ICAI Can Suo Motu Initiate Disciplinary Proceedings Against Its Members, Written Complaint Not Sine Qua Non For Taking Action: Delhi High Court

The Delhi High Court on Friday held that the Institute of Chartered Accountants of India (ICAI) has the power to suo motu initiate disciplinary proceedings against its members and that a written complaint or allegation is not a sine qua non or prerequisite for taking action.

Justice Yashwant Varma observed that "information" under section 21 of Chartered Accountants Act, 1949 would extend to any material or fact that may come to the notice of ICAI and from which it may derive knowledge.

"Viewed in the aforesaid backdrop, this Court is of the considered opinion that Section 21 does empower the Institute to proceed suo moto and unhindered by the absence of a written complaint or allegation that may be submitted. 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 in its ruling running into 106 pages. 

Section 21, which provides for establishment of a disciplinary directorate, states that the Director of Discipline, upon receipt of "any information" or complaint along with the prescribed fee, shall arrive at a prima facie opinion on the occurrence of the alleged misconduct.

Taking note of the significance of the prefix "any" before the word "information" under section 21, Justice Varma observed that the prefix clearly appears to be a "conscious attempt by the authors of the statute to confer an expansive meaning upon the word and not confine or whittle it down to the rigours and formality that may be attached to a written complaint that may be received by the Institute."

"The phrase "any information" would thus cover within its ambit not only written complaints that may be received, albeit not compliant with Form-I, but also any material or fact that may come to the notice of the Institute pertaining to the professional conduct of a member and which on due examination and evaluation may merit an enquiry being initiated," said the court.

The court also said that the expression "any information" has been consciously employed so as to enable the Institute to make an investigation with respect to professional conduct of its members "untrammelled by rigours of form."

"On an overall consideration of the aforesaid, this Court is of the considered view that the word 'information' as appearing in Section 21 cannot be narrowly construed to mean only those facts which may be specifically provided to the Institute. The Act and the Rules have consciously attempted to treat the two separately and distinctively," the court said.

The court said If Section 21 were to be interpreted as conferring jurisdiction on the Institute to proceed against a member only upon receipt of a written complaint, it would clearly fetter and impede the larger public function that it is obliged to perform and the statutory duties that stand placed upon it.

The court made the observations while dismissing four pleas moved by some Chartered Accountants, who are members of the Institute, challenging the disciplinary proceedings initiated against them.

The petitioners were employed with firms which were appointed as Joint Statutory Auditors of the Punjab National Bank. They had challenged the validity of the show cause notices as well as the prima facie opinion drawn by the Disciplinary Directorate and forwarded for consideration of the Disciplinary Committee.

The petitioners were aggrieved by the suo moto initiation of proceedings by the Institute contending that neither the Act nor the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules empower the Institute to draw proceedings on its own motion.

The action was also challenged on the ground that the same was based on various news articles in the print and visual media platforms. It was thus the petitioners' case that such reports cannot constitute "information" on the basis of which disciplinary proceedings could have been initiated.

Justice Varma observed that the impugned action was not based on mere newspaper reports, adding that such articles could not have possibly constituted material on their own "since they did not carry any allegation against the petitioners."

The court thus concluded that the ICAI had the requisite information under section 21 which had justified the initiation of the enquiry against the petitioners. The court however observed 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. However, since the initiation of disciplinary action clearly has serious repercussions, the decision to initiate disciplinary action would necessarily have to rest on more cogent and dependable material, data and facts," the court said.

Ruling that ICAI shall be entitled to proceed further in accordance with law against the petitioners, the court said that it shall be open to the Institute to give effect to the final orders "which have been kept in a sealed cover."

"The rights of the petitioners to question any final decision that may have been taken is kept open. Though needless to state, it is observed that the Court has not rendered any opinion on the merits of the charges which stood laid against the petitioners. All contentions of respective parties in that respect are kept open," the court said.

Title: C.A. SANJAY JAIN v. INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA & ORS. and other connected matters

Citation: 2022 LiveLaw (Del) 1184

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