Facts of the Case

A complaint was filed by Shri V. Ravikumar, Director of Delfresh Foods India Pvt. Ltd., alleging professional misconduct against CA Narendra Reddy Velugoti. The complainant and one Ms. Shereena K. S. were founders, promoters, shareholders and directors of the company incorporated on 18 December 2015.

It was alleged that the Respondent, a Non-Resident Indian residing abroad, was introduced as an investor and brought funds of ₹20 lakh into the company through his wife’s account. He was subsequently appointed as Chief Financial Officer on 14 August 2016 and later alleged to have exercised absolute control over financial affairs of the company.

The complainant alleged that the Respondent misused user IDs and passwords of company and personal bank accounts, transferred funds without authorization, forged digital signatures, replaced staff, entered into illegal business arrangements, coerced directors, and misappropriated company funds and assets causing losses exceeding ₹1.9 crore.

Issues Involved

Whether the Respondent misappropriated company funds, misused banking credentials, forged documents and digital signatures, illegally controlled company affairs, 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 Arguments

The complainant alleged that the Respondent withdrew funds without authorization, transferred money to his own account and associates, forged documents filed before the ROC, illegally entered into partnerships, misused confidential information, threatened the complainant, and exercised control over company operations to the detriment of promoters and shareholders.

Respondent’s Arguments

The Respondent denied all allegations and submitted that he was only an investor and not involved in day-to-day management of the company. He stated that he resided outside India and visited India only once during August 2016. He contended that access to financial systems was granted voluntarily by the complainant and that no unauthorized withdrawals were made.

The Respondent further submitted that allegations were exaggerated, unsupported by documentary proof, and arose out of internal business disputes. He denied forging documents, misusing digital signatures or coercing directors, and stated that several allegations were based on assumptions without evidence.

Court / Authority Order and Findings

The Board of Discipline examined the complaint, documentary evidence, Board resolutions, banking records, submissions of the parties and relevant disciplinary findings. The Board observed that although multiple serious allegations were made, the complainant failed to produce conclusive documentary evidence to substantiate charges of misappropriation, forgery, coercion or misuse of digital signatures.

The Board noted that alleged WhatsApp communications and certain documents were produced after conclusion of hearings and could not be relied upon without affording opportunity of rebuttal. The Board also observed that allegations regarding bifurcation of roles, staff replacement, theft of documents and illegal business activities were not supported by corroborative evidence.

The Board further observed that although the Respondent appeared to have some involvement in financial affairs, the material on record did not conclusively establish the modus operandi of alleged fraud or deliberate professional misconduct attributable to the Respondent as a Chartered Accountant.

On appreciation of the entire record, the Board concluded that suspicion, however grave, could not substitute proof and that disciplinary liability could not be imposed in absence of cogent evidence.

Important Clarification

The Board clarified that disciplinary proceedings under the Chartered Accountants Act require clear, reliable and conclusive evidence linking the member to the alleged misconduct. Internal business disputes, financial disagreements and allegations of mismanagement, without substantiating proof of professional wrongdoing, cannot sustain a finding of “Other Misconduct”.

Final Outcome

The ICAI Board of Discipline held CA Narendra Reddy Velugoti (M. No. 228098) 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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