The Institute of Chartered Accountants of India ( ICAI ) has reprimanded CA with a fine of rs. 25,000 for violating Insolvency & Bankruptcy Code, 2016 by certifying the accounts signed by the suspended directors.
The complainant-CA, serving as a Resolution Professional since June 2018, was appointed by NCLT, Ahmedabad, on May 30, 2018. The respondent firm, M/s KMA & Co., represented by its CA acted as the Statutory and Tax Auditor of the company, including for the financial year 2017-18. Despite the complainant’s appointment preceding the audit, the respondent audited and signed the financial statements on September 5, 2018.
The Complainant, alleged that, per Section 17 of the Insolvency and Bankruptcy Code, 2016, suspended directors cannot exercise any powers as directors. Despite this, the audited financial statements dated 5th September 2018 were signed by Mr. Ram Singh and Mr. Vinay Singh, the suspended directors, without the Resolution Professional’s written consent. The Respondent, as the statutory auditor, certified these accounts, violating the Insolvency and Bankruptcy Code, 2016.
The Director (Discipline) in his Prima Facie Opinion observed that the acceptance of the Company’s accounts for FY 2017-18, approved by suspended Directors on 5th September 2018, violated Section 17 of the Insolvency and Bankruptcy Code, 2016.
As of that date, the powers of the Board were suspended and transferred to the Resolution Professional (the Complainant). The appointment of the Resolution Professional was publicly announced on 5th March 2018 via advertisements in newspapers and the designated Insolvency and Bankruptcy Board of India website.
By 30th May 2018, it was clear that the Respondent was aware of these proceedings and the Resolution Professional’s appointment due to their involvement in management meetings. Hence, the Respondent’s acceptance of the accounts approved by the suspended Directors was a violation of the IBC provisions.
The Disciplinary Committee noted that under the Insolvency and Bankruptcy Code, 2016, the Board of Directors’ powers were suspended as of the signing of the Company’s annual audited accounts for FY 2017-18, and these powers were to be exercised by the Resolution Professional (RP). Since the RP was appointed on 30th May 2018, the financial statements should have been signed by the RP, not the suspended directors.
The Committee rejected the Respondent-CA’s defence that he was unaware of the RP’s appointment, as this information was publicly available through advertisements and the Insolvency and Bankruptcy Board of India’s website. As the Company’s auditor, the Respondent was expected to be aware of these proceedings, especially given his active involvement with the Company’s management and stakeholders.
Further added that, the Respondent-CA was regularly in contact with the management and was aiding in obtaining insurance claims, making it unlikely that he was unaware of the RP’s appointment. If the directors had kept the Respondent-CA in the dark, he should have provided evidence of any actions taken against them. However, the Respondent failed to do so, resulting in disciplinary proceedings due to the directors’ misdeeds.
The Committee also noted that the law clearly states that the Board’s powers were to be exercised by the RP, and the Respondent-CA’s failure to address the improper certification of the financial statement breached the Insolvency and Bankruptcy Code.
Consequently, the Committee found the Respondent guilty of Professional Misconduct under Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, for not exercising due diligence in his professional duties.
Accordingly, the ICAI reprimanded CA with Rs. 25,000 fine, which was ordered to be paid within 60 days.
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