ICAI drops Disciplinary Proceedings against CA accused on Certifying Inflated Financials in Loan Application for FY 2006-07 [Read Order]

The Disciplinary Committee of the Institute of Chartered Accountants of India ( ICAI ) has dropped disciplinary proceedings against a Chartered Accountant accused of certifying allegedly inflated financial statements used in a bank loan application.

A complaint was filed by the Central Bureau of Investigation (CBI) against the CA, which had alleged that the accountant had signed two separate sets of balance sheets for the same financial year showing different figures.

The background is that a criminal investigation initiated by the CBI into an alleged ₹42.17 crore bank fraud involving M/s Pavai Alloys & Steel Pvt. Ltd.

The investigation was triggered by a complaint from Indian Bank’s Salem Zone, which alleged that the company and its directors had got credit facilities based on misleading financial information.

The CBI claimed that the respondent chartered accountant had certified two different sets of financial statements for the financial year 2006-07, one set submitted to the Registrar of Companies (ROC) and another allegedly submitted to Indian Bank along with a loan application dated 5 May 2008.

The financial statements provided to the bank were alleged to contain inflated figures relating to current assets and unsecured loans, which may have been used to secure higher working capital limits from the bank.

During the disciplinary proceedings, the respondent accountant denied the allegations and said that he had signed only the statutory audit report and financial statements filed with the ROC, and that the alleged financial statements submitted to the bank were not prepared or authorized by him.

He also argued that the documents presented by the complainant lacked a proper evidentiary foundation, observing that neither the bank nor the investigating agency produced any verified correspondence, documentary trail, or witness testimony directly linking him to the disputed financial statements.

The respondent - CA further pointed out that the CBI investigation had continued for over 15 years without any adverse finding against him, and that his professional role was confined strictly to the statutory audit of the company.

The ICAI disciplinary committee observed that the CBI failed to produce the original financial statements allegedly submitted to the bank. They depended on photocopies or secondary evidence. As the original documents were unavailable, a forensic handwriting analysis of the signatures could not be conducted.

The Committee also examined witnesses presented by the complainant department, including bank officials and investigating officers. However, during their depositions, the witnesses were unable to establish that the disputed financial statements had been signed by the respondent.

The Committee also noted that the investigating agency had been given additional opportunities to submit supporting evidence, but it failed to produce any material conclusively linking the respondent to the disputed documents.

Therefore, due to lack of proper evidence establishing the crime against the CA, the committee found that the CA is not guilty of professional misconduct.

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