Facts of the Case

The complaint arose from an investigation conducted by the Central Bureau of Investigation, Banking Securities and Fraud Cell, New Delhi, pursuant to FIR dated 03.02.2015 registered against M/s Sarvodaya Highways Limited and its directors, including the respondent, CA Gurinder Kumar Garg. It was alleged that the company fraudulently obtained cash credit and bank guarantee facilities from State Bank of Bikaner & Jaipur, Panchkula Branch, by submitting fabricated work orders purportedly issued by various companies, including associate entities, resulting in an alleged wrongful loss of ₹52.50 crores to the Bank.

It was further alleged that the respondent, in collusion with other directors, submitted fake work orders, false stock statements, forged documents, and a fabricated Chartered Accountant certificate to induce the Bank to sanction and enhance credit limits. A charge sheet was filed by the CBI before the Special Court, CBI, Panchkula, under various provisions of the Indian Penal Code and the Prevention of Corruption Act, and the criminal case remained pending.

Issues Involved

Whether the respondent Chartered Accountant was guilty of professional misconduct under Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 in connection with allegations of bank fraud, forgery and criminal conspiracy, notwithstanding settlement of bank dues under a One-Time Settlement.

Petitioner’s Arguments

The complainant department alleged that the respondent dishonestly availed bank credit facilities on the basis of fake and fabricated work orders issued by non-existent or associate companies, submitted false stock statements, diverted loan funds through multiple accounts, and caused wrongful loss to the Bank. It was contended that such acts demonstrated lack of integrity and amounted to professional misconduct warranting disciplinary action independent of criminal proceedings.

Respondent’s Arguments

The respondent submitted that he acted in his capacity as a director of the borrowing company and not in a professional capacity as a practising Chartered Accountant. He contended that the credit facilities were sanctioned by the Bank after due appraisal and that the account turned non-performing due to recession in the real estate sector. The respondent highlighted that the entire dispute with the Bank was resolved under a One-Time Settlement, pursuant to which the Bank accepted the settlement amount, released all securities and issued certificates confirming closure of the loan account.

The respondent further relied on judgments of the Hon’ble Punjab & Haryana High Court and the Hon’ble Supreme Court holding that criminal proceedings arising from settled bank disputes may be quashed, and argued that disciplinary proceedings could not be sustained in the absence of conclusive evidence of professional misconduct.

Court Order / Findings

The Board of Discipline examined the FIR, charge sheet, submissions of the parties, and the effect of the One-Time Settlement entered into between the Bank and the company. The Board observed that the Bank had consciously accepted the settlement, released all securities and acknowledged closure of the loan account, thereby resolving the financial dispute.

The Board further observed that matters of criminal conspiracy, forgery and cheating fall within the jurisdiction of criminal courts, and that no evidence or findings were placed before the Board to conclusively establish the respondent’s criminal intent or direct complicity amounting to professional misconduct as a Chartered Accountant. The Board also held that the respondent’s failure to submit a detailed written rebuttal could not be treated as an admission of guilt in the absence of cogent evidence.

Important Clarification

The Board clarified that disciplinary proceedings under the Chartered Accountants Act require conclusive evidence of professional misconduct. Mere allegations in an FIR or pendency of criminal proceedings, particularly where the bank has settled the dispute under a One-Time Settlement and released securities, do not by themselves justify disciplinary action.

Final Outcome

The Board of Discipline, ICAI, held that CA Gurinder Kumar Garg was NOT GUILTY of Professional Misconduct under Clause (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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