Facts of the Case

A complaint was filed by CA Ashwani Kumar Agarwal against CA Sudhir Kumar Agarwal in relation to a proposed takeover of M/s Abhinav Leasing and Finance Limited. The Company was controlled by the Respondent’s elder brother Shri Atul Agarwal and his wife Mrs. Mamta Agarwal. According to the complainant, the Respondent represented that the Company was free from litigation and illegal activities and persuaded him to acquire control of the Company to raise funds for his clients.

A Memorandum of Understanding dated 18 February 2017 was executed between the complainant and Shri Atul Agarwal for transfer of 99% shareholding for a consideration of ₹5.50 crore. The complainant alleged that ₹30 lakh was transferred to the Respondent’s bank account as advance towards the takeover, on assurance that statutory permissions would be obtained.

The complainant was appointed as an Additional Director of the Company on 27 February 2017 and resigned shortly thereafter on discovering that the Company was under Graded Surveillance Measure (GSM) of BSE due to dubious activities. He alleged that his resignation was not uploaded, that a forged resignation letter was later uploaded with a different date and signature, and that the Respondent conspired with family members to cheat him and cause wrongful loss of ₹30 lakh.

Issues Involved

Whether receipt of ₹30 lakh by the Respondent constituted dishonest advance towards a takeover deal or was professional fees for services rendered, whether the Respondent played any role in cheating or causing wrongful loss to the complainant, and whether alleged uploading of forged resignation letters amounted to “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Petitioner’s Arguments

The complainant alleged that the Respondent induced him into the takeover by false representations, received ₹30 lakh as advance, and thereafter participated in suppression of material facts relating to GSM status and money laundering. It was further alleged that the Respondent was involved in uploading a forged resignation letter on BSE/ROC portals to cover up the fraud and deny the complainant his rightful claim.

Respondent’s Arguments

The Respondent submitted that the complainant had engaged him for professional services relating to due diligence, documentation, meetings and liaison work for the Company and had agreed to pay professional fees of ₹30 lakh. He contended that the payments of ₹20 lakh and ₹10 lakh were made towards professional fees, not as advance, and that he raised an invoice and filed a notarised affidavit confirming that the amount was disclosed as professional income in his Income Tax Return for Financial Year 2016–17.

The Respondent further submitted that the MoU did not mention any payment to him, that he was merely a witness to the MoU, and that he had no role in uploading the complainant’s resignation or forging any document. He also pointed out that the complainant failed to appear before the Board despite multiple opportunities and did not rebut the documentary evidence submitted by him.

Court / Authority Order and Findings

The Board of Discipline examined the MoU dated 18 February 2017 and observed that the Respondent was only a witness and that there was no reference to payment of any amount to him under the takeover agreement. The Board noted that the Respondent produced a copy of the invoice raised on the complainant and a notarised affidavit stating that ₹30 lakh was received as professional fees and duly declared in his Income Tax Return, along with proof of RTGS payments.

The Board further noted that despite being served with copies of the invoice and affidavit, the complainant did not file any response or produce evidence to establish that the amount was paid as advance towards the takeover. The Board also observed that no documentary evidence was brought on record to establish the Respondent’s role in uploading or forging the complainant’s resignation letter.

On overall appreciation of the material, the Board held that the complainant failed to establish cheating, wrongful loss or professional misconduct on part of the Respondent. Mere suspicion and allegations, without proof, were held insufficient to sustain disciplinary action.

Important Clarification

The Board clarified that where a Chartered Accountant substantiates receipt of money as professional fees through contemporaneous documentation, disclosure in tax returns and affidavits, the burden shifts to the complainant to prove otherwise. Allegations of forgery or conspiracy must be supported by clear documentary evidence establishing the member’s direct involvement.

Final Outcome

The ICAI Board of Discipline held CA Sudhir Kumar Agarwal (M. No. 088583) 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 02 November 2022, 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.

Source Link -https://www.mytaxexpert.co.in/uploads/1768895195_CA.AshwaniKumarAgarwalM.No.93550vsCA.SudhirKumarAgarwalM.No.088583NewDelhi.pdf

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