Facts of the Case

A complaint was filed by Shri G. S. Bisht, DGM, Bharat Sanchar Nigam Limited (BSNL), alleging professional misconduct against CA L. C. Gupta and his firm, M/s L. C. Kailash & Associates. The Respondent firm was appointed by the office of the Comptroller & Auditor General of India (C&AG) as Branch Statutory Auditor for NTP Circle, BSNL, Delhi for the Financial Year 2010–11.

It was alleged that at the stage of completion of audit, the Respondent demanded inflated Travelling Allowance and Daily Allowance (TA/DA) not permissible under BSNL rules, threatened not to clear accounts if such bills were not passed, and failed to issue No Objection Certificate (NOC) to incoming auditors for Financial Year 2011–12, thereby paralysing audit work and causing administrative difficulty to BSNL.

Issues Involved

Whether the Respondent demanded inflated TA/DA, threatened to stall audit work, and wrongfully withheld NOC to incoming auditors, and whether such conduct constituted “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Complainant’s Allegations

The complainant department alleged that the Respondent’s conduct caused disruption in completion of audit and that inflated TA/DA bills were raised contrary to BSNL circulars. It was further alleged that non-issuance of NOC delayed appointment of incoming auditors and adversely affected audit timelines.

Respondent’s Submissions

The Respondent submitted that there was no formal appointment letter from BSNL specifying audit fees and TA/DA at the time of acceptance and that he accepted the audit subject to fixation of audit fees and TA/DA. He explained that due to the large geographical spread of audit units across seven states, TA/DA was a genuine component of audit cost.

The Respondent produced documentary evidence including correspondence with BSNL officials, actual hotel bills, travel tickets, local conveyance expenses and certificates confirming stay of audit staff at various NTP units. He contended that revision of TA/DA was repeatedly discussed with senior BSNL officials, who acknowledged that TA/DA rules of 2002 were outdated and agreed to reimburse actual expenses.

Regarding NOC, the Respondent submitted that he professionally objected to the incoming auditor’s appointment until receipt of balance audit fees and TA/DA, which was his legitimate right, and that extensive correspondence took place between both auditors. He further pointed out that the incoming auditor ultimately exercised independent judgment, accepted the appointment and completed audit.

Court / Authority Order and Findings

The Board of Discipline examined the C&AG appointment letter, BSNL circulars, extensive correspondence, audit reports, TA/DA bills and supporting vouchers. The Board noted that the Respondent completed the audit and issued the audit report for FY 2010–11 on 28 July 2011, which contradicted the allegation of obstruction.

The Board observed that TA/DA claims were supported by documentary evidence and that no defect or irregularity in such bills was brought on record by BSNL. The Board held that even if the Respondent claimed a higher amount, reimbursement was at the discretion of BSNL, and any dispute regarding quantum of TA/DA could not automatically amount to professional misconduct.

With respect to NOC, the Board noted that the incoming auditor sought “no objection” and that the Respondent communicated his position professionally. The incoming auditor, after correspondence, accepted the appointment and issued the audit report, demonstrating that the Respondent did not prevent audit work.

The Board further observed that if the Respondent had committed professional misconduct, the C&AG would not have appointed him again as branch auditor of Uttarakhand Circle, BSNL for FY 2014–15 at substantially higher audit fees. This conduct of the appointing authority indicated satisfaction with the Respondent’s professional conduct.

Important Clarification

The Board clarified that disputes relating to audit fees or TA/DA reimbursement are essentially contractual or administrative in nature. Raising claims supported by vouchers, corresponding with management and seeking settlement of dues do not amount to “Other Misconduct” unless malafide intent, coercion or illegality is clearly established.

Final Outcome

The ICAI Board of Discipline held CA L. C. Gupta (M. No. 005122) Not Guilty of “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22. By order dated 10 February 2023, the Board directed 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.

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