Isabella Mariam

The High Court of Gujarat Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi set aside the Institute of Chartered Accountants of India Council’s 20-year-old recommendation to remove a chartered accountant from membership for five years. The matter arose from allegations of misconduct linked to the accountant’s appointment as central registrar auditor of a cooperative bank during the 2001 MMCB scam. The Court found that the Council had not independently assessed the disciplinary committee’s findings or the accountant’s written and oral submissions and therefore rejected the recommendation and directed the Council to reconsider the case afresh within three months.

The proceedings began when the Council of the Institute of Chartered Accountants of India formed a prima facie opinion that a chartered accountant had committed professional misconduct in connection with the audit of Madhavpura Mercantile Cooperative Bank for the financial year 1999–2000. The accountant had been empanelled by the Central Registrar, and following the 2001 MMCB scam, a re-audit was ordered. During this re-audit, authorities alleged that the accountant failed to report material irregularities and misstatements in the bank’s financial statements. A complaint was thereafter filed by the Joint Registrar of Cooperative Societies, and the Council forwarded the allegations to the accountant for response.

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The accountant submitted written statements and representations, while the complainant filed rejoinders. The matter was then placed before the Disciplinary Committee, which conducted proceedings, examined the charges, and issued its report. Out of sixteen charges, the committee held the accountant guilty on eight counts relating to alleged lapses in verification, reporting, and assessment of advances, securities, and related financial documentation. These charges were categorized under specific clauses of the Second Schedule to the Chartered Accountants Act, 1949.

Following the committee’s report, both parties submitted written representations to the Council. The Council considered the report along with these representations, noted the submissions made before it, and recorded its view on each charge in accordance with section 21 of the Act and Regulation 16 of the Chartered Accountant Regulations, 1988.

The Court recorded that “the report of the applicant-Council incorporates the entire report verbatim of the disciplinary committee and the findings are only confined to paragraph No.9 of the report of the Council.” It observed that “the Council has merely incorporated the entire report of the disciplinary authorities… we find that it is a cut-paste job.” It further noted that “there are absolutely no independent reasons recorded by the Council, and the report is bereft of independent findings on the report of the disciplinary committee by dealing the contentions/submissions raised by the respondent.”

In explaining the statutory obligation, the Court stated that Section 21(3) of the Act and Regulation 16(2) and (4) “mandate the Council to record its findings, after considering the representation and the report of the disciplinary committee.” The Bench observed that the term “finding” “cannot be an empty formality and there has to be an application of mind by the Council to the findings recorded by the disciplinary committee.” Additionally, reliance was placed on judicial precedent noting that a legal conclusion qualifies as a finding only when supported by reasoning, with the Court recording that “what is important is that a finding presupposes application of mind… mind in turn is best disclosed by recording reasons.”

The Court found that the Council’s statement that it had “considered” the respondent’s representation was not supported by any recorded examination of his defence. It observed that “the Council has merely stated that it has ‘considered’ the representation… without dealing with the contents, which displays non-application of mind.” The Bench referred to the Supreme Court’s interpretation of “consider” to underline that “there must be active application of mind” to all relevant aspects.

The Court further recorded that the comparison to the earlier case involving another chartered accountant could not assist the Council, stating that “the issue which is raised in the present reference has been neither raised nor dealt with” in that matter. It ultimately observed that “all the facets of the application of mind and consideration of all the relevant aspects are missing in the report of the Council.”

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The Court held that “we do not find the report and recommendation of the Council worthy of acceptance. The same is set aside and the matter is remitted back to the Council for fresh consideration and disposal in accordance with law and in light of the observations made hereinabove. The Council shall consider and dispose of the matter as expeditiously as possible, but not later than three months from the date of receipt of copy of this order.” All contentions of the parties were left open.

Advocates Representing The Parties

For the Petitioners: Mr. B. S. Soparkar for Mrs. Swati Soparkar
For the Respondents: Ms. Megha Jani for Mr. Arjun M. Joshi

Case Title: Council of Institute of Chartered Accountants of India v. S.N. Valera, FCA
Neutral Citation: 2025: GUJHC:66010-DB
Case Number: Chartered Accountant Reference No. 3 of 2006
Bench: Justice A.S. Supehia and Justice Pranav Trivedi