Facts of the Case

A complaint was filed by Ms. Sonia Bawa against CA Rajeev Singhi alleging professional misconduct in relation to audit of the partnership firm M/s Ikaum Impex for Financial Year 2012–13. The complainant and Mr. Sukhwinder Singh were partners of the firm with profit-sharing ratio of 80% and 20% respectively as per the original Partnership Deed dated 07 October 2011.

The complainant alleged that while she was abroad, the Respondent conspired with the other partner and prepared an audited balance sheet dated 25 June 2013 reversing the profit-sharing ratio to show her share as 20% and that of Mr. Sukhwinder Singh as 80%, without her consent. It was further alleged that such audited financial statements were submitted to State Bank of India instead of a provisional balance sheet earlier approved by her.

The complainant also alleged that the Respondent wrongly certified the net worth of Mr. Sukhwinder Singh at ₹8.49 crore as on 31 January 2014, despite a Canara Bank sanction letter dated 27 March 2012 reflecting his net worth at only ₹11.80 lakh, thereby facilitating wrongful loss to the complainant.

Issues Involved

Whether the Respondent conspired with one partner of the firm to alter profit-sharing ratios without consent, whether the audited financial statements were prepared and submitted with malafide intent, and whether issuance of the net worth certificate constituted “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Petitioner’s Arguments

The complainant contended that the Respondent deliberately altered the profit-sharing ratio in the audited financial statements to her detriment, submitted the same to banks, and issued an inflated net worth certificate without proper basis. It was argued that such acts amounted to conspiracy, lack of due diligence, and professional misconduct.

Respondent’s Arguments

The Respondent denied all allegations and submitted that the profit-sharing ratio was altered pursuant to a duly executed Addendum to the Partnership Deed dated 06 March 2013, which was signed and witnessed by the complainant herself. He pointed out that the addendum changed profit sharing from 80:20 to 20:80 and remuneration from 50:50 to 20:80, and that the complainant herself filed her Income Tax Return for AY 2013–14 on the basis of this addendum.

Regarding net worth certification, the Respondent submitted that the certificate was issued on the basis of documents and valuation reports produced by Mr. Sukhwinder Singh, with a clear disclaimer, and that the certificate was for a different date and purpose than the Canara Bank sanction letter relied upon by the complainant.

Court / Authority Order and Findings

The Board of Discipline examined the Partnership Deed dated 07 October 2011, the Addendum dated 06 March 2013, audited financial statements, Form 3CD, Income Tax Returns, and bank-related documents. The Board noted that the addendum altering profit-sharing and remuneration clauses was duly signed by the complainant and formed part of the firm’s records. The Board observed that documents such as partnership deeds and addenda must be read as a whole and cannot be selectively accepted or rejected.

The Board further noted that the audited financial statements for FY 2011–12 were authenticated by another Chartered Accountant and also reflected the complainant’s share as 80%, supporting the Respondent’s submission that changes occurred only after execution of the addendum. The complainant failed to produce any convincing evidence to establish conspiracy or malafide intent on the part of the Respondent.

With respect to the net worth certificate, the Board observed that two certificates were issued at different points of time for different purposes, and that the Respondent clearly stated that the certificate was based on documents produced by the individual concerned. No evidence was brought on record to show that the Respondent knowingly issued a false or misleading certificate.

Important Clarification

The Board clarified that where changes in partnership profit-sharing are effected through a duly executed addendum and acted upon by the parties, including filing of Income Tax Returns, an auditor cannot be held guilty merely because one partner later disputes the arrangement. Net worth certificates issued with clear disclaimers and based on documents provided do not amount to professional misconduct in absence of proof of falsity or malafide intent.

Final Outcome

The ICAI Board of Discipline held CA Rajeev Singhi (M. No. 081892) 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.

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