ICAI Disciplinary Committee Reprimands CA for Lack of Due Diligence in Company Incorporation

A complaint was filed by Shri Sanjay Sood, ROC, Karnataka, alleging that CA Ritesh Upadhyay, for the incorporation of M/s Happy Zone Infotech Pvt. Ltd., without proper due diligence. It was alleged that the DIR-2 consent forms of two proposed directors had copy-pasted signatures. The Respondent had certified that he verified all attachments from original or certified records, but admitted that documents were received via email from intermediaries and that he neither met the directors nor independently verified their signatures, citing COVID-19 restrictions. Professional fees were received from a third party.

The respondent contended that the signatures were genuine and that visible rectangular boxes were scanning/OCR artifacts.

Main Issue: Whether the Respondent failed to exercise due diligence in certifying incorporation documents, particularly DIR-2 consent forms, amounting to professional misconduct under Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Committee’s Ruling: The Disciplinary Committee of the Institute of Chartered Accountants of India held the Respondent guilty of professional misconduct. It found that he relied solely on documents received through intermediaries without establishing direct engagement or confirmation from the proposed directors. The Committee observed that ordinary physical signatures do not typically generate rectangular boxes unless altered and that no conclusive evidence was produced to rebut the allegation.

His reliance on a non-CA associate and acceptance of fees from a third party reflected further lapses in professional conduct. The Committee, exercising powers under Section 21B(3), reprimanded him and imposed a fine of Rs. 5,000 payable within 60 days.

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