Delhi HC Suspends Chartered Accountant for 1 Year over Irregular Allotment of Shares using Ante-Dated Stock Invests [Read Order]

In a recent ruling, the Delhi High Court suspended a Chartered Accountant (CA) for one year after holding him guilty of professional misconduct in connection with irregular allotment of shares in a public issue through the use of ante-dated stock invests.

The case arose from a reference made by the Council of the Institute of CharteredAccountants of India (ICAI) seeking removal of the name of Shri Kishan Gupta from the Register of Members. Shri Gupta was a Chartered Accountant and the Chairman and Whole-Time Director of Bharthari Financial Services Limited (BFSL) at the relevant time.

The reference was based on findings of the Securities and Exchange Board of India (SEBI), which had passed an order in December 2002 alleging irregularities in the public issue of BFSL. SEBI found that the public issue, which closed on 5 October 1995, was artificially oversubscribed by using ante-dated stock invested issued in November 1995. These stock invests were used to apply for shares after the issue had already closed, resulting in irregular allotment of shares to certain applicants.

ICAI issued multiple communications to Shri Gupta seeking his explanation but no response was received. Treating SEBI’s communication as information regarding “other misconduct” under the Act, ICAI initiated disciplinary proceedings and referred the matter to its Disciplinary Committee. After conducting an inquiry, the Disciplinary Committee submitted its report in February 2014 holding Shri Gupta guilty of other misconduct.

Before the ICAI Council, Shri Gupta submitted a written representation denying the allegations. He argued that he was only a non-executive Chairman, that the public issue process was handled by intermediaries, and that SEBI officials were present during the allotment process. He also referred to the fact that he had no prior history of professional misconduct.

After considering the report of the Disciplinary Committee and the representation submitted by Shri Gupta, the ICAI Council accepted the findings and recommended to the High Court that his name be removed from the Register of Members for one year. The reference was placed before the Delhi High Court under Section 21(6) of the Act.

A Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar observed that the Disciplinary Committee had given detailed findings based on documentary evidence, including SEBI’s investigation and the orders passed by the Securities Appellate Tribunal, which had earlier upheld the findings of manipulation in the BFSL public issue.

The court observed that Shri Gupta, as Chairman and Whole-Time Director, was fully aware that the public issue had closed on 5 October 1995, yet accepted applications supported by ante-dated stock invests issued much later.

The court pointed out that even after the applications were withdrawn and stock invests were returned, the allotment of shares was not stopped and share certificates were issued, causing prejudice to genuine investors.

The court explained that Chartered Accountants are expected to maintain the highest standards of integrity and ethics, not only for their clients but also as guardians of the financial system. The court observed that the conduct established on record clearly amounted to “other misconduct” under Section 22 read with Section 21 of the Act.

In view of these findings, the court accepted the reference made by ICAI and ordered that CA Kishan Gupta be suspended from the membership of the Institute of Chartered Accountants of India for a period of one year.

During this period, he was restrained from rendering any services as a Chartered Accountant. The court also directed him to pay costs of Rs.10,000 to ICAI. The reference was allowed.