Vineet Saran, J.This is a reference case filed by the Council of the Institute of Chartered Accountants of India (for short the Council) under Section 21(5) of the Chartered Accountants Act, 1949 (for short the Act,) for consideration of the recommendation made by the Council for removal of the name of the respondent S. Giridharan, a practicing Chartered Accountant, from the register of members, maintained by it, for a period of one year.

2. The brief facts of this case are that with regard to the audit report and the balance sheets signed by the respondent a Statutory Auditor of M/s. Great Western Industries Ltd., (for brevity M/s. GWIL), as on 30.09.98, 30.09.99 and 30.09.2000 a complaint was filed by the Superintendent of Police, CBI EOW, Chennai on 18.08.2006 before the Council alleging certain charges against the respondent. To the said complaint, the respondent submitted his written reply on 26.02.2007. To the said reply, the complainant filed a rejoinder on 16.04.2007, to which the respondent submitted his reply on 21.06.2007. The complainant as well as the respondent were heard by the disciplinary committee of the Council. After concluding the hearing on 24.03.2010, the disciplinary committee submitted a report dated 10.06.2010 and recorded a finding that the respondent was guilty of professional misconduct within the meaning of Clauses (5), (6), (7), (8) and (9) of Part I of II Schedule to the Act read with Sections 21 and 22 of the Act. Vide Communication dated 11.10.2010, copies of the report of the disciplinary committee were given to the complainant and the respondent, to which the parties were required to submit their response. Adjournments were granted by the Council and finally on 11.04.2011, the respondent submitted his written representation on the report of the disciplinary committee and the complainant also filed his written representation on 26.04.2011. On 01.09.2011, the petitioner informed the respondent as well as the complainant that the report of the disciplinary committee would be considered in the meeting of the Council to be held from 19th to 21st September 2011. The respondent submitted a written representation on 12.09.2011. As per the extract taken from the minutes of the 310th meeting of the Council held from 19th to 21st September 2011, the Council decided to accept the report of the disciplinary committee holding the respondent guilty of professional misconduct and recommended to refer the matter to the High Court for removal of the name of the respondent from the register of members maintained by the Council, for a period of one year.

3. In the complaint lodged by the Superintendent of Police, Central Bureau of Investigation on 18.08.2006, the allegation against the respondent primarily were that he, as a Chartered Accountant of the company GWIL, had connived with the Directors of the Company and for the years 1997-98, 1998-99, did not disclose in the Balance Sheet of the company that the company had availed credit facilities from the Times Bank Limited (subsequently HDFC Bank) and that the balance sheet for the period ending 30.09.2000 was signed without verifying the correct facts and without preparing the audit report, though mentioned to have been annexed. The relevant paragraphs 5, 6, 7, 8 and 9 of the said complaint are re-produced below:

"5. Investigation also revealed that the Director of GWIL and Shri. S. Giridharan had signed the audited balance sheet as at 30.09.2000 on 7.12.2000 and the same was submitted to Canara Bank, AT Branch, Bangalore. During 2001, Canara Bank came to know about the credit facilities availed by GWIL from Times Bank Ltd., and sought clarification from Shri. S. Giridharan. For the same, Shri. Giridharan had replied to Canara Bank that the audit of M/s. GWIL has not been completed and disowned the balance sheet submitted by the Director of GWTT to Canara Bank stating that it was an unaudited balance sheet. This clearly proves that he had signed the balance sheet without conducting proper audit of books of accounts of M/s. GWIL.

6. In this regard, an expert was examined and he has stated that the balance Sheet and Audit Report are very vital document, which reflects the status, financial background, etc. of a company. It is the primary duty of an auditor to verify the books of account of the company before qualifying the Balance Sheet and Auditors Report. Bankers are mainly depending upon the Balance Sheet to process and recommend the credit proposals submitted by the company. Credit facilities are released by the Bank based on the performance and past experience, which are to be clearly furnished in the Balance Sheet. He has also stated that signing the balance sheet and later disowning the same is unethical to the profession of Chartered Accountancy.

Expert opinion proved that

(i) if Shri. Giridharan had conducted proper audit, he would have been definitely aware of the banking transactions with Times Bank Ltd.,

(ii) if the company has deliberately hiding the transactions with Times Bank Ltd., and maintaining separate books of account, the auditor may not be knowing the fact, but this can be done only by a highly qualified and professionally skilled Chartered Accountants. It is very difficult for the company to maintain separate books of account pertaining to the banking transaction for more than 3-4 years.

(iii) Both the company and auditor would have colluded and committed irregularities. Moreover, there is also a chance that he auditor himself would have guided the company to prepare such type of Balance Sheets to defraud the banks.

7. Investigation has clearly established that Shri. Giridharan had colluded with the Director of M/s. GWIL and suppressed the details of the credit facilities availed from Times Bank/HDFC Bank, Chennai in the balance sheets. Shri. Giridharan had suppressed these facts in order to misguide the Canara Bank and enable M/s. GWIL, to enjoy dual finance fraudulently.

8. From the above facts, it is clear that Shri. Giridharan had indulged in generation of incorrect balance sheets and audit reports for M/s. GWIL Bangalore which is an unprofessional and unethical conduct unbecoming of a licenced Chartered Accountant.

9. It is requested that the Institute of Chartered Accountants of India (ICAI) may take such action as deemed fit against the said individual. The case has already been charge sheeted and all the original documents were deposited before the Honble Court of XVII Addl. Chief Metropolitan Magistrate, Court Complex, Bangalore and photocopy of the documents are available in this office."

4. After considering the reply of the respondent, the following charges were framed against the appellant.

"The charges alleged against the respondent, as per the complaint, are as under:

The respondents was the Statutory Auditor of Great Western Industries Ltd., (hereinafter referred to as the "Company") from 1995-96 to 2000-01. Great Western Industries Ltd. was availing credit facilities with Canara Bank, Hi-Tech Agriculture Finance Branch, Bangalore and Times Bank Ltd., Chennai from 1994-2001 and 1997 to 2001 respectively. The respondent had audited the books of accounts of Great Western Industries Ltd., and signed the Auditors Report, Balance Sheets as at 30.09.1998, 30.09.1999 and 30.09.2000. Investigation conducted by CBI revealed that the Balance Sheets for the year 1997-98 and 1998-99 did not reflect the credit facilities availed from the Times Bank Ltd., Chennai.

Investigation also revealed that the Director of Great Western Industries Ltd., and the respondent had signed the audited Balance Sheet as at 30.09.2000 on 07.12.2000 and the same was submitted to Canara Bank, Agriculture Finance Branch, Bangalore. During 2001, Canara Bank came to know about the credit facilities availed by Great Western Industries Ltd., from Times Bank Ltd., and sought clarification from the respondent. The respondent replied to Canara Bank that the audit of Great Western Industries Ltd., has not been completed and disowned the Balance Sheet submitted by the Director of Great Western Industries Ltd., to Canara Bank stating that it was an unaudited Balance Sheet. The fact clearly proves that he had signed the Balance Sheet without conducting proper audit of books of accounts of Great Western Industries Ltd. In this case if the respondent had conducted proper audit, he would have been definitely aware of the banking transactions with Times Bank Ltd.

Investigation had clearly established that the respondent had colluded with the Director of Great Western Industries Ltd., and suppressed the details of the credit facilities availed from Times Bank/HDFC Bank Chennai in the Balance Sheets. The respondent had suppressed these facts in order to misguide Canara Bank and enable Great Western Industries Ltd., to enjoy dual finance fraudulently.

The respondent indulged in generation of incorrect Balance Sheets and Audit Reports for Great Western Industries Ltd., Bangalore which is unprofessional, unethical and conduct unbecoming of a Chartered Accountant."

After following the prescribed procedure, the Disciplinary committee submitted its report which was accepted by the Council.

5. In the recommendation made by the Council, it was noted that the respondent had signed the Balance Sheet for the period ending 30.09.2000, which was countersigned by only one Director, in violation of Section 215 of the Companies Act, 1956, which provides for at least two Directors to sign the Balance Sheet.

6. The Council also found the respondent guilty of professional misconduct relating to non-disclosure of loan taken by the Company from Times Bank. It was also noted that the Balance Sheet and Profit and Loss account were signed by the respondent on 7.12.2000 with the endorsement that the same was as per audit report annexed, whereas, the audit report was not filed. On the aforesaid main grounds, as well as certain other grounds, the Council made the recommendation for removal of the name of the respondent from the register of members for a period of one year, which matter is placed for our consideration.

7. We have heard Sri. S.S. Naganand, learned Senior counsel appearing for the petitioner along with Sri. Vikram Unni, as well as Sri. K. Kasturi, learned Senior counsel appearing on behalf of the respondent and perused the records.

8. The contention of the learned counsel for the petitioner is that the charges against the respondent have all been proved and the same are very grave as the respondent did not exercise due care expected from a professional auditor, by signing the Balance Sheet for the period 30.09.2000 or even signing the said Balance Sheet without there being a proper audit report and mentioning that the same was as per the audit report. It is contended that the respondent himself accepted that the final audit report had not been prepared at the time when the Balance Sheet was signed by the respondent on 07.12.2000, and the endorsement made was that the same was as per the audit report annexed. Meaning thereby that the respondent did not adhere to the professional norms expected from an auditor. It is further submitted that the signing of the Balance Sheet, without two Directors of the Company having signed the same, was in violation of the provisions of Section 215 of the Companies Act, 1956, regarding which also the respondent did not take due care. The submission of the learned counsel for the appellant also is that the company had taken a loan from the Times Bank Limited (subsequently, HDFC Bank), which was not reflected in the Balance Sheet, and the same was also a case of gross negligence and according to the petitioner, the same was done in collusion with the Directors of the Company. Besides this, the learned counsel for the petitioner has pointed out other discrepancies in the Balance Sheet prepared by the respondent to the extent that the secured loans and unsecured loans taken from the Companies in which Directors were interested was not reported and there was no provision made for payment of interest on the loans so taken. Sri. S.S. Naganand, learned Senior Counsel has thus submitted that in the facts and circumstances of the case, the punishment recommended by the Council is perfidy justified.

9. On the other hand, Sri. K. Kasturi, learned Senior counsel for the respondent has tried to justify the conduct of the respondent by stating that the respondent, as an Auditor, could only audit the accounts on the basis of the papers that were placed before him and he was not supposed to act as a detective to investigate into the accounts. He has contended that the respondent was never informed about the loan which was taken by the company from the Times Bank Limited, as the same may have been taken by the Directors of the Company, which was not brought on record. Sri. K. Kasturi, learned counsel submits that the Company in question has its head office in Bangalore, whereas, the loan from Times Bank Limited was taken from its Branch in Chennai of which the respondent-auditor did not have any knowledge. Learned counsel for the respondent has further submitted that though the respondent had signed the Balance Sheet in good faith but since there was suspicion in his mind, he did not prepare the audit report and the mention in the Balance Sheet that the same was as per the audit report annexed" was on a set format, and signed by the respondent in good faith. Learned counsel has submitted that immediately thereafter, on 29.12.2000, on the respondent having learnt of the said loan taken by the company from Times Bank Limited vide a communication made by the HDFC Bank, (which had taken over the Times Bank Ltd.,) and thereafter also on 14.02.2001, the respondent wrote to the Company enquiring as to whether the said loan was taken by the company or not, and seeking other clarifications also. He thus submitted that the respondent had acted in good faith and did not sign the audit report after coming to know of the aforesaid shortcomings. As regards the other discrepancies with regard to non-signing of the Balance sheet by two Directors and instead by only one Director, learned counsel has submitted that the law on this point is not clear as to whether the Directors have to first sign the audit report and then the Auditor or vice versa. He has contended that the same was also done in good faith and could not be held against the respondent. He further submitted that in the complaint, the Superintendent of Police CBI has himself stated that the information was withheld by the Company from the respondent-auditor. He has thus submitted that the information regarding the other loans, secured and unsecured, which had not been specified in the Balance Sheet was because of non-disclosure of the said information by the Company to the respondent and there was no suppression at the hands of the respondent. It is also been submitted that immediately after the submission of the Balance Sheet for the period ending 30.09.2000, in January 2001, the company had changed the Auditor and did not retain the respondent thereafter as the respondent refused to finalise and sign the audit report.

10. Having heard the learned counsel for the parties and perusing the records, we are satisfied that the findings recorded by the disciplinary committee are fully justified in law and that the Council has rightly accepted such findings.

11. The main reason for coming to this conclusion is that an Auditor is expected to sign the Balance Sheet only after the audit report has been prepared, as in the Balance Sheet itself it was mentioned by the respondent that the same was as per the audit report annexed. The explanation of the respondent that the audit report was not finalized at the time when the Balance Sheet was signed by him on 07.12.2000 cannot be accepted as the respondent has himself mentioned in the Balance Sheet that the audit report was annexed. Later on, the respondent had taken the plea that the final audit report was not prepared because certain further facts had come to the knowledge of the respondent-auditor. However, this makes it clear that the Balance Sheet was signed by the respondent without the audit report being there. Balance Sheet merely gives the summary of the audit report which can be read and understood by a common man. There cannot be a Balance Sheet without the audit report being prepared. In having done so, the respondent had committed grave irregularity as the same cannot be said to be a bona fide mistake but a deliberate act of the respondent. The other charges against the petitioner can be condoned as the same could be said to be because of the Company not providing full facts and particulars to the respondent-auditor. However, the charge of preparing the Balance Sheet without all the records having been perused by the respondent, it is certainly a very grave misconduct, which cannot be condoned.

12. More than half a century back in the year 1956, a Division Bench of the Calcutta High Court in the case of Deputy Secretary to the Government of India Ministry of Finance (Department of Economic affairs) Vs. S.N. Das Gupta, AIR 1956 Cal 414 [LQ/CalHC/1955/222] : (1956) 1 CALLT 32 : (1955) 25 CompCas 413 : 60 CWN 124 , after considering the duties of the statutory auditor under the general rules and after holding that the auditor may not be required to begin with suspicion and to proceed in the manner of trying to detect a fraud or a lie, has held that "if the auditor does not take reasonable care and skill before he comes to believe that what he certifies is true or even when he generally displays the highest degree of care and skill but fails short of the strict duty of an Auditor even in one instance, he must be held to have been negligent, if not worse".

13. It is true that an auditor is not required to perform the functions of a detective as it has been said that an auditor is a watch-dog but not a blood hound, however, in the present case, the gravity of negligence of the respondent in not questioning the company with regard to the accounts and signing the Balance Sheet even prior to preparation of the audit report, without verifying the correctness of the same, is grave enough to hold him negligent and impose punishment. In such view of the matter, we are of the firm opinion that the findings recorded by the disciplinary committee and so accepted by the Council are perfectly justified in law and do not call for interference.

14. We may now consider the question of quantum of punishment which has been recommended by the Council i.e., removal of the name of the respondent from the register of members maintained by the Council, for a period of one year. For this, what we have to consider is the gravity of the misconduct as well as take into consideration the time which has lapsed since the audit report was submitted and the recommendation for punishment made by the Council. The matter relates to the conduct of the petitioner for the Balance Sheet which he had prepared and other lapses said to have been committed by him in the year 2000. The complaint was filed in the year 2006. The disciplinary committee made its recommendation to the Council in the year 2010. The order was passed by the Council recommending the punishment in the year 2011. The same was filed before this Court in the year 2012 and has been placed for hearing in the year 2015. One and a half decade has passed since the year 2000, i.e., the year when the incident took place.

15. The Apex Court in the case of Institute of Chartered Accountants of India Vs. P.K. Mukherji and Another, AIR 1968 SC 1104 [LQ/SC/1968/55] : (1968) 38 CompCas 628 [LQ/SC/1968/55] : (1968) 3 SCR 330 [LQ/SC/1968/55] of the said judgment has held as under:

"For these reasons we hold that the charge of professional misconduct is established against respondent No. 1 falling under Cl (o) of the Schedule to the Act. The only question which now remains is the final order to be passed against respondent No. 1. In our opinion, the conduct of respondent No. 1 is wholly unworthy of a Chartered Accountant who is expected to maintain a high standard of professional conduct. The proper punishment would have been the removal of the respondent No. v. name from the Register for a limited period but in view of the fact that the proceedings have been pending against respondent No. 1 for a long time, we think that the ends of justice will be serviced in this particular case if respondent No. 1 is severely reprimanded for his misconduct under S. 21(2) of the Act. We also direct respondent No. 1 to pay the cost of the appellant in this Court and in the High Court. We accordingly set aside the order of the High Court dated December 5, 1962 and allow this appeal with costs."

16. A Division Bench of the High Court of Karnataka in the case of Council of The Institute of Chartered Accountants of India Vs. Y.N. Jayasimha, (2014) 4 KarLJ 398 [LQ/KarHC/2014/789] has also considered the matter regarding to the passage of time while awarding the punishment. In para 7 of the said judgment, the Court has held as under:

Though the respondent denied the allegations made in the complaint, we find that the Council on the basis of the materials placed before it by the complainant and also after considering the written representation made by the respondent, rightly held him guilty of the professional misconduct. In the circumstances, we are inclined to accept the recommendation made by the Council, for the reasons recorded in the order under Section 21 of the Act. We do not find any reason to interfere with the findings of fact recorded by the Council holding the respondent guilty of misconduct. Thus, we confirm the findings recorded and accept the recommendation made by the Council against the respondent. However, having regard to the nature of allegations and the passage of time, the recommendation for removal of the respondents name for one month from the Register of Members maintained by the Council, in our opinion, is harsh. Hence, we are inclined to reduce the quantum of punishment from one month to reprimand. Order accordingly. The civil petition is accordingly disposed of. No costs."

17. In our view, discretion of the Court while awarding punishment has to be exercised in a judicious manner. We have already held that the respondent is guilty of professional misconduct. However, balancing the equities and keeping in view the fact that even though the irregularities committed by the respondent are very grave in nature and have been proved beyond reasonable doubt, but the fact remains that 15 years time has lapsed since when the said irregularities had been committed by the respondent and the respondent has been continuing to function as a Chartered Accountant, hence the punishment of removal of the name of the respondent for one year from the Register of Members maintained by the Council would, in our opinion, be too harsh at this stage, which is after a gap of 15 years.

18. We are thus of the view that the recommendation made by the Council directing removal of the name of the respondent from the register of members for a period of one year is excessive in the facts and circumstances of this case, we reduce the quantum of punishment to removal of name of the respondent from the register of members for a period of one month from the date of Notification.

This petition is accordingly disposed of. No order as to costs.