Facts of the Case

The complainant, CA Murari Lal Rajoria of M/s M L Rajoria & Associates, was appointed on 02.05.2020 as Statutory Branch Auditor of Falakata and Cooch Behar branches of the State Bank of India for FY 2019–20. Due to inability to complete the audit within the stipulated time, the Bank withdrew the complainant’s appointment on 16.05.2020 and transferred the audit to the respondent firm. On 18.05.2020, CA Satish Kumar of M/s S Kumar & Associates was appointed as Statutory Branch Auditor of the Falakata Branch.

Upon appointment, the respondent sought details of the immediate previous auditor from the Bank and, based on the information provided, sent an email on 18.05.2020 to M/s Pradip K. Agarwala & Associates, the Statutory Branch Auditor for FY 2018–19, seeking No Objection Certificate. The previous auditor replied that an NOC had already been given to the complainant firm and declined to issue another.

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 conducting and completing the bank branch audit for FY 2019–20 without first obtaining No Objection Certificate from the complainant firm.

Petitioner’s Arguments

The complainant alleged that the respondent conducted the statutory audit and submitted the Long Form Audit Report for FY 2019–20 without first obtaining NOC from the complainant firm, which according to the complainant amounted to violation of Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

Respondent’s Arguments

The respondent submitted that Item (8) mandates written communication with the previous auditor and does not require permission or consent. It was stated that details of the previous auditor were not publicly available and were obtained from the Bank. Immediately upon appointment, the respondent sent written communication by email to the auditor of the immediately preceding financial year. The respondent further explained that the audit assignment was received under pressing circumstances during the national COVID-19 lockdown and imminent Cyclone Amphan, leaving no scope for delay, as any default could have serious consequences for the Bank.

The respondent also contended that the complainant lacked locus, as the complainant’s grievance arose from removal by the Bank due to delay in audit completion.

Court Order / Findings

The Board of Discipline examined the records, email correspondence, submissions and the Prima Facie Opinion. The Board observed that the respondent had, in fact, communicated in writing with the immediate previous auditor through email on the date of appointment. The Board noted that the response from the previous auditor did not object to the respondent’s appointment but merely redirected the respondent to the complainant firm.

The Board further observed that the complainant firm had independently raised objections to the respondent’s appointment by email. Accordingly, the statutory purpose of Item (8), namely to ascertain any professional objections from the outgoing auditor, stood substantively fulfilled. The Board also noted that there were no audit irregularities or deficiencies in the financial statements of the Falakata Branch and that the Ethical Standards Board of ICAI had clarified that the complainant’s removal by the Bank was not unjustified.

Applying the principle of substance over form, the Board held that the respondent acted in good faith and within the bounds of professional ethics and statutory requirements.

Important Clarification

The Board clarified that Item (8) of Part I requires prior written communication with the outgoing auditor to ascertain professional objections and does not mandate obtaining permission or consent. Where such communication is made and objections are substantively known, technical or procedural objections cannot be sustained in the absence of any audit irregularity or unethical conduct.

Final Outcome

The Board of Discipline, ICAI, held that CA Satish Kumar was NOT GUILTY of Professional Misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949. Accordingly, the Board ordered closure of the case under Rule 15(2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, by order dated 25.01.2025.

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