Ca Anil Chauhan vs National Financial Reporting ...

IN THE MATTER OF: CA Anil Chauhan ...Appellant

Versus National Financial Reporting Authority ...Respondent

Present:

For Appellant : Mr. Puneet Jain, Mr. Harsh Jain & Mr. Umang Mehta, Advocates.

For Respondent : Mr. Zoheb Hossain, Mr. Vivek Gurnani, Mr. Vivek Gaurav, Ms. Abhipriya, Ms. Radhika Puri, Advocates.

ORDER

(HYBRID MODE)

25.04.2024 The Appellant CA Anil Chauhan, the sole proprietor of the

firm M/s. Anil Chauhan Associates, has filed the present Appeal under Section

132 (5) read with Section 410 of the Companies Act, 2013 against the

Impugned Order dated 5th January, 2024 bearing Order No.002/2024 passed

by the National Financial Reporting Authority (in short, NFRA)/Respondent).

2. Heard the Counsel for the parties and perused the records made

available.

Company Appeal (AT) No. 98 of 2024

3. It has been brought out that the Impugned Order has been passed by

NFRA in respect of statutory audit of SEYA Industries Ltd. (SIL/Company) for

the financial years i.e. 2018-2019 and 2019-2020. The Appellant was

appointed as a statutory auditor of company for financial year - 2018-2019

and 2019-2020 and as such he was responsible for audit of the said company.

4. We note that Securities and Exchange Board of India (in short, SEBI)

vide their letter dated 28th March, 2023, issued a letter to NFRA under subject

"SEBI Order dated 20th March, 2023 in matter of SEYA Ltd." where the SEBI

indicated that they have investigated the matter of SEYA Industries Ltd. and

passed the Order on 20th March, 2023 in the matter of SEYA Industries Ltd.

The SEBI has stated in their letter dated 28th March, 2023 that since the

matter was relating to non-compliance with the applicable accounting

standards by the Company and "the conduct and non-cooperation of

Auditor", the case has been referred to NFRA for necessary action.

5. We further note that based on SEBI letter dated 28.3.2023, NFRA issued

the letter dated 27.4.2023 seeking various files and information in respect of

audit of SEYA Industries Ltd. for the Financial Year 2018-2019 and 2019 -

2020 within 15 days of the issue of the letter duly signed by authorized person

of the audit and its copy was also e-mailed to the Appellant.

Company Appeal (AT) No. 98 of 2024

6. We further note that the Appellant did not reply and did not furnish any

information to NFRA and therefore NFRA issued another letter to the Appellant

on 23rd May 2023 with reminder request to furnish the information. In this

letter, they also indicated that "despite multiple attempts to contact you

through your mobile no. +919987959907, we have not received any response

from your side" and asked the information from the Appellant by 31st May,

2023. We note that the NFRA letter clearly mentioned that failure in this regard

shall be treated as "non-cooperation" with the Authority asking suitable

disciplinary action including further proceeding in the case on the basis of

material on record. Incidentally, the same letter was sent on two e-mails

addressed to the Appellant namely - ca.anilchauhan77@gmail.com and

ca.anilchauhan@gmail.com

7. We note that even at that stage, the Appellant did not even sent any reply

to NFRA and therefore NFRA in the fresh e-mail dated 30th June, 2023 sent to

the Appellant on e-mail id - ca.anilchauhan77@gmail.com and asked the

Appellant to submit the record of documents by 4.7.2023 and the said letter

clearly indicated that in case of failure on the part of the Appellant to submit

the record information, it shall be construed that the Appellant has not

maintained the audit files as per SA 230 and shall attract the required

disciplinary action.

Company Appeal (AT) No. 98 of 2024

8. It has been brought out that the Appellant still did not furnish any

information and therefore NFRA after waiting for almost three months, issued

the Show Cause Notice vide speed post dated 22nd September, 2023 which was

also sent on e-mail to the Appellant. The Show Cause Notice contained the

'Article of Charges of professional misconduct' by the audit firm and the

Appellant - Mr. Anil Chauhan as the engagement partner. The details of the

charges were included in the Show Cause Notice and the Appellant was asked

to show cause by 22.10.2023 vide provision of Section 232(4) of the Companies

Act, 2013 read with relevant Rules made thereunder as to why action should

not be taken against the firm and the Appellant. The said show cause notice

was signed by the 'Executive Body', NFRA which included the Chairperson and

two fulltime Members of NFRA.

9. We observe that since no Reply was received, it has been pleaded by

NFRA before us that based on the information available with NFRA and based

on the complaint of SEBI, NFRA issued detailed Impugned Order No.002 of

2024 dated 5th January, 2024 under which, after proving the charges of

professional misconduct by the Appellant, NFRA imposed a penalty of Rs.20

lakhs on the Appellant and also debarred the Appellant as well as audit firm for

10 years from being appointed as an Auditor or internal auditor or from

undertaking any audit in respect of financial statement for internal audit of

functions and activities of any company or body corporate.

Company Appeal (AT) No. 98 of 2024

10. The Appellant pleaded that it did not receive any information since he

moved to Nepal along with his family in the month of January, 2021 and in

this respect stated that he obtained the PAN Card from the Government of

Nepal since he started working as Supply Agent Consultant in Nepal.

11. The Appellant claimed that during his pleading that he has worked very

sincerely during course of Audit of the company and followed all accounting

standards and maintained proper record, however, since he was in Nepal, he

did not receive any letter or speed post from the NFRA. It is the claim of the

Appellant that he could not open his e-mail since he was in Nepal and for the

same reason being in Nepal, his mobile also remained switched off.

12. The Appellant pleaded that NFRA violated the principle of natural justice

as without hearing him, the impugned order was passed against him.

13. It is the case of the Appellant that although he was residing in Nepal, he

came to know about the punishment contained in the impugned order only

when one of his acquaintant informed him about the media report about

imposition of penalty and debarment and therefore aggrieved by Impugned

Order dated 5th January, 2024, he has filed the present Appeal.

14. The Appellant submitted that the only basis for NFRA to pass the

Impugned Order was that Appellant did not respond to the various letters and

Company Appeal (AT) No. 98 of 2024 show cause notice issued by the NFRA and wrongly assumed that the

Appellant did not comply with the standard of audit (SA 230).

15. The Appellant submitted that NFRA was well aware that the Appellant

was in Nepal as SEBI in its letter dated 20th March, 2023 to NFRA referred e-

mail written by the Appellant to SEBI stating that he was residing in Nepal. It

is further the case of the Appellant, that although not accepting but even

presuming that there was fault on the part of the Appellant, NFRA imposed

"maximum penalty which is very harsh and has not followed principle of

proportionality" as per the Judgement of this Appellate Tribunal in the Order of

"Mr. Harish Kumar T.K. vs. NFRA, in Company Appeal (AT) No.68 of

2023." and therefore requested this Appellate Tribunal by setting aside the

Impugned Order.

16. We observe that SEBI initiated action against SEYA Ltd. and found

irregularity, especially, in non-compliance of accounting standards by the

Company. It the significant to note that the SEBI categorically highlighted the

conduct and non-cooperation of the auditor with SEBI in this regard.

16. We also note that the NFRA gave all possible opportunities to the

Appellant to submit the relevant audit files and the documents in order to

examine the allegations. However, despite several letters, as discussed in

earlier paragraph, the Appellant did not Reply or cooperated with NFRA. Here

Company Appeal (AT) No. 98 of 2024 we also note that NFRA not only wrote letters and speed post but also

continuously sent on the emails of the Appellant and also tried several times on

the mobile number of the Appellant. However, the Appellant did not respond to

any of e-mails or calls.

17. Only plea of the Appellant in his defence is that he relocated himself in

Nepal in 2021 and therefore he could not receive any letters and also since in

Nepal his telephone was not working and his e-mail was also not accessible. In

this regard, it is interesting to find that as a defence he has quoted SEBI's

letter according to which the Appellant claims in the present Appeal that he

has replied to SEBI in 2021 stating that he was residing in Nepal. We quote the

exact submissions made by him in writing in the Appeal which reads as

under:-

"A. BECAUSE the impugned order has been passed solely on account of the fact that the Appellant did not respond to the letters and SCN issued by the Respondent, and the respondent has assumed that the Appellant did not maintain any documents in violation of SA 230. or that he was unwilling to cooperate with NFRA.

B. BECAUSE the Appellant had conducted the audit on the basis of details and documents as available with the Company by duly following the laid down procedure and practice as per the standards laid down by the ICAI. It is submitted that the Appellant completed the audit assignment after a thorough

Company Appeal (AT) No. 98 of 2024 process before forming an audit opinion and prepared his report accordingly. It is submitted that in Para 9 of the SCN, it is assumed by the Respondent that since the Appellant did not submit the Audit Files to the Respondent, the same were not in existence and is a violation of SA 230 and therefore, prima facie a negligence is allegedly proved. It is submitted that all the relevant audit files and records are maintained by the Appellant as per the guidelines however, the Appellant was unable to submit the same as he was totally unaware of the t proceedings inasmuch as he had shifted along with his family to Nepal 2021 itself, where, neither his phone is working nor could he be reached at his Mumbai address as the same remained locked. It is submitted that even today, the Appellant is ready and prepared to submit the required documents to the Respondent.

C. BECAUSE the Appellant- CA Anil Chauhan relocated with his family to Nepal in the month of January 2021 itself and was not residing at the given address in Mumbai. IT IS SUBMITTED THAT THE SAME WAS WITHIN THE KNOWLEDGE OF THE RESPONDENT AS WELL AS SEBI AS IS EVIDENT FROM THE LETTER DATED 28.03.2023 ISSUED BY SEBI TO THE RESPONDENT WHICH REFERS TO E-MAILS WRITTEN BY THE APPELLANT TO SEBI IN 202L STATING THAT HE WAS RESIDING IN NEPAL.

D. BECAUSE the Respondent claims to have successfully delivered the letters and SCN to the address of the Appellant in Mumbai by way of speed-post. However, it is submitted that

Company Appeal (AT) No. 98 of 2024 since the Appellant stays in Nepal, the said property remains locked and the letter/ SCN could not have been received by him. The Respondent may be put to strict proof of the same. It is further submitted that even if received by the security or a neighbour, the Appellant has never been informed of the same.

E. BECAUSE the Respondent has claimed that despite multiple attempts, the mobile number of the Appellant remained unreachable. It is submitted that the mobile number remains switched off inasmuch as the same cannot work in Nepal and as a consequence. the Appellant is not reachable on his mobile.

F. BECAUSE the Appellant was not continuing with his work actively as a CA and had begun work as a supply chain consultant in Nepal, the Appellant did not access his e-mail and was therefore unaware of the letters/ SCN.

G. BECAUSE the Appellant was unable to respond to the letters for the reasons mentioned above and the same was inadvertent and not deliberate or willful. It is submitted that on account of the peculiar circumstances stated above, the Appellant remained unaware of the letters and can provide the Respondent with the requisite documents.

H. BECAUSE without prejudice to the aforesaid. it is submitted that the penalty in the present case is wholly excessive and arbitrary as it imposes the highest prescribed penalty for debarment without any reasons or satisfaction. It is submitted that the statutory scheme of Section 132(4)(c) of the Companies

Company Appeal (AT) No. 98 of 2024 Act grants the Respondent with ample discretion with respect to imposition of penalty. It is submitted that given the ample discretion available with the Respondent, it must act in a reasonable manner and not impose the highest permissible penalty without any basis or reasoning. In the facts of the present case, the Respondent merely mentions that the charges of professional misconduct stand proved and further that the power of imposition of penalty exists with the respondent. however, there is no discussion as to how the 'appropriate' penalty of 'maximum' has been arrived at and fails the test of proportionality."

[Emphasis supplied]

18. It clearly indicates the conflicting submissions made by the Appellant. At

one hand, the Appellant claims that from Nepal he replied to SEBI on E-mail

but on the other hand he claims that he could not open his e-mail in Nepal and

therefore could not reply to NFRA. This statement and the submission is just

not acceptable.

19. In the present era of technology and modern communications, where e-

mails are accessible across the globe and on any instrument including mobile

and laptops, it is extremely difficult for anyone to believe such submissions of

the Appellant and therefore we reject such submissions of the Appellant and

therefore we reject such submissions of the Appellant.

Company Appeal (AT) No. 98 of 2024

19. Similarly, the grounds that his mobile was not accessible being in Nepal,

is also not convincing.

20. We find it rather strange that during the entire process of the

disciplinary proceedings initiated by NFRA through various modes of

communications and for considerable period of time, the Appellant has claimed

that he did not notice anything or anything was brought to his notice by

anyone but immediately after the issue of the impugned order dated 5th

January, 2024, someone informed him about the imposition of penalty by

NFRA on him and he filed the present Appeal in February, 2024. Thus, such

bogus claims of Appellant regarding non-accessibility and non-receipt of

communications and therefore not replying to NFRA cannot be accepted.

21. NFRA during pleading has confirmed that they have followed the due

process of law and principles of natural justice and also examined all records

and came to conclusion regarding establishing the various charges against the

Appellant being professional misconduct in accordance with the law and

thereafter passed the impugned order imposing the highest penalty since the

Appellant refused to cooperate with NFRA and incidentally the Appellant also

did not cooperate with SEBI which was communicated to NFRA. We tend to

agree with the submissions made by the NFRA and therefore without going any

further details, we do not find any error in the impugned order.

Company Appeal (AT) No. 98 of 2024

22. This Appellate Tribunal asked the Appellant about his present

nationality, passport status and Indian PAN. The Appellant conceded that he

continues to be Indian citizen and has Indian passport and PAN. Therefore, the

various pleadings regarding his immigration to Nepal and consequently not

knowing what was happening in India by his earlier professional deeds, are not

found convincing.

22. Only another point raised by the Appellant was regarding quantum of

penalty and cited the Judgement of this Appellate Tribunal in the matter of Mr.

Harish Kumar (supra).

23. It is true that the principles of proportionality is relevant for any

Authority like NFRA, in deciding quantum of punishment in the disciplinary

proceeding. It is well settled principle of law that judicial review, generally

speaking, is directed against the "decision making process". In other words, the

type and the quantum of penalty is by and large remains within the

jurisdiction of the authority who has been vested with powers as in case of

NFRA in terms of Companies Act, 2013. It is true that the punishment should

be reasonable keeping in view the facts and circumstances of each case and

the adverse impact in particular cases should not be vindictive or unduly

hardship. The penalty should not be in a manner which reflects any bias on

the part of such authority. We feel that although judicial review is possible and

is available to the higher Courts, on all the aspect of NFRA including quantum

Company Appeal (AT) No. 98 of 2024 of punishment based on "Doctrine of Proportionality" which otherwise is within

the domain of the Authority, however, for us, to interfere in the Impugned

Order, there have to be genuine grounds for such cause. We do not find any

reasonable cause of the Appellant in the present case.

24. We have consciously and carefully taken into consideration the entire

series of events leading to the passing of the present impugned order by NFRA

on 5th January, 2024. We also note that initially SEBI investigated and

concluded its investigation against the company and also made adverse

comments about the Appellant about his conduct and non-cooperation with

SEBI. We also note that NFRA followed all laid down procedure including

principles of natural justice and only after complete non-cooperation of the

Appellant even in furnishing the Reply, NFRA based on its own investigation

gave the penalty.

25. We note that the penalty imposed on the Appellant is the maximum

penalty which NFRA was entitled to i.e. Rs.20 lakhs and 10 years debarment

on the Appellant for conducting any audit work. However, it is also fact that

the Appellant chose deliberately to avoid any submission of record and NFRA

did not have any benefit of the defence of the Appellant by way of the records, if

any, maintained by the Appellant to justify compliance of relevant standards

like SA 230.

Company Appeal (AT) No. 98 of 2024

26. In our earlier Order, in case of Mr. Harish Kumar (supra), we have gone

in detail about the various aspects including the need for the Chartered

Accountant to be conscious keeper and cannot become part of any direct or

indirect wrong doings by the companies in non-compliance of the laid down

accounting and auditing standards which may result into incorrect, misleading

and sometimes fraudulent financial statements. We have also noted that it is

on the faith of the certified financial statements by the Chartered Accountants,

various stakeholders including the Government, bankers and public etc. decide

about their interaction or participation in the affairs of the Company. In this

regard, we note that the Appellant could not prove that he applied any of the

standards in Audit work. We note the conduct of the Appellant was for absolute

non-cooperation and non-submissions of any documents whatsoever to NFRA.

27. The Appellant is eligible for relief and concessions based on principle of

proportionality, in case he is able to satisfy the concerned authority like NFRA

herein, about his due diligence and not otherwise and in absence of any

submission or interaction with NFRA the Appellant is well aware of the

consequences he has to face. The Appellant, being Chartered Accountant, is

well qualified and understands the legal implications of his conduct.

28. In view of our discussion, we do not find any illegality in the Impugned

Order. We will restrain ourselves in interference regarding quantum of the

punishment, since the Appellant himself was not compliant, non-cooperative,

Company Appeal (AT) No. 98 of 2024 evasive and has chosen to take misleading, irrational and unbelievable

defences even before this Appellate Tribunal.

29. In fine, we do not find any error in the Impugned Order dated 5th

January, 2024 passed by NFRA. The Appeal, devoid of any merit, is dismissed.

No cost.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical) Rekha/Ravi

Company Appeal (AT) No. 98 of 2024