[Nirav Modi scam] ICAI can initiate suo motu proceedings against CAs even in absence of written complaint: Delhi High Court

The Court, however, said that a mere news report cannot constitute material to initiate enquiry and it can only be used as an external source to gather knowledge of a fact or incident.
The Institute of Chartered Accountants of India
The Institute of Chartered Accountants of India

The Delhi High Court recently held that the Institute of Chartered Accountants of India (ICAI) has the power to initiate suo motu disciplinary proceedings against its members even in absence of a written complaint [CA Sanjay Jain v Institute of Chartered Accountants of India & Ors].

Single-judge Justice Yashwant Varma said that Section 21 of the Chartered Accountants Act, 1949 empowers the ICAI to proceed suo moto and unhindered in the absence of a written complaint or allegation.

"A written complaint or allegation in writing cannot, in any manner, be understood to be a pre-requisite or a sine qua non for the initiation of action under Section 21," the Court said.

The Court added that the meaning of the words “any information” as contained in Section 21 would extend to any material or fact that may come to the notice of the institute and from which it may derive knowledge.

“That material need not necessarily be in the written or be interpreted as being confined to something which an individual may choose to bring to the notice of the Institute. Acceptance of a submission to the contrary would amount to restricting the width and amplitude of the power conferred by Section 21 which enables the Institute to proceed on the basis of “any information”,” the bench said.

The Court, however, added that a mere news report cannot constitute material which may justify the initiation of an enquiry.

“A newspaper report, as is well settled, cannot and does not constitute evidence per se. A report that may appear in the print media or on a visual news platform, can at best be understood as being an external source from which the Institute may gather or derive knowledge of a particular fact or incident,” the single-judge opined.

Justice Varma was dealing with a batch of petitions filed by some Chartered Accountants (CAs) seeking to quash the disciplinary proceedings initiated against them by the ICAI.

These CAs were employed with firms which were appointed as Joint Statutory Auditors of the Punjab National Bank to conduct a limited review of its financial statements.

ICAI issued show cause notices to the petitioners soon after the news broke of the fugitive businessman Nirav Modi having defrauded the banks of nearly ₹12,000 crores. The allegations were that these auditors had not complied with various standards on auditing.

The petitioners had said that the ICAI does not have the power to initiate suo motu proceedings and that the proceedings initiated by it were based merely on news reports.

After considering the arguments, Justice Varma held that news reports merely acted as a catalyst for the ICAI to delve deeper into the massive fraud which had occurred and to examine whether any member had failed to abide by the standards on auditing which applied.

“Viewed in that light the Court is of the firm opinion that the Institute did have the requisite information as contemplated by Section 21 and which justified the initiation of the enquiry against the petitioners in the facts of the present case,” the Court said.

The argument that the ICAI had never acted suo motu prior to these proceedings was also rejected by the court observing that the mere fact that a particular power was not exercised in the past cannot be determinative of the question whether that power stands conferred or exists.

“The answer to the question whether a particular power stands conferred under statute must necessarily be answered on a reading of the statute and on discernment of its scope. The meaning to be conferred upon a statute cannot rest merely on the fact that the power though being found to exist was never invoked earlier.”

Therefore, the bench dismissed the petitions and said that the ICAI is entitled to proceed and it is open for it to give effect to the final orders which were kept in sealed cover.

Senior Advocate Sudhir Nandrajog along with advocates Dhiraj Abraham Philip,  Sunita Sharma, Radha Singh, Deepak Verma, Uttam Datt, Sonakshi Singh and Kumar Bhaskar appeared for the petitioners.

Senior Advocate Ramji Srinivasan with advocates Pooja M Saigal, Simrat Singh Pasay, Shruti Pandey and Megha Dugar appeared for the ICAI. 

[Read Judgment]

CA Sanjay Jain v Institute of Chartered Accountants of India & Ors.pdf
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