Facts of the Case

The complainant, Ms. M. Roopa, IPS, Superintendent of Police, Central Bureau of Investigation, Anti-Corruption Branch, Chennai, filed a complaint against the respondent, CA Devarajan K.E., alleging serious professional misconduct connected with bank fraud involving M/s Swastik Enterprises. The allegations arose out of a CBI investigation relating to sanction and misuse of credit facilities from Canara Bank.

It was alleged that the respondent assisted the proprietor of M/s Swastik Enterprises in preparation of fudged financial statements for the years ending 31.03.2008 and 31.03.2009 by inflating capital and suppressing unsecured loans and liabilities. The respondent also prepared Credit Monitoring Arrangement (CMA) data submitted to Canara Bank on the basis of manipulated financials, which materially differed from balance sheets filed with the Income Tax Department. Further allegations included collusion with bank officials and advising the proprietor to avail foreign bills purchase limits without actual exports, and receipt of illegal payments aggregating to ₹46,46,500 routed through cheques issued to third parties and the respondent’s wife.

Issues Involved

Whether the respondent Chartered Accountant was guilty of “Other Misconduct” under Clause (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 for preparing and submitting manipulated CMA data, facilitating suppression of liabilities, colluding in bank fraud, and receiving illegal payments.

Petitioner’s Arguments

The complainant department alleged that the respondent knowingly prepared CMA data using falsified financial statements signed by another Chartered Accountant, despite being aware that such figures did not tally with audited balance sheets submitted to the Income Tax Department. It was contended that the respondent actively assisted the proprietor and bank officials in deceiving the bank to obtain enhanced credit limits and received illegal gratification for the same. Statements of bank officials, company employees and third parties, along with documentary evidence including loan proposals, balance sheets, payment records and vehicle purchase documents, were relied upon to establish misconduct.

Respondent’s Arguments

The respondent contended that he had merely prepared CMA data based on information provided and that he was not the auditor of the financial statements. He claimed that all professional receipts were disclosed to tax authorities and denied involvement in collusion or receipt of illegal payments. The respondent sought adjournments on multiple occasions and did not produce substantive evidence to rebut the documentary material relied upon by the complainant department.

Court Order / Findings

The Board of Discipline examined the findings recorded under Rule 14(9), documentary evidence, witness statements and the respondent’s submissions. The Board observed that the CMA data prepared by the respondent showed capital figures significantly higher than those reflected in balance sheets filed with the Income Tax Department, achieved by clubbing unsecured loans and advances into capital to suppress liabilities. The Board held that the respondent, being a Chartered Accountant, was duty-bound to verify the authenticity and genuineness of financial data used for bank verification and could not disclaim responsibility.

The Board further relied on statements of bank officials and third parties establishing that the respondent acted as a de facto controller of the concern’s banking affairs, advised on misuse of foreign bill facilities, and received payments amounting to ₹46,46,500, including payments routed to his wife and for purchase of a vehicle. The respondent failed to produce any credible evidence to negate these findings. The Board concluded that the respondent deliberately assisted in financial manipulation and bank fraud, constituting conduct unbecoming of a Chartered Accountant.

Important Clarification

The Board clarified that preparation of CMA data based on falsified financial statements, without due diligence and verification, amounts to grave misconduct. A Chartered Accountant cannot escape liability by claiming non-audit status when knowingly facilitating submission of misleading financial information to banks or financial institutions.

Final Outcome

The Board of Discipline, ICAI, held that CA Devarajan K.E. was GUILTY of Other Misconduct under Clause (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22. In exercise of powers under Section 21A(3), the Board reprimanded the respondent by order dated 12.06.2024, after reconsideration pursuant to directions of the Hon’ble Madras High Court.

Source Link - https://mytaxexpert.co.in/uploads/1768816259_Ms.M.RoopaIPSvs.CADevarajanK.E.BoardofDisciplineICAI.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.