Facts of the Case

The complainant, Shri Rajendra Rungta, partner of M/s Shankar Industries, filed a complaint against the respondent, CA Surendra Kumar Rungta, his real brother, alleging violation of the Chartered Accountants Act, 1949. The firm was a family-run partnership consisting of the complainant, the respondent and their father. The respondent was inducted as a partner with effect from 01.04.1994.

The complainant alleged that even after passing the Chartered Accountancy Examination and becoming a member of ICAI on 11.10.1995, the respondent continued to act as a working partner in the firm, drew salary, operated bank accounts, and misrepresented himself as a working partner before the bank. It was further alleged that during the complainant’s hospitalization, the respondent obtained his signatures on stamp paper to misuse the same for showing the complainant’s retirement from the firm.

Issues Involved

Whether the respondent Chartered Accountant was guilty of professional misconduct under Item (11) of Part I and Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 for allegedly acting as a working partner in a family business after obtaining Certificate of Practice and for alleged misuse of signatures and misrepresentation.

Petitioner’s Arguments

The complainant alleged that the respondent acted as a working partner and received salary during Assessment Years 1995–96 to 1998–99, which was reflected in income statements of the firm. It was contended that the respondent withdrew amounts from the firm through cash and cheques and misused stamp papers signed during hospitalization to further his control over the firm. The complainant relied upon income statements and bank-related communications to support his allegations.

Respondent’s Arguments

The respondent denied all allegations and submitted that after becoming a Chartered Accountant and obtaining Certificate of Practice on 09.10.1996, he sought and obtained permission from ICAI to remain a non-working (sleeping) partner in the family firm. He relied on ICAI’s letter dated 07.02.1997 granting permission subject to the condition that he would not take part in the day-to-day affairs of the business.

The respondent explained that clauses relating to salary and bank operation existed only in the original partnership deed dated 01.04.1994, when he was not a Chartered Accountant. A supplementary partnership deed dated 15.07.1996 was executed nullifying those clauses and was submitted to ICAI. He further submitted that entries showing salary credit in his capital account for FYs 1997–98 and 1998–99 were erroneous repetitions by the complainant, were never paid, and were discontinued thereafter. The respondent also filed an affidavit stating that he never received any salary nor signed any balance sheet of the firm.

Court Order / Findings

The Board of Discipline examined the partnership deeds, ICAI permission letter, income statements, capital accounts, submissions and affidavit of the respondent. The Board observed that ICAI had expressly permitted the respondent to act as a non-working partner and that there was no evidence to establish that he violated the conditions of such permission.

The Board noted that the complainant failed to produce any documentary evidence proving payment of salary, withdrawal of funds by the respondent, or misuse of stamp papers. The Board also observed that the alleged transactions pertained to the period 1995–96 to 1998–99, whereas the complaint was filed only in April 2016, reflecting an unexplained and substantial delay that undermined the credibility of the allegations.

The Board further observed that the dispute appeared to stem from a family disagreement rather than professional misconduct. In the absence of corroborative evidence, the allegations were held to be unsubstantiated.

Important Clarification

The Board clarified that a Chartered Accountant may act as a non-working partner in a family business with prior permission of ICAI. Mere existence of accounting entries or family disputes, without proof of actual participation, receipt of remuneration, or violation of ICAI conditions, does not constitute professional misconduct. Delay in raising allegations further weakens the credibility of such complaints.

Final Outcome

The Board of Discipline, ICAI, held that CA Surendra Kumar Rungta was NOT GUILTY of Professional Misconduct under Item (11) of Part I and Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949. Accordingly, the complaint was closed 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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