MMCB Scam: Gujarat High Court Rejects ICAI's Proposal To Debar CA For 5 Years For Alleged Misconduct Citing Non-Application Of Mind

The Gujarat High Court rejected a 20-year-old recommendation made by the Institute of Chartered Accountants of India's Council to remove a chartered account from membership for 5 years, who was appointed as central registrar of a cooperative bank and was accused of misconduct in connection with the 2001 alleged MMCB scam. 

The court was hearing a 2005 reference by the Council of the ICAI which had recommended the removal of one SN Valera for five years. 

The respondent was empaneled by the Central Registrar of the Madhavpura Mercantile Cooperative Bank (MMCB) Ltd., registered under the Multi State Cooperative Societies Act. It was alleged that there was huge scam in 2001, known as the MMCB scam.

The Registrar of Cooperative Societies, Gujarat upon instructions from the Central Registrar had allotted re-audit of the bank for 1999-2000. During the re-audit, it was alleged that the respondent had not disclosed and reported serious irregularities in the accounts of the Bank and he failed to disclose the material misstatements known to him in the financial statement.

It was alleged that the respondent failed to report material misstatements known to him to appear in the financial statements of the Bank, with which he was concerned in his professional capacity, and thus, had shown gross negligence in performing his professional duties. There were 16 charges framed against him, out of which the disciplinary committee submitted its report on 16.11.2004 holding the respondent guilty of 8 charges.

After the disciplinary committee submitted its report, the Council arrived at a finding and made recommendation to the High Court on 24.03.2005 for removal of name of the respondent for a period of five years.

A division bench of Justice AS Supehia and Justice Pranav Trivedi observed that the Section 21 (Procedure in inquiries relating to misconduct of members of Institute) of the Chartered Accountants Act and the regulations provides four tier exercise to be undertaken in case of misconduct by a Chartered Accountant.

"The first stage is prima facie opinion under section 21(1) by the Council, the second stage is by the disciplinary authority which has to prepare a report, the third stage is the findings of Council on the disciplinary committees report and the defence or representation of the member, and the fourth stage is consideration of the recommendation sent by the Council along with the report by the High Court in case the member is recommended to be removed from the Register for more than five years or permanently...  there are two stages of recording the findings of guilt of the respondent, (i) by the disciplinary committee in its report and (ii) by the Council however, the Council is also further required to consider the defence or the points raised by the respondent in his representation presented before it," it said. 

It thereafter referred to Supreme Court's decision in  Anand Brothers P. Limited Tr.M.D. vs. Union of India (2014) which had held that a legal conclusion qualifies as a 'finding' only when it is supported by stated reasons and that a "finding presupposes application of mind". 

The bench found that the Council's decision fails the settled legal precedent of recording the independent finding, noting that the Council had "merely incorporated the entire report of the disciplinary authorities", terming it a "cut-paste job". 

"...we do not find any findings or reasons dealing with the representations or the oral submissions advanced on behalf of the respondent. There are absolutely no independent reasons recorded by the Council, and the report is bereft of independent findings on the report of the disciplinary committee by dealing the contentions/submissions raised by the respondent. The Council has done merely a cutpaste job and produced the entire report of the disciplinary committee in its report," it said. 

Referring to various Supreme Court judgments the bench said that the Council had merely stated that it has “considered” the representation of the respondent, without dealing with the contents, which "displays non-application of mind". It observed that section 21 casts a grave and weighty responsibility on the Council to determine the guilt of the member in misconduct, and the statute specifically assigns the duty on the governing Council to record its "independent finding without thoughtlessly following the findings of disciplinary committee ignoring the representation of the member". 

"In the present case, all the facets of the application of mind and consideration of all the relevant aspects are missing in the report of the Council. Thus, only on this sole ground, the report and the recommendation of Council does not qualify to be accepted," the bench emphasized. 

Invoking powers under section 21(5) of the Act, the court said that it does not find the report and recommendation of the Council "worthy of acceptance". Setting it aside the court remitted back the matter to the Council for fresh consideration and disposal in accordance with law. 

Case title: COUNCIL OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA v/s  S.N. VALERA, FCA M/S. S.N. VALERA & CO

R/CHARTERED ACCOUNTANT REFERENCE NO. 3 of 2006

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Citation : 2025 LiveLaw (Guj) 195