1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO. 634 OF 2009 1. Partha Ghosh, ) Chartered Accountant of Mumbai ) Inhabitant, having his office at ) Price Waterhouse & Co. 252, ) Veer Savarkar Marg, Shivaji Park, ) Dadar (West), Mumbai – 400 028. ) 2. D.V. P. Rao, ) Chartered Accountant of Mumbai ) Inhabitant, residing at 3/1F, ) Durga Niketan, Thakurli East, ) Dist. Thane, Dombivali 421 201. ).. Petitioners Versus 1. The Institute of Chartered Accountants) of India, having its office at ) ICAI Bhavan, Indraprastha Marg, ) New Delhi – 110 002 and ) Mumbai Office at ICAI Bhavan, ) Western India Regional Office, ) Cuffe Parade, Colaba, ) Mumbai – 400 005. ) 2. The Disciplinary committee of ) the Institute of Chartered Accountants) of India, having its office at ICAI ) Bhavan, Indraprastha Marg, ) New Delhi – 110 002. ) 3. Amarjit Chopra, ) 2 Vice President of the Institute of ) Chartered Accountants of India, ) and a Member of the Disciplinary ) Committee having his office at ) ICAI Bhavan, Indraprastha Marg, ) New Delhi – 110 002. ) 4. Akshykumar Gupta, ) Member of the Disciplinary ) Committee, having his office at ) ICAI Bhavan, Indraprastha Marg, ) New Delhi – 110 002. ) 5. G. Ramaswamy, ) Member of the Disciplinary ) Committee, having his office at ) ICAI Bhavan, Indraprastha Marg, ) New Delhi – 110 002. ).. Respondents -- Shri I.M. Chagla along with Shri Atul Rajadhyaksha, Gaurav Joshi i/by Dave & Girish & Co. for the Petitioners. Shri D.D. Madon along with Shri A.S. Doctor i/by Kanga & Co. for the Respondents. -- CORAM : SWATANTER KUMAR, C.J. AND S.C. DHARMADHIKARI, J. JUDGMENT RESERVED ON : 6TH APRIL, 2009 JUDGMENT PRONOUNCED ON : 16TH APRIL, 2009 JUDGMENT (PER SWATANTER KUMAR, C.J.) 3 Heard. Rule. Respondents waive service. By consent, Rule is made returnable forthwith. Heard Senior Counsel for both sides. 2. Both the Petitioners, in this Writ Petition, are Chartered Accountants by profession and are members of the Institute of Chartered Accountants of India set up under the Chartered Accountants Act, 1949 (hereinafter referred to as the “Act”). Petitioner No.1 is a Chartered Accountant since 1992 and a partner of M/s. Price Waterhouse & Co., a firm of Chartered Accountants, (hereinafter referred to as the “Firm”) while Petitioner No.2 is a Chartered Accountant since 1972 and Senior Manager of the said Firm. This Firm was the statutory auditors of one Global Trust Bank Limited ( hereinafter referred to as the “Bank”) for the year ended 31st March, 2003. The Petitioners, in their capacity as a partner and Senior Manager of the Firm, respectively, had conducted the statutory audit and signed the qualified audit report on 30th September, 2003 of the said Bank for the year ended 31st March, 2003. Prior to the audit being conducted by the Firm for the financial year ended 31st March, 4 2003, the Reserve Bank of India ( hereinafter referred to as “RBI” ) had appointed a Special Auditor viz. M/s. M. Bhaskar Rao & Co. to conduct an independent review of 36 major borrowers' accounts of the said Bank for the year ended 31st March, 2002. The special audit report was submitted on 9th May, 2003 through the RBI to the said Bank and a copy was made available for the limited purposes of review during the course of the audit work carried out by the Petitioners. On 9th May, 2003, the RBI directed the Bank to follow the recommendations contained in the report of M/s. M. Bhaskar Rao & Co., subject, however, to taking into account any material developments/recoveries, post 31st December, 2002. The Petitioners have stated with some significance the fact that in so far as the recommendations for asset classifications and provisioning of NPAs were concerned, there were significant divergences in the Report of the Special Auditor M/s. M. Bhaskar Rao & Co. and in the AFI 2002 Report prepared by RBI, inasmuch as whilst the RBI had recommended additional provisioning to the extent of Rs. 596.30 crores, the Special Auditor had recommended provisioning only upto Rs. 373.43 crores for the year ended 31st March, 2002. The Petitioners have stated that they had followed Circulars and 5 Instructions, issued by the RBI from time to time, regarding asset classification and provisioning and had completed the audit of the accounts of the said Bank for the year ended 31st March, 2003 in or about 30th September, 2003. When the Petitioners completed the audit and issued qualified/audit opinion in respect of the accounts for the year ended 31st March, 2003, wherein the gross NPAs were shown in the notes to accounts at Rs. 915.8 crores and the accounts were qualified to the extent of Rs. 311.61 crores. However, on 30th September, 2003, the RBI issued a press release, inter alia, stating that the audited financial results of the said Bank for the year ended 31st March, 2003 indicated that Management had made special efforts in recovery of Non Performing Assets relating to previous years and had made necessary provisions in accordance with the RBI guidelines. Thereafter, the RBI through its Inspectors carried out the Annual Financial Inspection (AFI) of the said Bank for the financial year ended 31st March, 2003. A detailed report known as “AFI 2003” was prepared by the Presiding Inspection Officer and submitted to the RBI somewhere in January, 2004, a copy of which was not made available to the Petitioners despite repeated requests. The Petitioners received an extract of the said AFI 2003 report wherein 6 the RBI had recommended provisioning requirements far in excess of those contained in the report of the Special Auditor for specified accounts as well as those contained in the accounts for the year ended 31st March, 2003 audited by the Petitioners. The Presiding Inspection Officer appointed by the RBI had sought to re-open and re- classify the NPAs for provisioning various accounts maintained by the said Bank with retrospective effect. Certain reports appeared in the newspapers somewhere in July, 2004 wherein it was alleged that the external auditor of the said Bank which had audited the accounts for the year ended 31st March, 2002 had appended therein its name to suspect accounts. The Petitioners state that they had not carried out the audit for the year ended 31st March, 2002. On 26th July, 2004, Respondent No.1 wrote a letter to the Firm of which the Petitioners are Partner and Senior Manager, respectively, annexing various newspaper articles, news items and sought Petitioners' comments and reply. To this, vide its letter dated 9th August, 2004 the Firm addressed a reply to Respondent No.1 informing them that it was not in a position to offer comments as it neither knew the source nor the veracity of the news reports. In continuation to its earlier letter, Respondent No.1 vide its letter dated 25th February, 2005, while 7 referring to certain information/ documents provided by the RBI, sought clarification from the Petitioners. Various correspondence continued between the parties on different aspects. According to the Petitioners, after a lapse of about 15 months, the Petitioners were shocked and surprised to receive a letter dated 6th December, 2006 wherein Respondent No.1 had referred to various articles which appeared in the newspapers in July 2004 as well as extracts of AFI 2003 report for the year ended 31st March, 2003 of the RBI. It was stated that the matter should be treated as an information case under Section 21 of the Act. Vide letter dated 5th January, 2007, Price Waterhouse & Co., the Firm, submitted to Respondent No.1 the names of the Petitioners as members answerable to the charges. A detailed reply dated 31st March, 2007 was submitted by the Petitioners in response to the show cause notice. Documents in support of the Petitioners were voluminous files nearly 130 in number, as such the complete reply had not been submitted. The RBI had directed the Petitioners to maintain confidentiality and not to disclose the names of the concerned borrowers/account holders. The Respondent No.1 vide letter dated 23rd October, 2007 informed the Petitioners that its Council was prima facie of the opinion that 8 Petitioners were guilty of professional or other misconduct and it had decided to cause an inquiry to be made by a Disciplinary Committee. The Petitioners were called upon to submit their documents and names of the witnesses to the Disciplinary Committee. The Disciplinary Committee, vide its letter dated 3rd December, 2007, inter alia, set out the procedure for inquiry by the Disciplinary Committee in respect of the information cases and stated that as far as possible the said procedure would be followed. The procedure indicated in the said letter dated 3rd December, 2007 reads as follows: - 1. Introduction (Also to mention to the Respondent that technical niceties of evidence are not applicable.) 2. Respondent is put on oath. 3. Charges are explained/read out to the Respondent by the Secretary. 4. Filing of the documents by the Respondent. 5. Filing of documents by the witness(es). 6. Drawing attention to Regulation 15(2) of the Chartered Accountants Regulations, 1988. 7. Examination of the witness(es) on oath by the Committee. 9 8. Cross-examination of the witness(es) on oath by the Respondent/Counsel. 9. If represented by a Counsel, examination of the Respondent by him. 10. Examination of the Respondent by the Committee. 11. Re-examination of the Respondent by the Committee, if need be. 12. Submissions by the Respondent/Counsel. 13. Questions by the Committee and answers by the Respondent (arising out of his submissions). 3. It is pleaded, in this writ petition, by the Petitioners that the procedure set out in the letter referred above is a well established and settled procedure which is followed by the Disciplinary Committees of Respondent No.1 in information cases. On 15th October, 2008, the Petitioners wrote to the Respondents for permission to cross examine the witnesses of RBI i.e. the concerned officials and partners/auditors of M/s. M. Bhaskar Rao & Co., Chartered Accountants who had prepared the report, and had personal knowledge about the facts stated in the report which was served upon the Petitioners along with charge sheet. Some 10 hearings were conducted before the Disciplinary Committee between December, 2007 and January, 2009. Hearings were scheduled but nothing substantially progressed. After taking permission of the RBI the Petitioners submitted documents/ information about the borrowers in a coded form. In the meetings before the Disciplinary Committee, an attempt was made to deviate from the procedure set out in its letter dated 3rd December, 2007. Oath was administered to the Petitioners, as per Item No.2 of the procedure, on 6th October, 2008. The Petitioners had submitted the documents but no documents were submitted by M/s. M. Bhaskar Rao & Co. Though Respondent Nos.1 and 2 had summoned Officers of the RBI who had conducted the AFI 2003 and partners of M/s. M. Bhaskar Rao & Co. to remain present with all documents, the representatives of M/s. M. Bhaskar Rao & Co. failed to do so and at no point of time did the witnesses from the RBI and M/s. M. Bhaskar Rao & Co. appeared to furnish documents to the Petitioners despite requests made by the Petitioners vide letters dated 19th January, 2009; 27th January, 2009 and 27th February, 2009. On 17th January, 2009, Respondents attempted to lead evidence of the concerned partner of M/s. M. Bhaskar Rao & Co., but recording of evidence could not progress 11 further because of the difference in the codification of accounts provided by the RBI for the years ending 31st March, 2002 and 31st March, 2003. The RBI had provided two different codes for the same accounts for two financial years, hence codes contained in the report of M/s. M. Bhaskar Rao & Co. did not tally with the codes in the documents provided by the RBI and because of these defects the recording of evidence did not continue. During the cross-examination of the Presiding Inspection Officer it not only became clear that the said witness had no knowledge about the facts stated in the report but he refused to and did not produce any working material in support of AFI 2003 report. The hearing was postponed at the instance of the Disciplinary Committee. The Petitioners had participated in the hearing and were keen to proceed with the same. On 9th March, 2009, Respondent No.1, under a letter dated 6th February, 2009, communicated the transcript of the proceedings held on 17th January, 2009, which according to the Petitioners contained various errors and did not record all what transpired at the said hearing. The date of the next hearing was scheduled for 23rd, 24th and 25th January, 2009. Respondent No.1 vide letter dated 9th March, 2009, while intimating the change in the membership of the Disciplinary Committee, referring 12 to Regulation 15(5) of the Chartered Accountants Regulations 1988 framed under the Provisions of the Act, asked the Petitioners to state whether they wished to demand the inquiry to be held de novo . The Petitioners vide letter dated 17th March, 2009 opted for de novo inquiry for the reasons stated in the said letter and primarily for certain contentions, raised by them in their subsequent submissions made before the Disciplinary Committee, which according to the Petitioners were material. 4. On 23rd March, 2009, the hearing was held before the newly constituted Disciplinary Committee. Only three members of the Disciplinary committee were present and one member was a common member between the previous and newly constituted Committee. During the hearing, the Petitioners were informed that the new Disciplinary Committee had taken a decision to hold de novo hearing. During that the proceedings, it was pointed out by the learned Counsel appearing for the Petitioners that despite summons being issued to the RBI, the RBI and its witness had failed to produce relevant documents/ records /working papers, etc. in support of AFI 2003 report. The Committee was requested to ensure production of 13 documents. It is averred by the Petitioners that, to its surprise, the Committee instead of acceding to the Petitioners' request and directing Respondent No.1's witness to lead evidence, as per the well established procedure, called upon the Petitioners to make their submissions and meet the charges contained in the show cause notice. No procedure as such was clarified. A handwritten application for an adjournment was submitted. The members of the Committee purported to reject the said application by an oral order. However, transcript of the order was not provided to the Petitioners, and even a short adjournment was declined and the Committee declared that the proceedings were closed. 5. No reply has been filed on behalf of the Respondent, may be, because of shortage of time but there was really not much of a dispute to the facts except for the contention that the charges had rightly been framed, the Petitioners were prima facie guilty of misconduct, the procedure adopted by the Disciplinary Committee was fully in accordance with law, and as per the provisions of the Act and the Regulations framed thereunder. Learned Counsel appearing for the Respondents vehemently argued that the Writ Petition itself 14 was premature as the proceedings before the Committee had not concluded and these proceedings being of a recommendatory nature, this Court should not interfere in exercise of its powers under Article 226 of the Constitution of India. It is also contended on behalf of the Respondents that even if some relief is to be granted to the Petitioners in the Writ Petition, an order directing a party to lead evidence of a particular witness cannot be passed in writ jurisdiction. 6. In the event if the Respondents' contention is accepted, it would amount to accepting a procedure and orders which ex facie are violative of statutory provisions as well as principles of natural justice. The orders passed in violation of procedure and principles of natural justice is not an order within the ambit and scope of that Act and/or Regulations as such the consideration by the higher Authority cannot be termed as efficacious and adequate remedy so as to deny entertaining of a writ petition particularly when it relates to reputation of a professional. In such cases, damages to reputation of a professional may be irreparable and irretrievable. 15 7. First of all we may deal with the prayers of the Petitioners as made in the Writ Petition. First and foremost, the Petitioners have raised a challenge to the provisions of Regulation 15(4) of the said Regulations which grants unfettered discretion to the Disciplinary Committee to follow the procedure as it may consider just and expedient. 8. Regulation 15(4) reads as under: - ”15 Procedure in inquiry before the Disciplinary Committee. (1) xxx xxx xxx (2) xxx xxx xxx (3) xxx xxx xxx (4) Except as otherwise provided in these Regulations, the Disciplinary Committee shall have the power to regulate its procedure in such manner as it considers just and expedient.” 9. During the course of hearing, learned Counsel appearing for the Petitioners did not press the above argument and did not challenge the constitutionality of the said provision. Firstly the 16 challenge is not pressed and secondly, even if the challenge is to be pressed, we are least impressed with the argument of the Learned Counsel for the Petitioners. The provision of Regulation 15(4) cannot be said to be unconstitutional and arbitrary. It contemplates that the Disciplinary Committee shall have powers to regulate its procedure in such a manner as it considers just and expedient, except as otherwise provided in the Regulations. The procedure provided and adopted by the authority for dealing with the case before it has to be in consonance with the principles of natural justice and basic rule of law. Noting the fact that the procedure spelled out in letter dated 3rd December, 2007 which provided a very fair and just procedure which the Committee had decided to adopt and in view of the stand taken by the Petitioners themselves, we need not discuss this issue any further, and leave it at that. 10. On the other hand, the primary grievance of the Petitioners is that the inquiry being conducted by the Disciplinary Committee, which is in furtherance to the statutory rules and regulations, is violative of the principles of natural justice and is in fact contrary to the procedure for inquiries spelt out by the Committee 17 itself in its letter dated 3rd December 2007 and which had also been adopted by the new Disciplinary Committee. Non-compliance of principles of natural justice, basic rule of law and procedure even contrary to the rules and regulations of Respondent No.1 will have the effect of vitiating the entire proceedings and such an action would not be within the ambit and scope of the rules and regulations framed thereunder. Altering the procedure mid-way, not permitting production of witnesses of RBI and non-production of coded documents and uniformity of procedure are bound to and in fact have seriously prejudiced the right of defence of the Petitioners. The Disciplinary Committee exercises a quasi-judicial function and has the authority to make recommendations which casts the Petitioners with serious civil consequences, and as such the Committee is expected to act in conformity with law. Declining the application dated 23rd March 2009 of the Petitioners and even declining an adjournment is also violative of principles of natural justice and against basic rule of law of affording a fair opportunity. In these circumstances, neither the Petition is premature nor the reliefs prayed in the Petition are untenable. 18 11. Now, we will proceed to examine the scheme under the relevant Sections, the Regulations framed under the Act and the procedure prescribed by the Committee itself. In terms of Section 4 of the Act, the Institute which is a body corporate has to maintain a register and name of the persons who satisfy the criteria and conditions stated therein are entitled to have their name entered in the Register. A member is not entitled to practice unless he has obtained from the Council a Certificate of practice and has satisfied the other conditions stated under the provisions. To maintain the Register is the obligation of the Council in terms of Section 19 of the Act and it is vested with wide powers, which have serious consequences, in terms of Section 20, where it can remove the name of member from the Register maintained by it for reasons recorded therein including if he earns disabilities specified in Section 8 of the Act or for any other reason ceases to be entitled to have his name borne on the Register. The Council would also remove the name of member in respect of whom an order has been passed under the Act removing him from the membership of the Institution. 19 12. Misconduct obviously, is one of the basic reason or ground on which the Council, by an order or by any other reason can direct the name of member to be removed from the Register and consequently the member would lose his certificate and the right to practice. Thus, these are matters having serious civil consequences which can even deny a person the right to practice as a Chartered Accountant by virtue of the powers vested in the Council. Such powers, thus, should essentially be exercised in accordance with law. The Institute has the Council and Officers to manage its affairs. Its functions, inter alia, include enforcing professional discipline, maintenance of professional standards and compliance of professional qualifications. The Council has the power to constitute, amongst other Committees, a Disciplinary Committee consisting of three members, of whom two must be elected by the Council and one must be a person nominated by the Central Government. On report of mis-conduct against a member of the Institute, the Council may refer the case to the Disciplinary Committee which holds inquiry and reports to the Council. If the Council finds no misconduct, it may dismiss the case. In case it finds any misconduct enumerated in Schedule I appended to the Act, after giving an opportunity of being 20 heard, it may pass orders and can even remove the name of the member from the rolls or reprimand him. In case of removing the name, where it proposes to remove the name of a member from the Register for a period exceeding five years or permanently, the Council has to forward the case to the High Court with its recommendations and it cannot make an order by itself. Upon such a reference being made to the High Court, the High Court will fix a date for hearing, afford to the Council, the Government and the person affected an opportunity of being heard. The Court then can pass an order directing filing of a complaint, reprimanding the member, referring the case back to the Council for inquiry or further inquiry or even direct the removal of the name of the member as proposed. 13. Section 21 of the Act spells out the procedure in inquiries relating to misconduct of members of the Institute. In terms of Section 21(1) of the Act, the Council is expected to form a prima facie view or opinion that the member of the Institute has been guilty of any professional misconduct or other misconduct and then alone can it refer the matter to a Disciplinary Committee. If such a reference is made, the Disciplinary Committee is to hold an inquiry and in such 21 manner as may be prescribed and shall report the result of its inquiry to the Council. On receipt of the report, if the Council finds that the member of the Institute is guilty of any professional or other misconduct, it shall proceed in accordance with the provisions of Section 21(4) of the Act and pass appropriate orders under that Section but only after affording to the member an opportunity of being heard . Whenever