Facts of the Case

The disciplinary proceedings arose from a complaint filed by Mr. Parag Manere, Deputy Commissioner of Police, Economic Offence Wing, Mumbai, in connection with a large-scale real estate fraud relating to the “CANVAS” redevelopment project in Mumbai. The matter originated from an FIR registered on 04.12.2017 against M/s J.V. Developers, its partners, and associated entities, alleging that investors were induced to purchase flats for more than ₹5 crore despite J.V. Developers having no authority to sell the flats.

Subsequent investigation and a forensic audit conducted in 2021 revealed complex financial linkages between J.V. Developers, Woodstock Realties Pvt. Ltd., and entities belonging to the Kamla Landmarc Group. The Respondent, CA Naresh Kishore Singh Rajpurohit (M. No. 106013), had acted as statutory auditor of several Kamla Group entities and was found to have professional association with the group during the relevant period. The forensic audit revealed that out of approximately ₹8.27 crore collected from investors, about ₹2.5 crore was transferred through intermediary companies to the personal bank account of the Respondent and thereafter routed to another entity.

Further investigation revealed that flats were purchased in the names of the Respondent’s wife and sister-in-law using funds provided by Kamla Group entities and were later sold to Woodstock Realties Pvt. Ltd. at inflated prices, with proceeds being routed back to Kamla Group entities, creating a façade of legitimate transactions and facilitating diversion of investor funds.

Issues Involved

Whether the Respondent Chartered Accountant compromised auditor independence and professional integrity by engaging in financial transactions with auditee entities and their related parties, and whether such conduct amounted to “other misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 warranting action under Section 21A(3).

Petitioner’s Arguments

The Respondent denied professional or personal involvement in the affairs of M/s J.V. Developers and the “CANVAS” project and contended that disputes were purely between investors and developers. He asserted that he was never the auditor of J.V. Developers and that there is no concept of a “group auditor”. He further stated that he had resigned from Kamla Landmarc Group entities on 31.03.2013 and that the alleged ₹2.5 crore transaction was an independent business loan repaid in FY 2013-14. He also contended that property transactions involving his wife were legitimate and unrelated to any fraud, and that criminal proceedings were still pending before the competent court.

Respondent’s Arguments

The complainant, through representatives of the Economic Offence Wing, relied upon investigation records, forensic audit findings, bank statements and charge-sheet details to demonstrate that the Respondent, while acting as statutory auditor of Kamla Group entities, facilitated and participated in transactions involving auditee entities and related parties, including transfer of funds to accounts of his wife, thereby compromising auditor independence and professional ethics.

Court Order / Findings

The Board of Discipline examined the forensic audit report dated 02.08.2021, investigation material, bank records and oral submissions. The Board noted that the Respondent admitted receipt of funds from entities under his audit to the account of his wife and acknowledged his role as statutory auditor of those entities at the relevant time. The Board held that even if such funds were subsequently repaid, engaging in personal financial transactions with auditee entities constitutes a clear violation of auditor independence and professional ethics.

The Board further observed that criminal proceedings under the Indian Penal Code are distinct from disciplinary proceedings under the Chartered Accountants Act and that professional misconduct can be established independently of the outcome of criminal trials. The Respondent’s conduct in facilitating round-tripping of funds, use of relatives’ names for transactions, and association with auditee entities was held to be conduct unbecoming of a Chartered Accountant.

Important Clarification

The Board clarified that Chartered Accountants are required to maintain absolute independence, integrity and objectivity. Personal financial dealings with auditee entities or routing of funds through relatives irreversibly compromises auditor independence and constitutes serious professional misconduct, irrespective of whether the amounts are later repaid.

Final Outcome

The Board of Discipline, in exercise of powers under Section 21A(3) of the Chartered Accountants Act, 1949, ordered removal of the name of CA Naresh Kishore Singh Rajpurohit (M. No. 106013) from the Register of Members for a period of three (3) months.

Source Link- https://www.mytaxexpert.co.in/uploads/1768890860_Mr.ParagManereDeputyCommissionerofPoliceMumbaivsCA.NareshKishoreSinghRajpurohitM.No.106013Mumbai.pdf

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