Partha Ghosh vs. ICAI (Bombay High Court)

Disciplinary action by ICAI in breach of natural justice is invalid

In October 2007, Disciplinary proceedings were initiated against two partners of M/s Pricewaterhouse (PWC) for alleged professional and other misconduct in conducting the statutory audit of Global Trust Bank. The proceedings were based on the findings in the Special Audit report and the Annual Financial Inspection of the RBI. Though several hearings were conducted by the Disciplinary Committee, no progress was made. On 23rd March, 2009, the hearing was held before a newly constituted Disciplinary Committee. The new Committee decided to hold de novo hearing. In that proceeding, the accused auditors pointed out that despite summons being issued to the RBI, the RBI and its witness had failed to produce relevant documents/ records /working papers, etc. in support of the AFI report. The Committee was requested to ensure production of documents. However, the Committee instead of acceding to the auditors’ request and directing the ICAI’s witness to lead evidence as per the well established procedure called upon the auditors to make their submissions and meet the charges contained in the show cause notice. No procedure as such was clarified. A handwritten application for an adjournment was submitted. The members of the Committee rejected the said application by an oral order. However, a transcript of the order was not provided to the auditors and even a short adjournment was declined and the Committee declared that the proceedings were closed. This was challenged by the auditors and the ICAI contended that the challenge was “frivolous” and “premature”. HELD, rejecting the stand of the ICAI that:

(1) The ICAI has the power to direct the name of a member to be removed from the Register for “misconduct” and consequently the member would lose his certificate and the right to practice. This is a matter having serious civil consequences and thus the power can only be exercised in accordance with law and the rule of fairness. Fairness should not only appear to have been done but should actually be done in such proceedings. To many a man, his professional reputation is his most valuable possession. It affects his standing and dignity among his fellow members in the profession and guarantees the esteem of his clientele;

(2) The law requires the principles of natural justice to be followed even in pure administrative action. It is a fundamental principle of fair hearing incorporated in the doctrine of natural justice and as a rule of universal obligation, that all administrative acts or decisions affecting the rights of the individual must comply with the principles of natural justice and the person or persons sought to be affected adversely must be granted not only an opportunity of hearing but a fair opportunity of hearing. This is all the more required when the reputation of a professional is involved and the damages may be irreparable and irretrievable. It is mandatory for the Disciplinary Committee to adhere to the principles of natural justice;

(3) On facts, there was nothing to show why the witnesses who were present before the previous committee were not called again before the new Committee. It was also not clear why the auditors were denied the opportunity to cross examine the witnesses of the Special Auditor and RBI officers whose report was the sole basis for issuance of charge sheet;

(4) As the charge sheet was entirely based upon the AFI report and the statutory Audit Report, the request for cross examination of the witnesses who had prepared the report could not be termed as unjustified but would squarely be in conformity with the right of fair defense;

(5) It was also strange that no orders on the application had been passed and placed on record of the file, though it was alleged to have been rejected by passing an oral order or direction. The proceedings before the Committee were quasi judicial in nature and the manner in which the proceedings took place on March, 2009 were not in consonance with the statutory provisions and the settled cannons of principles of natural justice. The Disciplinary Committee was required to pass reasoned orders on such matters.