Fund Transfer Case

The ICAI Disciplinary Committee, constituted under Section 21B of the Chartered Accountants Act, 1949, has announced its decision on the complaint filed by Shri Braja Sundar Pradhan against a Chartered Accountant (CA) named Ashwani Mohan, who was playing the role of statutory auditor for Helvetica Industries Pvt. Ltd. for the financial years 2008-09 to 2011-12.

The complainant for the year in consideration was placed in the position of a founding promoter and managing director of the company. The complainant raised allegations against the CA that he entered into a criminal conspiracy in collusion with another shareholder (Mr Motihar) to defraud him and his shareholding company.

The Disciplinary Committee examined the key allegation, wherein the complainant claimed that a fund amounting to Rs. 1.48 crore was transferred by the company to M/s. KPL during Financial Year 2010-11, and the said amount was siphoned off without proper disclosure. Before the committee, the complainant claimed that the funds received from the Department of Science & Technology (DST) and Gujarat Industrial Development Corporation (GIDC) were wrongfully transferred to KPL and not properly disclosed in the audited financial statements.

The auditor or CA was alleged to have not exercised due diligence, concealed material transactions, and also not adhered to the provisions of Accounting Standard (AS) 18, Related Party Disclosures, which requires disclosure of related party transactions between holding and subsidiary companies. The auditor failed to disclose that the Company and M/s. KPL were a related party.

Initially, the Director (Discipline) formed an opinion that the auditor was guilty of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 (lack of due diligence/gross negligence). The Disciplinary Committee shared this opinion and conducted detailed hearings.

During the proceedings, the CA showed disputed checks on March 31, 2010, duly recorded in the books for FY 2009-10, though cleared by the bank in FY 2010-11. The CA or auditor, through a letter dated March 06, 2020, furnished documents like TDS Certificate, Ledger Accounts, details of Bank Accounts of the Company, an extract of the shareholders’ agreement, along with a copy of audited financial statements and audit reports of the Company for the relevant years. The Committee also noted that the financial statements were approved and signed by the complainant himself as Managing Director.

The Committee held that the transactions were properly recorded, represented repayment of loans, and did not amount to siphoning of funds. It further added that AS-18 disclosures were not obligatory for the company, as it qualified as an SME, and in any case, this allegation was not part of the original complaint.

Accordingly, in conclusion to the aforesaid findings, the Disciplinary Committee held the Chartered Accountant not guilty of professional misconduct and ordered closure of the case.