INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA versus P. K. MUKHERJI AND ANR.

Citation: [1968] 3 S.C.R. 330 · Decided: 26-02-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

INSTITUTE O~' CHARTERED ACCOUNTANTS OF INDIA 
A 
v. 
P. K. MUKHERJI AND ANR. · 
F elYruary 26, 1968 
[J. C. SHAH, V. RAMASWAMI AND 0. K. MITTl!R, JJ.J 
B 
Chartered Accountants Act 38 of 1949-S. 21 and Schedule, itent.r 
(o),. (p) and (q)-Chcrtered accountant appointed by company und1r 
Provident Fund Rules to audit accounts of the Fund-Writi1111 to company 
d~pprovlng certain 1ra·nsac1lons in contravention of Rule.r. but not cone. 
,,..ntl1tf( on them in hir report on. the account:t-lf RUilt;v of profmll1fllll 
misconduct-Whether owt!d duty only to company who appointed him or 
C 
al.Jo to beneficiaries of provident fund. 
A joint stock company had an employees provident fund scheme which 
wu being manaae<J by a board of trustees. The tint reepondent, a cbar-
'lered accountant, was appointed by the board of directors of the company 
to audit the accounts of the Provident Fund for the years 1953 and 1954. 
During 1954 the trustees of the Fund made certain advances of over 
rupeea six lakhs to the company in c<intraventioo of the Rules of the Fund. 
The company issued various cheques in ~yment of the ad".lll!Ce$ but, 
Ill the request of the company, tho cheques were not cashed and were bpt 
by · the trustees. 
After receiving the cheques the tru- made book en-
.:tries showing repayment of the advances though the cheqlies were un-
<:aShed. On May 25, 1955, the first respondent wrote to the compeny 
-disapproving the advances aa not being m accordance with the Rules as 
well as the fact that the cheques iSSUed by the company in repayment were 
not cashed promptly. At a meeting of the Trustees on May 27, 1955 it wu 
regretted that the cheques, were not cashed at he company's request and 
resolved that they should be returned to the company and interest char.,.t 
from the date of issue of the cheques. 
The first respondent signed the statements of accounts of the Prorideot 
Fund for 1953 on May 14, 1954 and for 1954 on June 30, 1955 and 
certified them as "checked with the books and accounts produced and 
found correct". 1be second respondent filed a complaint against him 
with the. Institute of Chartered Accountants of India alleging that as the 
auditor, he had failed to disclose in his certificate on the statement of 
acc:ounts that advances were made to the company in contraventioo of. 
Rules of the Fund or to draw attention to the fact that a large amount of. 
cash was. shown as cash in hand in the statements of accounts also iD 
<:ontraverition of the Rules. After an enuiry under a. 21 of the Chartered 
Accountant• Act, 1949. the Disciplinary Committee of the Institute fOIUld 
the flnt respondent guilty of professional misconduct und« items (o), (p) 
and ( q) of the· Schedule· to the Act and the Council of the Institute con-
firmed this finding and referred the case to the High Court for 
final 
orders. The High Court set aside these findinp and absolved the Ont 
reepondent of the cr&jlllS of misconduct. 
On appeal to this Court, 
D 
E 
F 
G 
HBLD : Allowing the appeal : 
H 
(!) On June 30, 1955, when the first respondent signed the statement · 
of accounts for 1954 he fully knew that a loan had been. granted by the 
tnistees to the company in violation of the Rules; and furtll«, that chequa · 
J.C.A. v. MUKHERJI (Ramaswami, J.) 
331 
A 
received in repayment were not cashed and, indeed, were not intended to 
ht: cashed, and were ·issued by the Company for a false indication of ad-
~ent at the end of the accounting year. Jn these circumstances it WIS 
the duty of the first respondent to point out in the statement of acc:ounL• 
that a maj<lr pan of the cash in hand represooted uncashed cheques,. that 
the cheques were apparently given by the company for repayment of the 
loan and that the transaction was in violatioo of the Rules of the Provident 
8 · Pond. His failure in not pointing out these facts constituted professional 
mil;conduct falling within cl. (o) of the Schedule to the Act. (336 A. E-OJ 
c 
0 
E 
F 
G 
H 
(ii) It was no defence for the first respondent to say that he had di,.. 
closed the irregularity to the company by his Jetter dated M•Y 5. 1955 and 
that he owed a duty only to the company which appointed him to audit 
the accoun!s of the Provident Fund but not to the beneficiaries of the Fund. 
On the tontrary~·t a breach of duty on his part not to have made a 
disclosure to the 
eficiaries of the Provident Fund in the statement of 
accounts. The 
mary object of auditing the Fund was to apprise the 

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