Karnataka High Court
B L Shastry vs The Institute Of Chartered Accountants … on 9 January, 2025
Author: Hemant Chandangoudar
Bench: Hemant Chandangoudar
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WP No. 48936 of 2013
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 9TH DAY OF JANUARY, 2025
BEFORE
THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
WRIT PETITION NO. 48936 OF 2013 (GM-RES)
BETWEEN:
B.L. SHASTRY,
S/O. LATE NEELAKANTA SHASHTRY,
AGED ABOUT 61 YEARS,
CHARTERED ACCOUNTANT,
RESIDING AT NO.22, 2ND CROSS,
VINAYAKA NAGAR, HEBBAL,
BENGALURU-24.
... PETITIONER
(BY SRI. M.V. SUNDARARAMAN, ADVOCATE)
AND:
1. THE INSTITUTE OF CHARTERED
ACCOUNTANTS OF INDIA,
ICIA BHAWAN, POST BOX NO.7100,
INDRAPRASTHA MARG, NEW DELHI-110 002,
REPRESENTED BY ITS DEPUTY SECRETARY,
Digitally signed by B
K DISCIPLINARY DIRECTORATE.
MAHENDRAKUMAR
Location: HIGH
COURT OF
KARNATAKA
DHARWAD BENCH 2. CENTRAL BUREAU OF INVESTIGATION
Date: 2025.01.16
05:40:40 +0530 BANK SECURITIES & FRAUDS CELL,
NO.16, BALLARI ROAD,
GANGA NAGAR, BENGALURU-560 032,
BY SUPERINTENDENT OF POLICE.
... RESPONDENTS
(BY SRI. SUMANA NAGANAND, ADVOCATE FOR R1;
SRI. HEDGE DEVARU GANAPATI, ADVOCATE FOR
SRI. P. PRASANNA KUMAR, ADVOCATE FOR R2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA, PRAYING TO ISSUE A WRIT
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WP No. 48936 of 2013
IN THE NATURE OF CERTIORARI QUASHING THE PROCEEDINGS
BEFORE THE INSTITUTE IN CASE NO.DD/06/2009/DC/83/2010
DATED 28.05.2012 MARKED AS ANNEXURE-M PENDING BEFORE
THE 1ST RESPONDENT.
THIS WRIT PETITION IS COMING ON FOR DICTATING
ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
ORAL ORDER
The petitioner, a registered Chartered Accountant,
challenges the proceedings bearing No. DD/06/2009/DC/83/2010,
dated 10.02.2012, on the file of Respondent No. 1 – the Institute of
Chartered Accountants of India. Through these proceedings, the
Disciplinary Committee, constituted under Section 21B of the
Chartered Accountants Act, 1949, concluded that the petitioner is
guilty of professional misconduct falling within the scope of Clauses
5, 6, and 7 of Part I of the Second Schedule to the Chartered
Accountants Act, 1949.
2. The relevant facts are recorded as hereunder:
2.1. Canara Bank, upon identifying financial irregularities in M/s
Phoenix Plastics Company related to a working capital loan obtained
from 1992 onwards, lodged a complaint with Respondent No. 2
concerning alleged fraud.
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WP No. 48936 of 2013
2.2. Following an investigation, Respondent No. 2 filed a
chargesheet against the proprietor of the company and others before the
Special Judge, CBI. Meanwhile, recovery proceedings initiated by
Canara Bank against the borrower (M/s Phoenix Plastics) in O.A. No.
77/2003 before the DRT concluded with a compromise settlement. The
loan account was closed under a one-time settlement scheme.
2.3. Subsequently, Respondent No. 2 lodged a complaint against
the petitioner with Respondent No. 1, alleging professional misconduct.
2.4. The allegations against the petitioner pertain to the issuance
of two sets of audited financial statements for M/s Phoenix Plastics
Company for the same period over six consecutive years. One set,
intended for Canara Bank, showed significant profits, while the other,
meant for the Income Tax Department, reflected substantial losses.
2.5. The petitioner participated in the inquiry initiated by
Respondent No. 1, defended himself through counsel, and submitted
relevant records.
2.6. After examining the statements of the complainant,
witnesses, and the petitioner, along with the documentary evidence,
Respondent No. 1 concluded that the petitioner was guilty of professional
misconduct. Aggrieved, the petitioner has filed this petition.
3. Sri Dhyan Chinnappa, learned Senior Counsel appearing
for the petitioner, argued that the petitioner categorically denied the
charges. He contended that the Disciplinary Committee erred in
concluding that the petitioner was guilty of misconduct based solely
on the opinion of a handwriting expert from the Government
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WP No. 48936 of 2013
Examiner of Questioned Documents. The expert, however, was not
examined, rendering the opinion devoid of evidentiary value.
3.1. The learned Senior Counsel further submitted that the
opinion could not be furnished based on photocopies of the alleged
fabricated documents. In the absence of cogent evidence to
substantiate the charges, the Committee’s conclusion was without
merit.
3.2. The learned Senior Counsel also referred to a judgment
by a coordinate bench in W.P. No. 3819/2017 (dated 10.02.2021)
involving the petitioner and the proprietor of M/s Phoenix Plastics
Company, Mr. K. Prabhakar, to support his case.
4. Per contra, the learned counsel for Respondent No. 1
argued that the opinion was based on the material on record,
including statements of the parties and the handwriting expert’s
opinion, which has evidentiary value.. It was contended that in the
absence of perversity, bias, procedural irregularities, or violation of
natural justice principles, the Committee’s findings cannot be
interfered with.
To support their argument, reliance was placed on the
following decisions:
1. Dhanraj Singh Choudhary v. Nathulal Vishwakarma
(2012) 1 SCC 741
2. State of Rajasthan v. B.K. Meena (1996) 6 SCC 417
3. M. Paul Anthony v. Bharat Gold Mines Ltd. AIR 1999
SC 1416
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WP No. 48936 of 2013
(2008) 1 SCC 650
5. Noida Entrepreneur Association v. Noida & Others
(2007) 10 SCC 385
6. National Insurance Company Ltd. v. Sunil Kumar & Ors.
(2011) SCC Online Del 1573
7. Subramani Gopalkrishnan v. The ICAI & Anr. (2011)
SCC Online Del 2490
8. Talluri Srinivas v. The ICAI & Anr. (2010) SCC Online
Del 4058
9. Indian Oil Corporation & Ors. v. Ajith Kumar Singh &
Anr. (2023) SCC Online SC 647
10. B.C. Chaturvedi v. Union of India & Ors. (1995) 6 SCC
749
11. State of Andhra Pradesh v. S. Rama Rao AIR 1963 SC
1723
5. Before proceeding further, it is necessary to examine the
provisions of the Chartered Accountants Act, 1949, under which
the Disciplinary Committee concluded that the petitioner was guilty
of misconduct.
6. Part I of the Second Schedule (See sections 21(3), 21B(3)
and 22) of the Act, 1949 reads thus –
– Professional misconduct in relation to chartered accountants
in practice:
A chartered accountant in practice shall be deemed to be
guilty of professional misconduct, if he —
(5) fails to disclose a material fact known to him
which is not disclosed in a financial statement,
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WP No. 48936 of 2013but disclosure of which is necessary in making
such financial statement where he is concerned
with that financial statement in a professional
capacity;
(6) fails to report a material misstatement known to
him to appear in a financial statement with which
he is concerned in a professional capacity;
(7) does not exercise due diligence, or is grossly
negligent in the conduct of his professional
duties;
7. After examining the arguments of the learned counsel for
the parties, the following is observed.
8. Mr. N.K. Balachandra, an ex-accountant of the firm, was
examined as a witness for the petitioner. In his statement, he
claimed that he had worked as an accountant for M/s Phoenix
Plastics Company and also managed the accounts of three other
entities owned by Mr. K. Prabhakar. He stated that the petitioner
served as the auditor for the company. He further asserted that the
petitioner neither submitted the balance sheet to Canara Bank nor
signed it. According to him, another employee, Mr. Narasimha Rao,
might have fabricated the balance sheet submitted to the bank
under the instructions of Mr. K. Prabhakar.
9. Respondent No. 2 (the complainant) alleged that the
petitioner had issued two contradictory balance sheets, enabling
the proprietor to secure a higher credit facility from the bank. The
proprietor later defaulted on repayment, causing a loss of ₹16.59
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WP No. 48936 of 2013
crore to the bank. The petitioner’s signature on the two balance
sheets for the same period was sent to a government handwriting
examiner for analysis. The examiner opined that the signatures on
the questioned documents were indeed those of the petitioner.
Additionally, the proprietor, Mr. K. Prabhakar, also confirmed that
the signature on the alleged balance sheet belonged to the
petitioner.
10. The Committee, after reviewing the handwriting expert’s
opinion, noted that the signatures on both balance sheets matched
those of the petitioner. Furthermore, the petitioner did not lodge
any complaint with the police or other authorities, even after
allegedly discovering that his signature had been forged. He also
failed to provide substantial evidence to refute the expert’s opinion.
11. The Committee considered the statement of Mr. K.
Prabhakar, dated 2.6.2004, wherein he admitted that false balance
sheets were submitted to the bank to secure a higher credit limit.
He also stated that the inflated figures in the balance sheets were
managed with the petitioner’s involvement.
12. The petitioner also submitted from Mr.K Prabhakar Rao
dated 14.11.2011, wherein he has reaffirmed that:
“The Balance Sheet and Profit & Loss Account have
been filed earlier for each of these years before the
submission of I.T. return. The I.T. returns show the
correct working of the Company and certified by Shri
B.L. Shastry C.A. It is obvious that the accounts
submitted to the bank for over draft facility have been
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WP No. 48936 of 2013manipulated by my two assistant Mr. Narasanna & Mr.
Balachandra.”
13. However, Respondent No. 2 failed to examine the
proprietor before Respondent No. 1 to substantiate the allegations
against the petitioner. The Committee’s opinion was based solely
on the handwriting expert’s report, which itself was derived from
photocopies of the alleged fabricated balance sheets. Moreover,
the handwriting expert was not examined to verify the authenticity
of their findings.
14. In an affidavit dated 12.03.2008 (Annexure G), Mr. K.
Prabhakar stated that the petitioner had informed him of suspicions
regarding possible manipulation of the financial statements
submitted to the bank. Upon further investigation, it was discovered
that two assistants, Mr. Balachandra and Mr. Narasanna, employed
by the proprietor, were involved in altering the projections and
forecasts. As a result, the proprietor dismissed both individuals
from service.
15. Mr. K. Prabhakar further affirmed that the petitioner was
unaware of these alterations and manipulations, acted in good
faith, and could not be held responsible. He specifically stated that
the manipulation of projections and forecasts was conducted
without the petitioner’s knowledge.
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16. The High Court of Madhya Pradesh, in Abhay Jain v.
State of Madhya Pradesh, 2018 SCC OnLine MP 1839, observed
that the reliability of handwriting expert opinions based solely on
photocopies is questionable. The court noted that such analyses
suffer from limitations, including the inability to detect fraudulent
manipulations, loss of detail in strokes, undetectable pauses,
patching, and the inability to date the document’s paper. These
factors significantly undermine the certainty and reliability of expert
opinions rendered on photocopies.
17. A coordinate Bench of this Court, in Gunashekhar N. v.
Station House Officer, Crl. P. No. 5911/2019, D.D. 10.03.2023,
opined that the opinion of a handwriting expert serves only as a
guiding factor. The court stated that the Magistrate, during the
course of trial, can independently compare signatures to determine
their authenticity. It further held that police cannot file a
chargesheet solely based on a handwriting expert’s report that
examines a certified copy of a document, as such evidence lacks
evidentiary value.
18. The principles of evidence regarding handwriting expert
opinions derived from photocopies are well established. Such
evidence is fragile and only corroborative in nature. It lacks
independent probative value and cannot form the sole basis for a
conclusion unless supported by other corroborative evidence.
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19. In this case, neither the proprietor nor the handwriting
expert was examined to verify the allegations against the petitioner
or the authenticity of the petitioner’s signatures on the alleged
documents. Consequently, there is no corroborative evidence to
support the handwriting expert’s opinion. This deficiency is
particularly significant given this Court’s earlier rulings that expert
opinions based on analyses of photocopies lack evidentiary value.
20. The precedents cited by the petitioner emphasize the
limited scope of judicial review in disciplinary proceedings. Courts
can only interfere with findings of departmental enquiries if the
findings are tainted by malice, bias, or are otherwise perverse.
However, when the findings contravene settled principles of law,
they are unsustainable and liable to be quashed.
21. Furthermore, a coordinate Bench of this Court, in W.P.
No. 3819/2017, D.D. 10.02.2021, observed that, given the
settlement reached between the borrower company and the bank,
and the fact that Spl. C.C. No. 243/2004 had remained pending trial
for 16 years without reaching finality, the alleged criminal offenses
of cheating and criminal conspiracy against the proprietor (Accused
No. 1) and the petitioner (Accused No. 5) no longer held merit.
Thus, the findings of the Disciplinary Committee, which were
rendered in violation of established principles of law governing
evidence, warrant interference by this Court.
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WP No. 48936 of 2013
Accordingly, I order the following:
ORDER
i. The petition is allowed.
ii. The impugned report of the disciplinary committee
constituted by the respondent No. 2, dated 10.02.2012
and bearing No. DD/06//2009/DC/83/2010, is hereby
quashed.
Sd/-
(HEMANT CHANDANGOUDAR)
JUDGEAC
CT:BCK
LIST NO.: 19 SL NO.: 5
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