The Respondent was the Statutory Auditor of the Company for the financial years 2013-14 and 2014-15. The Complainant was one of the shareholders and had also served as its director from 2009 to 2011. The Company had availed a term loan of Rs. 10 Crores from a bank on 31 March 2009 for which the Complainant stood as one of the personal guarantors. The loan later became a Non-Performing Asset and was settled under a One Time Settlement (OTS) whereby the outstanding loan of Rs. 6.51 Crores was settled for Rs. 5.50 Crores. It was alleged that during December 2014 to March 2015 the Complainant transferred Rs. 1.54 Crores to the Company to enable repayment under the OTS arrangement. However, the Company treated the said amount as share subscription money and allotted equity shares to the Complainant without his consent and without complying with the provisions of Section 62 of the Companies Act, 2013. The Committee noted that although the Respondent produced certain documents relating to the rights issue, he failed to produce any evidence such as acceptance or request letter from the Complainant indicating consent for subscription of shares. In absence of such evidence, the Committee viewed that the Respondent failed to exercise due diligence while verifying the issue of share capital. The Committee further noted that the said allotment of shares was later declared null and void by the National Company Law Tribunal and the Company was directed to repay the amount with interest, which was upheld by the Appellate Tribunal. The Committee also examined the charge relating to accounting treatment of Rs. 55 Lakhs paid by one of the guarantors directly to the bank towards settlement of the Company’s loan. It was observed that the amount was recognized as gain and transferred to Capital Reserve instead of being shown as liability payable by the Company. The Committee held that the Respondent failed to point out this inappropriate accounting treatment and thereby failed to disclose a material misstatement in the financial statements. Accordingly, the Committee held the Respondent GUILTY of Professional Misconduct falling within the meaning of Clauses (6) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. [PR-323/16-DD/15/2017-DC/818/2018]

In the instant case, the Respondent Firm participated in a tender issued for engagement of a Chartered Accountant firm for maintenance and audit of accounts for the financial year 2017-18. Pursuant to the tender, the Respondent Firm was appointed as Statutory Auditor vide appointment letter dated 30-06- 2018 and quoted a professional fee of INR 21,240 for the assignment. The Committee noted that the tender was issued exclusively for Chartered Accountant firms for audit and related services, which are areas reserved for members of the Institute. On perusal of the records, including the RTI reply, it was observed that no minimum scale of fees had been prescribed in the tender document for the said assignment. The Committee further examined Guideline No. 1-CA (7)/03/2016 dated 07-04-2016 issued by the Council of the Institute of Chartered Accountants of India, which provides that a member in practice shall not respond to any tender issued by an organization or user of professional services in areas exclusively reserved for Chartered Accountants unless the tender document prescribes a minimum fee or the assignment is open to other professionals along with Chartered Accountants. In the present case, the tender was restricted to Chartered Accountant firms and did not prescribe any minimum fee. Accordingly, the Respondent Firm ought not to have participated in the said tender. The Committee also considered the submissions of the Respondent that participation in tenders is not prohibited under the Chartered Accountants Act, 1949 and that the Council is not empowered to issue such guidelines. However, the Committee observed that Item (1) of Part II of the Second Schedule to the Act provides that a member shall be deemed to be guilty of professional misconduct if he contravenes any guidelines issued by the Council. In view of the above, the Committee held that by participating in the said tender, which was exclusively meant for Chartered Accountant firms and where no minimum fee was prescribed and thereafter accepting the assignment, the Respondent Firm violated the aforesaid guideline issued by the Council. Accordingly, the Respondent was held Guilty of Professional Misconduct under Item (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949. [PR/70/2019/DD/91/2019/DC/1440/2021]