Facts of the Case

A complaint was filed by Shri H. G. Nagaraju, Bengaluru, against CA Lingaraj M. Pujari alleging professional misconduct in relation to issuance of a Certificate of Expenditure dated 31 January 2017. The complainant was an Additional and First Director of M/s Robust Materials Technology Pvt. Ltd. until October 2016 and alleged that after he highlighted instances of mismanagement, he was removed from directorship.

It was alleged that the Respondent issued a Certificate of Expenditure covering Financial Years 2011–12 to 2016–17 certifying cash and bank payments not supported by bills, vouchers or approvals, including repayment of loans allegedly without Board resolutions. The certificate was addressed to “Whomsoever It May Concern” and was allegedly used by other directors to justify mismanagement and to counter allegations raised by the complainant.

Issues Involved

Whether issuance of a Certificate of Expenditure certifying unsupported expenditures and repayments without adequate verification, and addressing the certificate to unidentified users, 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 contended that the Respondent issued a misleading certificate without verifying supporting documents, vouchers or approvals, thereby assisting other directors in covering up financial mismanagement. It was argued that issuance of such a certificate, addressed to unidentified users, showed lack of due diligence, independence and professional care.

Respondent’s Arguments

The Respondent submitted that the certificate was issued based on an engagement letter and within the scope specified therein. He contended that certification work is different from statutory audit and that the certificate only reported expenditures which were not supported by bills or approvals, without commenting on genuineness. The Respondent argued that addressing the certificate as “Whomsoever It May Concern” did not make it misleading and that there was no intention to misrepresent facts.

Court / Authority Order and Findings

The Board of Discipline examined the certificate, annexures, engagement letter, financial statements and submissions of the parties. The Board observed that the Respondent was appointed specifically to issue a certificate showing expenditures not supported by bills or approvals for Financial Years 2011–12 to 2016–17.

The Board noted that although certification work differs from audit, a Chartered Accountant is still required to exercise due care, skill and professional judgment. The Board observed that the certificate was addressed to unidentified users and that the annexures indicated that most of the disputed entries related to allegations raised by the complainant.

The Board held that issuing a certificate addressed to “Whomsoever It May Concern”, without clearly identifying the user and purpose, and without adequate safeguards, amounted to issuance of an unbiased certificate and showed lack of due diligence. The Board further held that the Respondent failed to perform a thorough and careful examination before issuing the certificate and that such conduct was unbecoming of a Chartered Accountant.

Important Clarification

The Board clarified that even for certification assignments, Chartered Accountants must exercise due diligence, identify the intended user and purpose of the certificate, and ensure that the certification is not misleading or capable of misuse. Issuing certificates addressed to unidentified users without adequate safeguards constitutes professional misconduct.

Final Outcome

The ICAI Board of Discipline held CA Lingaraj M. Pujari (M. No. 225579) 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 June 2023, the Board reprimanded the Respondent.

Source Link- https://www.mytaxexpert.co.in/uploads/1768895329_ShriH.G.NagarajuvsCA.LingarajM.PujariM.No.225579Bengaluru.pdf

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