Gujarat HC Remands ICAI’s 5-Year Removal Recommendation Against CA Accused of Misconduct in MMCB Scam [Read Order]

The Gujarat High Court has remanded the recommendation of the Institute of Chartered Accountants of India ( ICAI ) Council to remove the name of a Chartered Accountant who was accused of misconduct in the MMCB scam from the Register of Members for five years.

The case arose out of the infamous Madhavpura Mercantile Cooperative Bank (MMCB) scam of 2001, where large‑scale irregular lending and exposure to stock market operators led to the collapse of the Ahmedabad‑based cooperative bank.

SN Valera, the respondent, who had audited the bank’s accounts for FY 1999-2000, was accused of failing to disclose material misstatements and irregularities in the financial statements.

Following a complaint by the Registrar of Cooperative Societies, the matter was referred to ICAI’s Disciplinary Committee. Sixteen charges were framed against him, of which eight were held proved, including loans advanced without documentation, advances in violation of RBI circulars, irregular loans to NBFCs, loans to directors and their relatives, and improper verification of assets.

On 24 March 2005, the ICAI Council accepted the Disciplinary Committee’s findings and recommended to the High Court that Valera’s name be removed from the Register of Members for five years under Section 21(5) of the Chartered Accountants Act, 1949. This effectively meant suspension of his ICAI membership and practice rights as a Chartered Accountant for that period.

Appearing for ICAI, counsel argued that the Council had rightly affirmed the Disciplinary Committee’s findings and that the scope of judicial interference was limited. Reliance was placed on precedents including Union of India v. P. Gunasekaran and State Bank of India v. Ramadhar Sao, which restrict courts from re‑appreciating disciplinary evidence.

ICAI also cited the earlier case of C.A. Manubhai Panchal, another auditor involved in the MMCB scam, whose two‑year removal was upheld by the High Court and later by the Supreme Court.

On the other hand, counsel for Valera contended that the Council’s report was vitiated by non‑application of mind. It was argued that the Council merely reproduced the Disciplinary Committee’s findings without independently considering Valera’s written representation, contrary to Section 21(3) of the Act and Regulation 16(4) of the Chartered Accountant Regulations, 1988.

Reliance was placed on Supreme Court rulings such as Institute of Chartered Accountants of India v. L.K. Ratna and Kranti Associates v. Masood Ahmed Khan, which emphasize the duty to record reasons and apply independent judgment.

The Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi agreed with the respondent’s contention. It was observed that the provisions of section 21 of the Act cast a grave and weighty responsibility on the Council to determine the guilt of the member in misconduct, and the statute specifically assigns the duty on the governing Council to record its independent finding without thoughtlessly following the findings of the disciplinary committee, ignoring the representation of the member.

The Court noted that Section 21 envisages a four‑tier process: prima facie opinion by the Council, inquiry and report by the Disciplinary Committee, independent findings by the Council after considering the member’s representation, and finally judicial scrutiny by the High Court.

Holding that the Council failed to discharge this statutory duty, the Court remanded the matter back to ICAI for fresh consideration.