The Appellate Authority has recently held that the incorporation of a
Company by Chartered Accountant with 90% Shares without the prior
permission of the
Institute of Chartered Accountants of India (ICAI) can be
professional misconduct.
The main allegation against the appellant was that he incorporated a Company without the prior permission of the Council of
ICAI.
It was alleged that he engaged in other business as a Director of
M/S
MRIYOG Investments Pvt. Ltd. and has signed the balance sheet for this
company for F.Y. 2012-13.
After conducting a thorough enquiry, the Board of Discipline of
ICAI held that the appellant is guilty of committing
professional misconduct.
After analyzing the relevant provisions, the Appellate Authority
observed that while the Chartered Accountants Act permits a Chartered
Accountant to be a Director of a company without the permission of the
Council, it specifically provides that such a Director should not be a
Managing Director or a whole-time Director.
The AA observed that a Director who is not involved in day to day
business of the company but who participates in the Board meetings and
even receives remuneration for such participation and takes part in
policy decisions but does not execute the decisions, is a Director not
doing the business of the Company, but is a Director simplicity.
“Such a Director would not be said to be involved in the business of
the company. However, a person being a Director of the Company if
operates the accounts of the company and executes the business of the
company or participates in other activities of the company apart from
attending Board Meetings and signing the statutory documents as required
to be signed by a Director, then such a Director shall be considered as
a Director involved in the business of the Company. Further, the very
fact that the Appellant has taken initiative to promote the company with
himself as the main promoter and Director of the company with 90% of
the shareholding, goes to confirm beyond any doubt that the company was
promoted by him as his new business. Hence, he should have taken the
permission of
ICAI,” the AA said.
Concurring with the findings of the BOD, the AA held that “A line has
to be drawn between a director simplicitor and a director actively
involved in the business activities of a company and we consider that a
Director who attends Board Meetings for taking policy decisions,
advising a company on the issue of compliance of laws and even signs
only those statutory documents which he is duty-bound to sign as a
director, would not be a director involved in the business of the
company but would be a director performing statutory duties but not a
Director who has incorporated the company with 90% of equity held by
himself, authority to act on behalf of the company as a signatory to
Annual Reports, resulting into promotion of the business of the company
and corresponds with different persons on behalf of the company, would
be a director involved in the business affairs of the company, even if
he was not a whole time director or managing director. We, therefore, of
the view that the Appellant, in this case, was actually involved in the
business of the company and he formed this company along with his
family members in order to venture into a new business apart from the
profession of chartered accountancy.”