Inadvertent DIR-12 Certification to Chinese National without MHA Clearance Not Intentional: ICAI Clears CA of Misconduct Charges [Read Order]

In a recent decision, with regards to granting DIR - 12 certification to Chinese National without MHA clearance, the Disciplinary Committee of Institute of Chartered Accountants of India ( ICAI ) cleared the misconduct charges against a Chartered Accountant ( CA ) observing that the same was not intentional.

A complaint was filed by Registrar of Companies (ROC), Bengaluru against CA Shruti Agarwal, alleging professional misconduct in certifying Form DIR-12 for the appointment of a Chinese national, Mr. Shu Kin IP, as a director of Mach 1 Global Supply Chain Services India Private Limited.

The CA was alleged with the certification was done without attaching mandatory security clearance from the Ministry of Home Affairs (MHA), as required under Section 152 of the Companies Act, 2013 read with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014, as amended with effect from 1 June 2022.

The Director (Discipline) initially formed a prima facie view that the CA had failed to exercise due diligence and was guilty under Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Later, ICAI inquired about the same. The respondent - CA submitted that the requirement of MHA clearance was introduced through a recent amendment effective from 1 June 2022, and the same inadvertently escaped her attention at the time of certification in August 2022.

It was contended that the lapse was neither deliberate nor intended to facilitate the appointment of a foreign national in violation of law.

The CA further argued that the Director Identification Number (DIN) had already been allotted to the individual, leading to a bonafide belief that necessary checks had been completed at the MCA level.

The accountant submitted that after, realising the error, she immediately initiated corrective action, advised the company to remove the director, and ensured filing of DIR-12 for removal well before any complaint was lodged by the ROC.

However, the ROC said that as China and India share a land border, MHA security clearance was required, and that certifying DIR-12 without confirming such compliance was an unacceptable violation.

It was contended that the CA had certified the document stating that every legal requirement was met, and that this false certification showed a lack of professional due diligence.

The disciplinary committee examined the submissions. It was noted that the omission occurred within a short period after the amendment came into force, and there was no material to confirm the intentional wrongdoing.

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The ICAI Committee also noted that the CA took immediate steps to rectify the mistake, including removal of the director prior to initiation of disciplinary proceedings.

The Disciplinary, finding the CA not guilty of professional misconduct, observed that “in the context of an oversight of a recent amendment and in the absence of any deliberate wrongdoing, cannot be construed as gross negligence, and hence the benefit of doubt can be extended to the Respondent in the backdrop of post certification actions taken by her in good faith.”

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