Shri B.P.Kanani                                                         Appellant
Vs.
Securities & Exchange Board of India                   Respondent
 
 

APPEARANCE:

Shri Rajendra C Dhuru
Advocate
M/s.Bhasin & Co. Mumbai

Mr. B.P.Kanani                                                          for Appellant
 

Ms. Poonam A Bamba
Division Chief, SEBI                                                for Respondent
 
 

Shri B.P. Kanani, the Appellant herein, is a Chartered Accountant by profession. He has filed the present appeal against the Respondent�s order dated 3^rd February 2000 captioned "Securities and Exchange Board of India Directions under section 11(1) and 11B of the SEBI act, 1992 � Vanishing Companies". By the said order M/s. Integrated Amusement Ltd, (the company) and its directors have been directed to disassociate themselves in every respect from the capital market related activities particularly, not to raise funds from the capital market, not to deal in securities and not be associated with any of the intermediaries in the capital market for a period of 5 years. Though the order is directed against the company and its directors, Chairman, SEBI had observed therein that the Appellant had "made misrepresentation about the use of the funds by the company" and felt that making misrepresentation "may amount to a professional misconduct on the part of Shri B.P.Kanani, Chartered Accountant". Therefore, he viewed "that the matter be referred to the Institute of Chartered Accountants of India, to take appropriate action against the said Chartered Accountant". The Appellant is aggrieved by the said observation relating to him in the order. He has prayed to direct the Respondent not to intimate the Institute of Chartered Accountants of India for taking any action against him.
 

The Respondent was inquiring into the conduct of the company in the aftermath of a public issue made by it in April, 1995, in the light of the information that it had not utilised the funds raised from the public for the purposes disclosed in the prospectus that it had not been complying with the requirements of listing agreement with the stock exchange, and that it had vanished from the address given in the prospectus. Enquiry started with a Show Cause Notice dated 1.6.1999 addressed to the company. In response to the SCN the company filed a written reply and also made oral representation. The oral representation was made by the company�s Managing Director along with the Appellant. It has been stated that during the course of the oral representation the representatives had agreed to furnish to the Respondent, the details of the use of the funds raised by the company in the public issue but did not furnish the same. The Respondent�s contention is that the Appellant had appeared on behalf of the company and had made misrepresentation. The Appellant has refuted this charge and claimed that he had appeared along with the company�s Managing Director, in his capacity as a professional and he was not in a position to furnish the details of the company�s activities and had not made any misrepresentation as alleged.
 

The Respondent had questioned the locus standi of the Appellant to file the appeal before the Tribunal on the ground that under Securities and Exchange Board of India Act, only a person aggrieved by an order of the Board alone is entitled to prefer an appeal and that since there was no appealable order against the Appellant and that he was in no way aggrieved, the present appeal cannot be entertained.
 

Against the said argument the learned Counsel appearing for the Appellant had submitted that the Appellant had suffered grave damages to his professional practice, that the clients came to him only by reference of others, as professional cannot advertise or approach the prospective clients to ensure any professional work. Since such references depend on the goodwill of such professional, any knowledge to the person making such reference of any proceedings caused upon by the Respondent on the Appellant would definitely preclude him from referring clients to the Appellant and that would result in loss of professional and social reputation and income as well, irrespective of the fact that he may not found to be guilty at a later date. Accordingly, the learned Counsel submitted that the Appellant was aggrieved by the impugned order and entitled to prefer an appeal before the Tribunal. The Appellant had submitted that section 20 of the Act provides that any person aggrieved by an order of the Board made (before the commencement of the Securities Law and (Second Amendment) Act 1999) under the Act, or the rules or regulations made thereunder may prefer an appeal to the Central Government within such time as may be prescribed. Thus the said section 20, indicates that it is not a precondition that the order must have passed against such person making an appeal, but all that is needed is the person must be aggrieved by that order.
 

The learned Counsel had submitted that the Appellant had appeared before the Respondent not as a representative of the management of the company, but only as a professional to assist the Managing Director, that since he had resigned from the statutory audit of the company after 31.3.1995 he had no access to the company�s records and documents to furnish the information called for by the Respondent. Further, since the Managing Director of the company himself was admittedly present before the Respondent and the Managing Director himself, being in overall management of the company, the question of a technical expert not associated with the company, being asked to furnish details relating to company�s finances and expecting him to furnish the same does not arise. He had further submitted that an outside legal consultant or past auditor cannot and should not have in his possession any materials, accounts etc. concerning the utilisation or deployment of the issue proceeds. Unless the same have been made available to him for the purpose of furnishing to the Respondent, he cannot do so, otherwise giving information itself may tantamount to be a professional misconduct on the part of the said professional. Further, he denied the allegation that he had authorised issuance of the company�s prospectus, as his association with the company�s public issue was only as an advisor to the issue in the capacity of an expert, that he was not a signatory to the prospectus issued by the company. He had submitted that sections 11(1) and section 11B cannot reach the Appellant as the alleged charge against him was not a matter affecting the interests of investors in securities market and that he is not an entity mentioned under section 11B. He had also submitted that an order under section 11B should precede an inquiry giving opportunity to the person going to be adversely effected to defend, that in the Appellant�s case there was no such inquiry at all, that he was penalised for having accompanied the Managing Director of the company. It was urged that in the absence of any concrete documentary evidence against him, reference to ICAI for taking action was totally unjustified.
 

The first and foremost question to be considered in this context is as to whether an appeal lies in the matter. The Appellant had cited section 20 of the Act in support of his locus standi. In fact since the impugned order was issued after coming into force the provisions of the Securities Laws (Second Amendment) Act, 1999, the section enabling appeal to the Tribunal is section 15T and not section 20. However, but for the specific limitation period and change of forum of appeal, the core portion of 15T and section 20, giving right of appeal is identical. According to section 15T (1) (a) any person aggrieved by an order of the Board made, on and after the Commencement of the Securities Laws (Second Amendment) Act, 1999, under the Act or the rules or regulations made thereunder, may prefer an appeal to the Securities Appellate Tribunal. On a careful perusal of the said section 15T it could be seen that an appeal can be preferred against an order of the Board by any person aggrieved by that order. So it is clear that there should be an order to start with. Then comes the impact of the order. If a person is aggrieved by that order, he is entitled to file an appeal. Since the section uses the wider expression "any person" right of appeal is not restricted only to the parties before the Board in the proceedings. Anybody, whether he was a party or not before the Board, is entitled to prefer an appeal, provided he is aggrieved by that order. Thus the first test is the existence of an order and then the impact of that order on a person.
 

In the instant case from the facts made available before the Tribunal, it is seen that the �pre-direction� inquiry was directed into the affairs of the company by issuing SCN to it and not to anybody else. The company had filed written reply and made oral representation before the authority and after having considered the same a direction was issued to the company. The operative portion of the order is extracted below:
 

"In such circumstances, I observe that the company and its directors have not acted with integrity and are not fit to access the capital market. Therefore, I find that in the interest of investors and for healthy development of the capital market, the company and its directors should not be allowed to deal in securities or to access the capital market in future. Therefore, I, in exercise of powers conferred upon me under sub section (3) of section 4 read with sections 11(1) and 11B of the SEBI Act, hereby direct the company and its directors, to disassociate themselves in every respect from the capital market, not to deal in securities and not be associated with any of the intermediaries in the capital market for a period of 5 years. These directors are being issued without prejudice to the right of SEBI to take any other action as deemed fit under the provisions of law, against the company". This is the order. In the preceding paragraphs in the order, the circumstances leading to issuance of the order have been stated.
 

At one place in the text of the order it has been stated that " It also appears that the directors who have been entrusted with the funds have misappropriated the money for their own use in violation if the directions of law and the contract between the company and the investors in contravention of law. Therefore, I observe that the state Government be requested to initiate appropriate criminal action in the matter under the Indian Penal Code, 1860 or any other relevant state law through the police against the company and its directors" (emphasis supplied).
 

With reference to the Appellant it has been stated in the order that "Shri B.P.Kanani, a Chartered Accountant who appeared for the company during personal hearing made submissions about the utilisation of the funds by the company in terms of the prospectus. However, he could not give any details of the account of funds despite an undertaking given during the hearing. It was also revealed that he had authorised the issuance of the prospectus and he had signed the same. However, he made misrepresentation about the use of the funds by the company. This may amount to a professional misconduct on the part of Shri B.P.Kanani, Chartered Accountant. Therefore, I am of the view that the matter be referred to the Institute of Chartered Accountants of India, to take appropriate action against the said Chartered Accountant (emphasis supplied).
 

At this juncture, it is considered relevant to have a look at the concerned provisions of the Chartered Accountants Act, in the event of such a reference is received by the ICAI against any of its members. Chapter V of the Chartered Accountants Act provides elaborate procedure in inquiries relating to misconduct of members of the Institute. Relevant portion of section 21 of the said Act is extracted below for ready reference:
 
 

(1) "Where on receipt of information, by or of a complaint made to it, the Council is prima facie of opinion that any member of the Institute has been guilty of any professional or other misconduct, the Council shall refer the case to the Disciplinary Committee, and the Disciplinary Committee shall thereupon hold such inquiry and in such manner as may be prescribed, and shall report the result of its inquiry to the Council.

If on receipt of such report the Council finds that the member of the Institute is guilty of any professional or other misconduct, it shall record a finding accordingly and shall proceed in the manner laid down in the succeeding sub sections.
 

Where the finding is that a member of the Institute has been guilty of a professional misconduct specified in the First Schedule, the Council shall afford to the member an opportunity of being heard before orders are passed against him on the case, and may thereafter make any of the following orders, namely: -
 

(a) reprimand the member;

(b) remove the name of the member from the Register for such period, not exceeding five years, as the Council thinks fit;

Further, any member of the Institute aggrieved by any order of the Council imposing on him any penalty referred to in sub section (4) of the section 21 is entitled to prefer an appeal to the High Court, against the order.
 

Since reference to the Institute by itself being not an order adversely affecting the member, it is not envisaged to provide a pre-reference hearing to the member. Anybody is free to make a reference to the Institute on the conduct of its member. It is not necessary that a reference should cause an inquiry. It serves only as a source of information. It is for the Council to consider the material and decide as to whether the matter need be probed into or not. As stated above, section 21 provides sufficient opportunities and safeguards to protect the interests of the concerned member. The claim that the very reference of the case to Chartered Accountants Institute itself is a stigma is baseless. It is like seeking Court intervention by a person against the filing of a FIR with the police! A member will be penalised by the Council only after proper inquiry and hearing him. It has been described in Corpus Juris Secundum (Vol.IV) that "broadly speaking a party or person is aggrieved by a decision only when it operates directly and injuriously upon his personal pecuniary or proprietory rights". It is not possible to subscribe to the view that by a proposal to refer to ICAI to take appropriate action operate directly and injuriously on any of the rights of the Appellant. The expression "aggrieved person" in section 15T means person affected by an order. In that case the Appellant is not an aggrieved person. A decision to refer the matter to the Institute by itself cannot be considered a cause of grievance to approach the Tribunal by way of an appeal. It may be remembered that even without mentioning in the order the Respondent could have made such a reference to the Institute, as there are no pre-requisites to make such a reference.
 

On a perusal of the impugned order it is seen that the order is operative only against the company and its directors to the extent of debarring them from associating with the capital market activities and capital market intermediaries. The course of action such as requesting the State Government to initiate appropriate criminal action in the matter or to refer the matter to the Institute of Chartered Accountants of India, to take appropriate action against the Appellant are only proposals and not any order as such. These sort of proposals are different from orders. A proposal or an observation is not an order. As Calcutta High Court observed in Mahavir Singh v Emperor (AIR 1944 Cal. 17), an order covers commands or directions that some thing shall be done, discontinued or suffered, but it does not include �sentence� and �finding�.
 

From the facts and circumstances of the case placed before the Tribunal, it is clear that there is no order from the Respondent against the Appellant and that the Appellant cannot be said to be legitimately aggrieved, giving him any right to prefer an appeal under section 15T of the Act. The appeal cannot sustain for this reason.
 

The Appeal is, therefore, dismissed.