AA Quashes Order against Chartered Accountant on ground of Issue of limitation on entertaining Complaint [Read Order]

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The Appellate Authority has recently quashed the penalty order passed against a Chartered Accountant  by the Disciplinary Committee (DC) of the Institute of Chartered Accountants of India (ICAI) on the ground that the complaint is barred by limitation.

The DC imposed punishment on the appellant, a Chartered Accountant on a complaint about allegedly holding both the positions of Statutory Auditor as well as Executive Director (Finance) in the JVG Group of Companies.

Serious Fraud Investigation Office (SFIO) filed a complaint with ICAI which resulted in the impugned order challenged by the CA.

As per the relevant Clause (4), dealt with Professional misconduct of chartered accountants in practice which requires action by a High Court. It was provided that a chartered accountant in practice shall be deemed to be guilty of professional misconduct if he expresses his opinion on financial statements of any business or enterprise in which he, his firm or a partner in his firm has a substantial interest unless he discloses the interest also in his report.

Later the said clause was amended prohibiting CAs from auditing such related firms/concerns even if they make the disclosures.

The appellant, CA contended that he was never even a Director in the Company as was evident from the records of the Registrar of Companies and other Statutory Filings. Nor he or his relative anytime had any substantial interest in the Company audited by him. He further submitted that he only signed cheques as “Authorised Signatory”, the payments of which were duly approved by the management. Thus, he did not perform any managerial function and had no discretionary power or authority. He also pleaded that at the relevant time, the Guidance Note on Independence of Auditors, as issued by the Institute, inter alia, allowed an auditor to prepare or assist in the preparation of the accounts of a company before proceeding to audit them, or, agree to provide financial advice or to represent the Company for its tax matters without impairing the independence in any way.

Thus, it was submitted that at that relevant time, the relevant framework of the applicable Law permitted the auditors to perform certain other services as well. In other words, he submitted that at that time, the said work of signing of cheques done by the Appellant was not prohibited and thus there is no misconduct on his part on this account.

The Appellate Authority noted that the appellant CA had repeatedly taken the defense of limitation since the inception of proceedings but the same had not been properly examined and decided and was dismissed by a brief mention stating that the plea that the matter was 15 years old did not stand as since 1998 the matter was under investigation.

The AA stated that the law of limitation under various statutes is not merely a legal right but it has been prescribed with definite objects in mind to ensure that proper justice is delivered to the litigants.

It was further observed that Rule (12) of these aforementioned rules now deals with the issue of limitation which provide that he Director Discipline may refuse to entertain a complaint or information in respect of any misconduct made more than seven years after the same was alleged to have been committed and submit the same to the Board of Discipline for taking decision on it under sub-section (4) of Section 21A of the Act.

“On examination of Rule (12) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, it is clear that the defense of limitation provided in this Rule is not absolute right of Defendants, but it certainly casts a responsibility on the Director (Discipline) to examine as to whether on the facts of the case, the Defendant would find difficult to defend himself or lead evidence, on account of time lag or changes have taken place rendering the enquiry procedurally difficult.”

The AA set aside the cases and remitted them back to Disciplinary Committee with direction to examine and decide by reasoned order the preliminary issue of limitation as raised in the light of observations made in this Order and decide the other Grounds after examining the objections raised by the Appellant in appeal.

To Read the full text of the Order CLICK HERE