CA Certifying False Returns Can Be Prosecuted If Active Complicity, Mens Rea Shown: Calcutta High Court

The Calcutta High Court has recently held that a Chartered Accountant certifying a false statutory return or e-form can face prosecution if there are specific allegations showing that the professional knowingly participated in the falsification or actively connived in it.

Justice Uday Kumar was hearing a revision filed by the Registrar of Companies, West Bengal, against the discharge of practising Chartered Accountant Ranjan Meghani.

“The proposition that an independent professional certifying a statutory return or e-Form can never be prosecuted under Section 628 of the Companies Act, 1956, merely because they do not fall within the narrow definition of an executive 'officer' is legally incorrect and requires qualification; active complicity with mens rea can attract the section,” the court ruled.

The court, however, upheld Meghani's discharge because the complaint did not contain specific allegations showing that he knew about the alleged fraud or had actively connived with the company's management. The prosecution was also held to be barred by limitation.

The case arose from an ROC investigation into Adorable Agrotech Ltd. Its authorised share capital increased from ₹5 lakh in 2010 to ₹70.35 crore by 2014 through five consecutive increases. The court noted that the expansion was engineered almost exclusively through the issuance of non-convertible redeemable preference shares.

The investigation found that the company allotted these preference shares to thousands of investors on single days. As many as 1,431 individuals received allotments on September 15, 2011, while 9,120 individuals received allotments on July 1, 2013. The ROC treated these public collections as illegal, unadvertised deposits, alleging that the statutory requirements applicable to public offers had not been fulfilled.

The company uploaded several electronic returns on the MCA portal, including Form 5 and Form 2, in October and December 2011. Meghani's professional engagement, according to the complaint, was limited to certifying the statutory e-Forms. He was not a promoter, executive director, internal manager, or key managerial personnel of the company.

The inspection report pointed to defects in the Form 2 filings, including missing names of shareholders, mismatched allotment dates and repeated names of shareholders. It attributed the filing of the forms, despite allegedly knowing them to be false, to company director Biswajit Biswas. The forms relating to allotments dated October 15, 2011 and December 15, 2011 were certified by Meghani.

The ROC filed the criminal complaint on March 17, 2020, against the company and several individuals, including Meghani, under Section 628 read with Section 75 of the Companies Act, 1956.

Meghani contended that he had merely certified the statutory forms in his professional capacity and was neither an officer nor an officer in default of the company. He also argued that the prosecution was hopelessly barred by limitation.

The court held that an independent Chartered Accountant engaged to verify and certify statutory e-Forms acts as an external professional rather than as part of the company's executive management.

“An independent Chartered Accountant engaged to verify and certify statutory e-Forms or returns acts strictly in a professional capacity as an external expert. Their duties are governed by professional standards, statutory audit guidelines, and the rigorous ethical code of the Institute of Chartered Accountants of India (ICAI), rather than by internal corporate commands,” the court observed.

At the same time, the court rejected the argument that an independent professional is automatically outside the scope of Section 628. The provision applies to “any person” who knowingly makes a materially false statement or intentionally conceals a material fact in a return, report, certificate or other document required under the Act.

The court found that the complaint against Meghani did not meet that threshold. It attributed the mala fide intention, physical execution of the forms, and deliberate concealment of investor identities to Biswajit Biswas. Against Meghani, it merely alleged that he had certified the forms.

There was no specific allegation that Meghani had personal knowledge of the underlying financial fraud or had actively connived with the management to fabricate records, the court observed.

The court further held that an independent professional who relies on books, records and data furnished by management cannot be hauled up under Section 628 without specific allegations and material showing direct complicity or conscious knowledge of falsification.

The prosecution also failed on limitation. The documents and e-Forms in question were filed between March 2011 and March 2014, while the complaint was instituted on March 17, 2020.

Section 628 read with Section 75 carried a maximum punishment of two years' imprisonment. The court therefore held that the three-year limitation period under Section 468(2)(c) of the CrPC applied.

The court noted that there was no application for condonation of delay under Section 473 CrPC and no plausible explanation for the nearly nine-year delay in filing the complaint. It held that the prosecution against Meghani was barred by limitation.

The court upheld the Special Court's discharge order and dismissed the ROC's revision as against Meghani. The revision had separately abated against practising Chartered Accountant Bhal Chandra Khaitan, who died during its pendency.

The court clarified that its ruling was confined to the role and criminal liability of the independent professional certifier. It did not prevent the ROC from proceeding in accordance with law against the company, its executive directors, promoters, and internal management functionaries.

For Petitioner: Advocate Prodyat Saha

For Respondent: Aritra Basu, P.P. Bishwal, Advocate Swastika Ray,