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.”
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