ICAI Drops Charges Against CA Accused of Ignoring Section 73 & 186 Violations

The complainant, Usha Amin, the Partner in Saha Asset Advisor, filed a complaint against CA Nitin Kumar Khandelwal, who was the statutory auditor of M/s Kaaryah Lifestyle Solution Private, where the complainant had invested.

The complainant accused Khandelwal of two things. The first allegation was that Saha Fund had invested Rs 3,20,00,000 in KLSPL, but the shares were neither issued within 60 days as required under the Companies Act. The complainant argued that the amount should have been considered as a deposit, but the respondent auditor did not report the non-compliance under section 73 of the Companies Act.

The second allegation was that KLSPL gave Rs. 2.79 crores loan to Natual Remedies Pvt Ltd, allegedly without proper approval under section 186, and again, the auditor did not flag this non-compliance.

The Respondent showed bank statements and ledgers proving the Rs 2 crore outstanding that was received within 60 days of the balance sheet date. The ICAI Disciplinary Committee noted that although the refund of Rs 50,000 was made after the 60-day period, the legal consequences were limited to the interest liability on the company’s part did not constitute a material misstatement by the auditor. The committee also observed that the purpose of the law is to exclude advances received for investment from being treated as deposits. Therefore, this allegation was rejected by the Disciplinary Committee.

Regarding the second allegation that KLSPL gave a loan to Natural Remedies without proper approval, the respondent submitted ledgers and bank details showing that the loans were released in parts, and whenever the amounts were repaid, new loans were granted. It further showed that the peak exposure never exceeded Rs 1.09 crore, which was well within the approved limit. The respondent also showed proof of board resolution recommending the loans.

The committee also observed that there was no violation of the Companies Act as the outstanding loan amount never crossed the Rs 2 crore limit at any given point in time. The committee noted that Loans were repaid with 13.95% interest within the year, for business purposes, and disclosed properly. The second allegation was also dismissed.

Accordingly, the ICAI Disciplinary Committee held the Respondent Not Guilty of Professional Misconduct falling within Clauses (5), (7), (8), and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.