CHAT.A.REF--7/2014. Case: COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA Vs. ASHOK KUMAR & ANR.. High Court of Delhi (India)

Case NumberCHAT.A.REF--7/2014
CitationNA
Judgement DateNovember 24, 2017
CourtHigh Court of Delhi (India)

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI + CHAT.A.REF 7/2014

Reserved on: 24th October,

Date of decision: 24th November,

COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA ..... Petitioner

Through: Mr. Rakesh Agarwal & Mr.

Agarwal, Advocates.

versus ASHOK KUMAR & ANR. ..... Respondents

Through: Ms. Reena Jain Malhotra, Advocate.

CORAM: JUSTICE SANJIV KHANNA

JUSTICE PRATHIBA M. SINGH

JUDGMENT Prathiba M. Singh, J. :

The Institute of Chartered Accountants of India (‘ICAI’) has filed reference under Section 21(5) of the Chartered Accountants Act, (hereinafter `the Act’). The reference seeks passing of necessary under Section 21(6) of the Act pursuant to the recommendations of the Council in its 325th meeting held from 1st to 3rd June, 2013.

Factual background:

2. The genesis of the recommendations of the ICAI Council is the dated 10th June, 1999 received by the ICAI from the Securities Exchange Board of India (‘SEBI’) pointing out several irregularities public issue of one M/s. Bhartari Financial Services Ltd. (‘BFSL’). letter written by SEBI to ICAI stated that investigations were conducted the buying, selling and dealing in shares of BFSL, as also the role of

CHAT.A.REF 7/2014 Page 1

K. Gupta, Chairman of BFSL and Shri Ashok Chawla, Accountant (‘CA’), who is also a member of the ICAI. SEBI informed that the Chairman, SEBI had approved issuance of intimation to the proceed against both these persons, who are CAs, for misconduct, under Act.

3. The request made by SEBI as contained in the letter dated 10th

1999 is set out herein below:

“Investigations revealed that 27 applications to the Public Issue were accompanied by stock invest issued by Sangli Bank, Karol Bagh, New Delhi. The stock invests were got issued by Shri Ashok Chawla from the bank on 23.11.95 whereas the issue of BFSL closed on 5.10.95. Though these stock invest were issued for amounts ranging between Rs.1.00-1.20 lacs each, they were used at a multiple of Rs. 10 in the applications i.e. stock invest actually issued for Rs.27 lacs was used for Rs.270 lacs, resulting in an irregular allotment of 1,17,200 shares. These allotments were made despite the bank having received a request from Shri Ashok Chawla for cancellation of the stock invests and withdrawal of the applications. The shares so allotted were subsequently forfeited and re-allotted to associate concerns of BFSL. It was admitted by both that the finance was arranged by Shri S. K. Gupta and the share application forms along with the stock invests were handed over by Shri Ashok Chawla to Shri S. K. Gupta. However, neither Shri Ashok Chawla nor Shri S. K. Gupta could explain how the applications were made at higher amounts .

Shri Ashok Chawla also obtained about 80-90 stock invests of Rs.10,000/- each from Sangli Bank, Karol Bagh after the close of the issue of the BFSL. The allotments against these applications were sold at a

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profit through a member of the Delhi Stock Exchange. Investigations also revealed that 2016 stock invests amounting to Rs.53,69,000/- were not sent for realisation on the stipulated dates and the correspondence with the banks in this regard was fabricated by forging the signatures and rubber stamp impressions of the bank. Shri Ashok Chawla and Shri S. K. Gupta connived with each other in arranging finance for purposes of obtaining ante-dated stock invests which were used at higher amount for subscribing to the public issue of BFSL after the close of its Issue and thus facilitated irregular allotments to the detriment of the general investing public. The Issue handling procedures were also vitiated in this case. The Institute of Chartered Accountants of India is requested to initiate disciplinary proceedings against Shri S. K. Gupta and Shri Ashok Chawla are as below:

Shri S.K. Gupta Bolni Chambers,

Above Shiv Temple Dev Nagar, Karol Bagh, New Delhi-110005

Shri Ashok Chawla 2/5131, Krishan Nagar, Behind Khalsa College,

Karol Bagh, New Delhi-110005

(emphasis

4. The present reference relates to the proceedings by the ICAI Shri Ashok Chawla who is also known as Shri Ashok Kumar Chawla, practicing CA. Upon receipt of the aforesaid letter, the ICAI clarifications from the respondent vide letters dated 6th November, 2003 6th August, 2004. No clarifications were received despite reminders. The ICAI thereupon decided to treat SEBI's communication “information” for proceeding against the respondent for “other misconduct”

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as per Sections 21 and 22 of the Act. The information letter was again to the Respondent on 15th December, 2005 enumerating the various against him. The Respondent submitted his written statement on 10th

2006.

5. Both the information and the written statement were placed before ICAI Council in its 282nd meeting held from 5th to 7th November, 2008. ICAI Council arrived at a prima facie opinion that the respondent was of professional and other misconduct. The extract from the minutes aforesaid meeting reads as under:-“Item No.24: "Information" Cases under Section 21 11. Ashok Kumar in Re: (M.No. 084122) [25-CA-S-34B/2005]

The Council considered the Information letter and the written statement submitted by the Respondent. The Council on consideration of the aforesaid documents/submissions observed that the Respondent was failed to produce any documentary evidence to prove that he has not connived with other persons to defraud the public.

The Council, therefore, was prima facie of the opinion that the Respondent was guilty of professional and/or other misconduct. It was, therefore, decided to refer the case to the Disciplinary Committee for inquiry.”

(emphasis supplied)

6. Accordingly, the matter was sent to the Disciplinary (‘DC’) for an enquiry. The DC held several hearings. On 10th January, the DC recorded the statement of the respondent on oath. requested by the respondent were provided. After hearing arguments, DC in its report dated 26th December, 2012 came to the conclusion that

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respondent was guilty of ‘other misconduct’ as per the provisions of the

7. On 2nd June, 2013 the respondent made a representation to the Council explaining his stand and requested that he should be absolved all charges. The ICAI Council in its 325th meeting held between 1st June, 2013 agreed with the reasoning of the DC and accepted the same. ICAI Council held that the respondent was guilty of `other under Sections 22 read with Section 21 of the Act. The ICAI Council in meeting also decided to recommend to this Court that the name of respondent be removed from the register of members for a period of year. The relevant extracts from the recommendations of the ICAI are set out herein below:

“8. The Council perused the documents available on record along with the submissions made by the Respondent before it. Upon consideration, the Council was of the view that submissions made by the Respondent in his defence was not convincing and it has been noted by the Council that the SEBI had debarred him for 5 years from Capital Market related activities and the Respondent did not appeal against this SEBI order before the SAT. When the Council enquired him about the same, the Respondent was not able to give any convincing reply on the same. Further the Respondent in his submissions before the Council did not bring any new facts. The Council noted that the Respondent had admitted that around 80-90 stock invests were issued by Sangli Bank, Karol Bagh after the close of the Issue of BFSL on 5th October, 1995 and later on, the stand taken by the Respondent as to how the Bank had issued ante dated stock invests does not appear convincing at all to the Council. The Council further noted' that as a financier to the company for its issue and the role played by the

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Respondent in facilitating irregular allotments to the detrimental of general public cap not be overlooked at all. Thus, the Council after detailed deliberations agreed with the reasonings of the Disciplinary Committee as contained in paras 5.1 to 5.1.0 above.

9. Accordingly, on consideration of the Report of the Disciplinary Committee along with the written representation dated 2"'' June, 2013 received from the Respondent and also the oral submissions made by his authorized representative before it, the Council decided to accept the said Report and accordingly held that the Respondent was guilty of "Other Misconduct" under Section 22 read with Section 21...

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