Overview of Professional or other Misconduct | CA/CS/CMA Amendment Act

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  • Last Updated on 11 May, 2022

professional misconduct

Table of Contents

1. Background

1.1 Definition of Professional or other misconduct
1.2 What is ‘professional misconduct’
1.3 Mere negligence or innocent mistake is not negligence
1.4 Violation of ethical norms by encouraging tax evasion is gross misconduct
1.5 SEBI can put restrictions on professionals (like CA, CMA, CS) in case of listed companies
1.6 Person can be prosecuted under IPC even if disciplinary action is taken by Institute
1.7 High degree of proof to prove charge of professional misconduct

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1. Background

Members of Institute (particularly those in practice) are expected to follow proper ‘code of conduct’ to ensure high standards of professional integrity. Even in their non-professional life, they are expected to maintain high moral and ethical standards.

Hence, Acts of all three prime national institutes have defined what is a ‘Professional or Other misconduct’.

The ‘professional or other misconduct’ is divided into two categories:

(a) Serious nature where disciplinary action to be taken against the member will be decided by Disciplinary Committee. These are listed in Second Schedule to the Act [If the serious professional incidentally includes other misconduct covered under Schedule I, Disciplinary Committee can decide that issue also]

(b) Comparatively minor misconducts where Board of Discipline will decide upon disciplinary action to be taken. These are listed in Second Schedule to the Act.

Appeal against the decision of Disciplinary Committee or Board of Discipline can be filed with Appellate Authority.

1.1 Definition of Professional or other misconduct

For the purposes of the Act, the expression “professional or other misconduct” shall be deemed to include any act or omission, on the part of any member of the Institute either in his individual capacity or as partner or owner of a firm, as mentioned in any of the Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or duty cast on the Director (Discipline) under section 21(1) to inquire into the conduct of such member or firm, under any other circumstances – section 22 of CA, CMA and CS Act as substituted by Amendment Act, 2022.

1.2 What is ‘professional misconduct’

In Pandurang Dattatraya Khandekar v. Bar Council of Maharashtra AIR 1984 SC 110, it was held that an act which is done otherwise than with utmost good faith is unprofessional. – If it is shown that a person, in the pursuit of his profession, has done something to it which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency, then it is open to say that he has been guilty of ‘infamous conduct in a professional respect’. It was also observed, ‘There is a world of difference between the giving of improper legal advice and the giving of wrong legal advice. Mere negligence unaccompanied by any moral delinquency on the part of a legal practitioner in the exercise of his profession does not amount to professional misconduct.

In Prahlad Saran Gupta v. Bar Council AIR 1997 SC 1338 = (1997) 3 SCC 585, it was observed that charge of professional misconduct is quasi criminal and requires proof beyond reasonable doubt.

Misconduct implies failure to act honestly and reasonably either according to ordinary and natural standard, or according to the standard of a particular profession – When conduct of a member of profession is contrary to honesty, or opposed to good morals, or is unethical, it is misconduct. – Council of ICAI v. Mani S Abraham AIR 2000 Ker DB 212 = (2000) 112 Taxman 499 = 2000 CLC 1280 = 27 SCL 276 (Ker HC DB).

In D P Chadha v. Triyugi Narayan Mishra 2001 AIR SCW 50 = 38 SCL 699 (SC 3 member bench), it was held that mere error of judgment or expression of a reasonable opinion or taking a stand on doubtful or debatable issue of law is not misconduct, but at the same time, misconduct is not something involving moral turpitude. A professional (lawyer in this case) should never knowingly be a party to any deception, design or fraud. Professional misconduct is grave when it consists of betraying confidence of a client and is gravest when it is deliberate attempt to mislead the court or an attempt at practicing deception or fraud. In this case, it was also held that misuse of vakalatnama and paper signed blank by client is serious professional misconduct – similar views in Noratanmal Chouraria v. M R Murli (2004) 5 SCC 689.

In R D Saxena v. Balram Prasad 2000 AIR SCW 3049 = AIR 2000 SC 2912 = 2000(7) SCC 264 = 38 SCL 686 = 105 Comp Cas 83 (SC), it was observed, ‘If it is shown that an advocate in the pursuit of his profession has done something with regard to it which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency, then it is open to say that he is guilty of professional misconduct’. – quoted with approval in N G Dastane v. Shrikant S Shivde 2001(6) SCC 135 = (2001) 3 Comp LJ 149 = 37 SCL 553 = AIR 2001 SC 2028 = 2001 AIR SCW 1929 (SC 3 member bench).

1.3 Mere negligence or innocent mistake is not negligence

Misconduct arises from ill-motive and mere acts of negligence, innocent mistakes or errors of judgment do not constitute misconduct. Mere failure to meet the expected standard of efficiency by a professional cannot be regarded as a misconduct – Council of ICAI v. Somnath Basu (2007) 160 Taxman 291 (Cal HC DB).

Merely not mentioning that the Audit Report is revised report is not misconduct, if the member had acted bona fide. A professional cannot be condemned for all and sundry trivial mistakes committed involuntarily in the course of discharge of his duties – Council of Institute of Chartered Accountants of India v. G Pattabhi Rama (2014) 222 taxman 221 (Mag) = 44 taxmann.com 6 (AP HC DB).

However, in the CA, CMA and CS Act, not exercising due diligence is a ‘serious professional misconduct’ [Item 7 of Part I of Second Schedule to all the three Acts].

1.4 Violation of ethical norms by encouraging tax evasion is gross misconduct

In Council of ICAI v. P C Parekh AIR 2003 Guj 334 = 129 Taxman 80 (Guj HC DB), the defendant had written a book ‘Tax Planning of Secret Income’. In this book, the author, a Chartered Accountant, had explained various methods of creation of black money and different methods, legal and illegal, to convert the same into ‘white money’. It was a treatise on dubious ways of dodging taxes by preparing false accounts, filing false documents, bribing the officials, forging wills, agreements and other documents. – It was held that profession of Chartered Accountant is a noble profession. The book gave impression that the Chartered Accountants are experts in these matters. It was held that it is a gross misconduct and his Certificate of Practice was cancelled for five years [The book was written in January 1982, Council of ICAI passed resolution in June 1990 recommending removal for six months and Court passed order in February, 2003 removing for five years, when the CA was 73 year old]

1.5 SEBI can put restrictions on professionals (like CA, CMA, CS) in case of listed companies

In case of listed companies, SEBI has powers to take all remedial and protective measures to safeguard interests of investors and securities market. It can conduct enquiry into work of chartered accountant in connection with work they have undertaken for a listed company. SEBI can take remedial measures which include keeping a person, including chartered accountant, at a safe distance from securities market. This power is not in conflict with powers of ICAI under Chartered Accountants Act – Price Waterhouse & Co. v. SEBI (2010) 103 SCL 96 (Bom HC DB).

1.6 Person can be prosecuted under IPC even if disciplinary action is taken by Institute

A professional (CA in this case) can be prosecuted under provisions of Indian Penal Code (IPC) even if disciplinary action is taken by Institute under provisions of ICAI Act – Institute of Chartered Accountants of India v. Vimal Kumar Surana [2010] 8 taxmann.com 136 = 104 SCL 136 = 196 Taxman 203 (SC) = (2011) 1 SCC 534 (In this case, the charge was falsely claiming to be a member of the Institute).

1.7 High degree of proof to prove charge of professional misconduct

In order to prove violation of ‘due diligence’ or a professional misconduct, there must be enquiry and the finding must be sustained by a higher degree of proof than required in a civil suit, yet falling short of proof required to sustain a conviction in criminal prosecution – Imperial Corporate Finance & Services (P.) Ltd. v. SEBI (2005) 61 SCL 197 (SAT 3 member bench) – relying on Pandurang Dattatraya Khandekar v. Bar Council of Maharashtra AIR 1984 SC 110.

Evidence should be beyond reasonable doubt – Charge of misconduct is in the nature of quasi-criminal charge and nature of proof required to prove is that of beyond reasonable doubt – H V Panchaksharappa v. K G Eshwar AIR 2000 SC 3344 * L D Jai Shinghani v. Naraindas AIR 1976 SC 373.

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