Facts of the Case

The complainant, CA Jai Kumar Mansharamani, partner of M/s Khandelwal Khare & Associates, served as statutory auditor of M/s Ridhima Overseas Private Limited from 30.09.2014. Due to persistent non-cooperation by the company during the statutory audit for FY 2017–18, the complainant resigned on 18.10.2018 and subsequently filed Form ADT-3 with the Registrar of Companies on 30.03.2019. Despite resignation, the company did not clear the outstanding audit dues of the complainant firm.

Thereafter, the complainant received communication from another audit firm seeking No Objection Certificate. However, the new auditors failed to furnish proper firm credentials or appointment letters despite repeated requests. In March 2020, upon inspection of MCA records, the complainant discovered that the financial statements for FY 2017–18 and FY 2018–19 had been signed by the respondent, CA Dinesh Kumar Ahuja, on 31.10.2018 and 07.09.2019 respectively, without obtaining prior written communication or NOC from the complainant.

Issues Involved

Whether the respondent Chartered Accountant was guilty of professional misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 for accepting statutory audit assignments without prior written communication with the previous auditor and without documented proof of such communication.

Petitioner’s Arguments

The complainant contended that the respondent accepted statutory audit for FYs 2017–18 and 2018–19 without prior written communication, despite the complainant continuing as auditor during the relevant period and having outstanding audit fees. It was submitted that multiple emails were sent to the respondent highlighting objections and unpaid dues, which remained unanswered. The complainant further alleged that the respondent backdated audit reports, resulting in delayed statutory filings.

Respondent’s Arguments

The respondent did not appear during the final hearing before the Board. However, it was claimed during the investigation stage that a letter seeking No Objection Certificate had been sent to the complainant. No documentary evidence such as acknowledgment, delivery report, or registered post receipt was produced to establish proof of delivery of such communication.

Court Order / Findings

The Board of Discipline examined the material on record, including MCA filings, correspondence, and the Prima Facie Opinion of the Director (Discipline). The Board noted that Item (8) of Part I mandates mandatory prior written communication with the outgoing auditor before accepting an audit assignment.

The Board observed that although the respondent claimed to have sent a letter seeking NOC, no verifiable proof of delivery was placed on record. The Board relied on the Code of Ethics, 2009, which requires the incoming auditor to retain positive evidence of delivery, preferably through registered post with acknowledgment due or hand delivery with written acknowledgment. The absence of such evidence conclusively established non-compliance.

The Board further noted that allegations relating to non-payment of audit fees were not substantiated by documentary evidence and were therefore rightly dropped at the prima facie stage. The sole charge under Item (8) of Part I was found to be proved.

Important Clarification

The Board clarified that prior written communication with the outgoing auditor must be demonstrable through positive and verifiable evidence of delivery. Mere assertion of having sent a letter, without proof of receipt, does not satisfy the mandatory ethical requirement under Item (8) of Part I of the First Schedule.

Final Outcome

The Board of Discipline, ICAI, held that CA Dinesh Kumar Ahuja was GUILTY of Professional Misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949. In exercise of powers under Section 21A(3), the Board imposed a fine of ₹25,000, by order dated 10.01.2025, pursuant to its findings dated 14.12.2024.

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