SEBI cannot Take action against CA for Lack of due diligence: This can be taken up only by ICAI

In the matter of Mani Oommen vs Securities and Exchange Board of India, Securities Appellate Tribunal has said that Chartered Accountant (CA) can be proceeded against by the Securities and Exchange Board of India (SEBI) only if they are instrumental in preparing false and fabricated accounts otherwise SEBI has no power to proceed against them. Where there is a lack of due diligence, the same can only lead to professional negligence which would amount to misconduct that could only be taken up by the Institute of Chartered Accountants of India (ICAI).

Relevant Extract:

Once a finding is given that the appellant was not involved in the fabrication and fudging of the books of accounts and the balance sheet and if the appellant had no intention or knowledge of such understatement being shown in the financials, the charge of fraud or collusion or connivance with the directors and promoters of the company cannot be levied, only on the ground that he was not diligent or cautious or did not check the outstanding loan details from the banks and through other sources. Lack of due diligence can only lead to professional negligence which would amount to misconduct that could be taken up only by the ICAI.

Mr. Chetan Kapadia, Advocate with Mr. Rahul Sarda, Mr. KRCV Seshachalam, Ms. Sabeena Mahadik, Mr. Aayush Kothari, Mr. Sagar Hate, Advocates i/b. Visesha Law Services for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr. Karthik Narayan, Mr. Harshvardhan Nankani, Mr. Shourya Tanay, Advocates i/b. ELP for the Respondent.

This decision was taken by Coram of Hon’ble Justice Tarun Agarwala, Presiding Officer, and Hon’ble Justice M. T. Joshi, Judicial Member.