ICAI can initiate inquiry against PNB auditors in Nirav Modi Scam relying upon news reports: HC

Case Details: C.A. Sanjay Jain v. ICAI - [2022] 145 taxmann.com 483 (Delhi)

Judiciary and Counsel Details

• • Yashwant Varma, J.
  • Ms Sunita Sharma, Ms Radha Singh & Deepak Verma, Advs. for the Petitioner.
  • Ramji Srinivasan, Ms Pooja M. Saigal, Simrat Singh Pasay, Ms Shruti Pandey & Ms Megha Dugar, Advs. for the Respondent.

Facts of the Case

The Delhi High Court has ruled that the Institute of Chartered Accountants of India (ICAI) has the authority to initiate an investigation against chartered accountants (CAs) on its own accord, based on “information” it receives, even if it does not receive a complaint.

High Court Held

The court stated that news reports cannot be considered “information” in and of themselves, but can prompt the ICAI to gather additional material that could be considered “information” for disciplinary proceedings against the CA in question.

Thus, where Suo Motu inquiry was initiated by ICAI in Nirav Modi Scam against CAs who were joint Statutory Auditors of Punjab National Bank and had submitted Limited Review Report in which they failed to disclose the Nirav Modi Scam of which they had knowledge at the time of reporting, the enquiry is not to be quashed as:

(i) It was not based solely on the news reports (which themselves contained no allegations against the petitioners-CAs);

(ii) The news reports merely acted as the trigger for the Institute to delve deeper into the massive fraud which had occurred and to examine whether any member had failed to abide by the SAs’ which applied; and

(iii) The inquiry was based on obtaining a response from petitioner CAs and after the Directorate scrutinized the Limited Review Report dealing with the quarterly results of PNB and undertook due examination of whether the petitioners had adhered to the Standards on Auditing (SAs) which applied.

Accordingly, the writ petitions filed by the petitioners-CAs shall stand dismissed. The Institute shall consequently be entitled to proceed further in accordance with law.