Facts of the Case

A complaint was filed by Shri Rajender Kumar Goel, Director of M/s R.K. Silk Mills (India) Ltd., against CA Sanjay Kumar Singhal, the statutory auditor of the company for Financial Years 2005–06 to 2014–15. The complainant alleged that although the respondent audited the financial statements for Financial Years 2013–14 and 2014–15, he did not provide the audited financial statements and audit reports to the company despite repeated reminders.

It was further alleged that the respondent failed to file Form ADT-3 with the Registrar of Companies within 30 days of resignation, thereby preventing the company from appointing another auditor. The complainant contended that such conduct caused hardship to the company and amounted to professional misconduct.

Issues Involved

Whether withholding of audited financial statements for non-payment of professional fees and failure to file Form ADT-3 within statutory time after resignation constituted “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Petitioner’s Arguments

The complainant submitted that the respondent deliberately withheld the audited financial statements of the company for Financial Years 2013–14 and 2014–15 to pressurise the company for payment of fees and failed to file Form ADT-3 after resignation, thereby stalling appointment of a new auditor. It was argued that a Chartered Accountant has no lien over client documents and cannot withhold audit reports for non-payment of fees.

Respondent’s Arguments

The respondent submitted that the financial statements had been audited and were eventually provided to the company and that delay occurred due to non-payment of audit fees. He contended that the matter was contractual in nature and denied any intention to cause obstruction. The respondent did not appear before the Board at the stage of hearing on punishment despite due service of notice.

Court / Authority Order and Findings

The Board of Discipline examined the facts and documents on record. The Board noted that the audited financial statements for Financial Years 2013–14 and 2014–15 were provided to the company only after filing of the complaint with the Disciplinary Directorate. Referring to the Ethical Standard Board clarification, the Board observed that a Chartered Accountant cannot exercise lien over client documents or withhold audit reports for non-payment of professional fees.

The Board further noted that the respondent accepted full and final audit fees on 02 April 2017 and resigned from the auditorship on 18 March 2017, but failed to file Form ADT-3 with the Registrar of Companies within 30 days as mandated under Section 140(2) of the Companies Act, 2013. Such failure was held to be deliberate and intended to stall appointment of a new auditor.

The Board concluded that withholding of audited financial statements and failure to file Form ADT-3 constituted conduct unbecoming of a Chartered Accountant and amounted to “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Important Clarification

The Board clarified that non-payment of audit fees does not entitle a Chartered Accountant to withhold audited financial statements or audit reports. The proper course in case of non-payment is resignation or discontinuance of assignment, but not retention of client documents or reports. Filing of Form ADT-3 within statutory time after resignation is mandatory and essential to facilitate appointment of a new auditor.

Final Outcome

The ICAI Board of Discipline held CA Sanjay Kumar Singhal (M. No. 085931) guilty of “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949. In exercise of powers under Section 21A(3) of the Act, by order dated 2 June 2022, the Board reprimanded the Respondent and imposed a monetary fine of ₹50,000 (Rupees Fifty Thousand only), payable within 60 days from receipt of the order.

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