Facts of the Case

A complaint was filed by Mr. Dayalan, Proprietor of Sri Ragavendra Agencies, Chennai, against CA Sanjay Kumar Ruia, Navi Mumbai. The complainant had outstanding dues of ₹1.76 crores from M/s Gangotri Enterprises Limited (GEL). The Respondent was engaged as a professional representative to represent the complainant before the National Company Law Tribunal (NCLT) in insolvency proceedings against GEL.

A Memorandum of Understanding dated 22 March 2018 was executed, under which the Respondent was authorised to represent the complainant before NCLT and recover dues. During the course of proceedings, settlement discussions took place and GEL issued post-dated cheques aggregating ₹2.13 crores. It was alleged that the Respondent collected and withheld these cheques instead of handing them over to the complainant, raised excessive and contingent professional fees, and entered into settlement arrangements without proper authority.

Issues Involved

Whether the Respondent withheld settlement cheques belonging to the client, acted beyond the authority granted under the Memorandum of Understanding, charged professional fees linked to outcome, and whether such conduct amounted to “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Complainant’s Arguments

The complainant contended that the Respondent retained post-dated cheques issued by GEL without justification and refused to hand them over unless disputed professional fees were paid. It was argued that the Respondent acted beyond his mandate by entering into settlements and negotiating payments without authority.

The complainant further alleged that the Respondent raised fees based on percentage of recovery, which is prohibited, and fabricated documents to justify retention of cheques. Due to the Respondent’s conduct, the complainant claimed to have suffered financial loss and delay in recovery.

Respondent’s Arguments

The Respondent contended that he acted strictly in accordance with the Memorandum of Understanding and instructions received from the complainant. He submitted that GEL had insisted on issuance of a No Claim Certificate before release of cheques and that the complainant failed to provide the same.

The Respondent further contended that professional fees were agreed upon contractually, that he had rendered substantial services before NCLT, and that retention of cheques was justified to safeguard his professional dues. He denied allegations of misconduct and asserted that the dispute was purely contractual in nature.

Court / Authority Order and Findings

The Board of Discipline examined the Memorandum of Understanding, settlement letters, bank cheques, correspondence, NCLT records and submissions of the parties. The Board observed that the Memorandum of Understanding clearly defined the scope of authority of the Respondent and did not authorise him to withhold client funds or settlement cheques.

The Board noted that the Respondent retained cheques issued in favour of the complainant’s firm on the ground of non-payment of fees, which was impermissible. The Board further observed that charging fees linked to outcome or recovery amounts to contingent fees, which is prohibited under professional ethics.

The Board held that a Chartered Accountant cannot exercise lien over client funds or documents for recovery of fees and must seek legal remedies if fees remain unpaid. Acting beyond authority and withholding settlement instruments was held to be grossly negligent and unbecoming of a Chartered Accountant.

Important Clarification

The Board clarified that Chartered Accountants acting as professional representatives must strictly operate within the authority granted by clients. Retention of client funds or instruments for recovery of fees and charging contingent fees is prohibited and constitutes professional misconduct.

Final Outcome

The ICAI Board of Discipline held CA Sanjay Kumar Ruia (M. No. 046453) guilty of “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22. In exercise of powers under Section 21A(3) of the Act, by order dated 22 May 2023, the Board directed removal of the name of the Respondent from the Register of Members for a period of three (3) months and imposed a monetary penalty of ₹1,00,000 (Rupees One Lakh only).

Source Link- https://www.mytaxexpert.co.in/uploads/1768820839_Mr.DayalanChennaivsCA.SanjayKumarRuiaM.No.046453.pdf

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