' ZAFAR AHMED KHAN SHERWANI, J.---This reference under section 20-D of the Chartered Accountant Ordinance, 1961 (The Ordinance) is directed to debar the respondent from being member of the Institute of Chartered Accountant of Pakistan (The Institute) for a period of three years for the professional misconduct as specified under clause 6 of Part-I Schedule-II.
2. The brief facts leading to this reference are that the applicant being a statutory institution constituted and governed under the Ordinance received a complaint against the respondent being a member of the institute from Security and Exchange Commission of Pakistan (SECP) on 15- 5-2002 along with an order passed by the Executive Director (Specialized Companies Division) wherein the irregularities committed by the respondent were pointed out for an appropriate action under the Ordinance. The misconduct was the failure of the respondent to discharge his duties as statutory auditor of Messrs International Investment and Financial Services Ltd. (the Company) since 31-12-2000 and was imposed a fine of Rs,2000 under section 260 of the Companies Ordinance, 1984. It has been mentioned in the reference that Messrs Bilwani and Company, Chartered Accountants were appointed by the company as its statutory auditors under the Companies Ordinance, 1984, and on observing the deterioration in the financial position of the company as shown in the annual audit account report for the year ending 30th June, 2000 the SECP through Inspector, Messrs Taseer Hadi Khalid and Company Chartered Accountants got investigated the affairs of the company for the said financial year. After examination, the Inspectors found a number of irregularities as detailed in para.5 of the reference. On perusal of the investigation report it appeared that Bilwani and Company, Chartered Accountants being the statutory auditors of the company failed to bring out the material facts about the affairs of the company in their auditor report and despite irregularities in the affairs of the company they gave unqualified opinion on the financial statement of the company for each accounting periods since inception to June 30, 2000 which reports do not present the true and fair position of the company rather the same were misleading, therefore, a notice was issued by the SECP with an opportunity for personal hearing to Bilwani and Company on which proper explanation was submitted and the respondent was heard in person and finally SECP, the Executive Director, SECP concluded vide order dated 25-4-2002 that the explanation was not satisfactory and the statutory auditors failed to perform their statutory obligations as required under section 255 of the Companies Ordinance, 1984 and while imposing a fine of Rs,2000 warned to be careful otherwise such default to be defined as professional misconduct as provided under the directive issued by the SECP on 7-2- 2002 which directive has subsequently been incorporated in the listing Regulations of the Stock Exchanges.
3. The applicant/institute after receiving the complaint placed the same before the investigation committee which conducted proper investigation and after providing all the opportunities to the respondent and considering all the material placed before Committee it reached to conclusion that the respondent was found negligent in the conduct of his professional duties under clause 7 of Part-I of Schedule II of the Ordinance and decided to refer the matter to the Council accordingly.
The Council after receiving the report decided to call the respondent. It heard him and considered the written representation in which the allegations against the members of the applicant/institute were made in respect of which a Suit bearing No,627 of 2004 for defamation was filed, which was compromised on 25-4-2004. The respondent also preferred an appeal against the decision of the Council which was dismissed in view of the provision of section 20(k) of the Ordinance. Lastly the Council concurred with the findings of the Investigating Committee and found that there was no evidence that the auditors had done the verification of the trade debtors of Rs,70 million and long term investments of Rs,10 million as at 30th June, 2000. The aggregate of these two amounts constituted 70% of the total assets, which amounts to Rs,115 million on the said date. Both the said amounts were overstated and, therefore, Messrs Bilwani and Company auditors of the company had no difficulty in arriving similar conclusion had he performed his duties. Therefore, Council observed that the Investigation Committee had advised that on an overall basis, the audit working did not including appropriate evidence in the form of audit program evidence on work done, etc. There was no evidence of any review of working paper by the auditor and, therefore, the respondent failed to provide a proper explanation, therefore, he was found guilty of committing gross negligence in the performance of his professional duties under clause 7 of Part-I Schedule-II of the Ordinance, hence this reference has been brought.
4. Respondent in his reply in which not only legal objections were raised to the maintainability of the reference but some factual controversies were also raised specially with regard to conduct of the proceedings by the Investigation Committee and the council independently. Lastly it was said that since he had been already punished by imposing fine of Rs,2,000, therefore, by allowing the reference he would be double punished which is not permissible under the Constitution, therefore, prayed that the reference may be dismissed.
5. I have heard the learned counsel for applicant and the respondent in person.
6. It was contended on behalf of the applicant that since the misconduct of the petitioner was investigated at all reveals as provided under the law and proper opportunities were provided to him and thereafter he was found guilty of committing misconduct as mentioned above, therefore, the reference is fit to be allowed as prayed, whereas, the respondent contended that since he has already been penalized by imposing fine of Rs,2,000 by the SECP, therefore, any further action for the same misconduct will amount double jeopardy which is not permissible under the law, therefore, the reference is to be dismissed. He further contended that in similar cases the Council had not moved any reference against the delinquents but since the members of the Council were personally prejudiced against him, therefore, this reference has been filed with mala fide intention which requires to be dismissed. He has referred the case of Institute of Chartered Accountants of Pakistan v. Messrs Hyderali Bhimji & Co. 2002 CLD 1207. He also contended that Mr. Hussain Basri, Partner of Inspector firm had been sitting in the investigation proceedings and in the Council proceedings which is against the principle of natural justice.
7. I have considered the arguments of the learned counsel for the applicant and of the respondent.
8.The provisions of the Ordinance as provided in Chapter VA heading "Misconduct" from sections 20-A to 20-F show that any member of the institute if he has committed misconduct as defined in the Ordinance he is to be proceeded against in accordance with these provisions and the enquiry proceedings are to be conducted accordingly through independent Investigation Committee whose findings require to be independently examined by the Council as a final authority. As per these provisions initially on receiving complaint for professional misconduct against the member of the institute investigation is to be conducted by the Investigation Committee. The Investigation Committee therefore, must conduct itself independently, fairly and justly. Similarly the Council must also conduct accordingly so that the delinquent member may have confidence that both the bodies have conducted themselves fairly, justly and independently. The respondent had been complaining since inception of the investigation 'by the Investigation Committee, that one of the partners of the Inspector firm which had initially conducted the investigation namely Hussain Basri, had been attending these proceedings i,e, not only before Investigation Committee but before the Council also. Besides this the neutrality of the Council can also be questioned from the fact that when the respondent had levelled some allegations against the member of the institute (applicant) it filed a defamation Suit No,627 of 2004 which was later on disposed of by compromise dated 25-4-2004. Record provided with the reference does not reveal that the objections of the respondent in this regard were ever addressed. This sort of allegation that a member of the Inspector firm had been attending both the proceedings was required to be addressed specifically by the Investigation Committee as well by the Council in order to satisfy the respondent that the said member had no influence over the members of the Investigation Committee and the Council but no effort in this regard was made. The independence and neutrality of the Council can further be questioned from the fact that the Investigation Committee which had referred the matter to the Council holding that the respondent had committed misconduct of his professional duties under Clause 7 of Part I of Schedule II of the Ordinance the Council upholding the said findings and recommended an action under section 20-D(2) of the Ordinance for debarring the respondent from being the member of the Institute for a period of three years, but no reason was given as to why the recommendation for such a serious punishment was made when it could make recommendation for lessor penalty. If the act of misconduct of the respondent was so serious which could penalize him with such a serious penalty then the Council was required .To substantiate its recommendation with proper reasoning. The propriety required that at least it should have dilated upon the gravity of the misconduct viz.a.Viz recommendation. This conduct of the Council if seen in the light of the allegation of the respondent that the said member of the Inspector Company was instructional to the reference, the same cannot be termed as neutral. In these circumstances, I am unable to agree with the recommendations of the Council. It appears that the Investigation Committee and the Council did not conduct themselves in accordance with the basic principles of administration of justice that justice not only to be done but it should appear to have been done. The presence of the members of the Inspector Company during the proceedings before the Investigation Committee as well as the Council has eroded confidence of the respondent over them and, therefore, the conclusion on which they arrived at cannot be accepted by this Court. In these circumstances, I am of the view that the reference cannot be accepted and, therefore, I direct that the complaint be dismissed.