The Delhi High Court has upheld the disciplinary action taken by the Institute of Chartered Accountants of India (ICAI) against a chartered accountant, affirming his removal from the register of members for a period of three months for serious professional misconduct in statutory auditing.
The ruling was delivered on 14 January 2026 in Council of the Institute of Chartered Accountants of India v. Shri S.N. Shivakumar, under a reference made by ICAI under Section 21(5) of the Chartered Accountants Act, 1949.
Background of the Case
The proceedings originated from a communication dated 20 October 2006 issued by the Reserve Bank of India (RBI) to ICAI, flagging serious deficiencies in the statutory audit of Escorts Finance Limited for the financial year 2004-05. RBI reported that the audit report:
- Did not disclose the company’s true liability relating to public deposits
- Failed to detect ever-greening of assets
- Presented a distorted picture of the company’s financial health
At the relevant time, the respondent was a partner in the statutory audit firm, M/s N.M. Raiji & Co.
Disciplinary Proceedings by ICAI
Based on RBI’s communication, ICAI initiated disciplinary proceedings. Despite issuance of notices at multiple stages, the respondent:
- Failed to file replies
- Did not contest the proceedings
- Did not appear before the Disciplinary Committee
Following investigation, ICAI framed three charges, all of which were held proved.
Charges Established
The Disciplinary Committee found that:
- The auditor failed to verify and disclose the company’s actual liability towards public deposits, including accrued unpaid interest.
- The auditor failed to detect ever-greening of assets, resulting in artificial inflation of the balance sheet.
- The auditor violated RBI directions by not issuing a mandatory auditor’s certificate, despite statutory obligation.
The audit had reflected ₹48 crore as cash in hand, even though the amounts represented cheques that were credited much later. Further, interest liability of ₹17.23 crore was not reported.
ICAI’s Punishment and Reference to High Court
In its 364th (Adj.) meeting held in April 2017, ICAI ordered removal of the respondent’s name from the register of members for three months.
Since the matter fell under the statutory reference mechanism, ICAI sought confirmation of the punishment from the Delhi High Court.
High Court’s Findings
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar upheld the punishment, observing that:
- The charges, particularly relating to non-disclosure of liabilities and asset manipulation, were grave and serious
- The respondent showed complete non-cooperation throughout disciplinary proceedings
- The misconduct contributed to misleading regulators and masking the true financial position of a deposit-taking financial company
The Court noted that the company’s operations were later shut down by RBI due to multiple malpractices, underscoring the systemic consequences of audit failures.
No Leniency for Professional Lapses
The Court rejected any scope for interference, holding that the punishment imposed was proportionate and justified, especially given the fiduciary role of auditors in protecting public interest. The reference was accordingly allowed, and the punishment was affirmed in full.
Direction on Effective Date of Removal
While confirming the penalty, the Court clarified that:
- The removal would take effect from 1 April 2026
- The respondent’s membership would not be revived automatically after the period
- Revival would require a fresh application post completion of the penalty period
Key Takeaway
“Failure of statutory auditors to exercise diligence in verifying liabilities and detecting financial manipulation strikes at the integrity of the regulatory framework and warrants strict disciplinary consequences.”
Significance of the Ruling
The judgment reinforces:
- Strict accountability of chartered accountants in statutory audits
- The judiciary’s support for professional disciplinary mechanisms
- The principle that non-participation in disciplinary proceedings cannot dilute liability
It serves as a strong reminder that audit functions are not merely procedural, but central to financial transparency and regulatory trust.
Source: Delhi HC Judgement dated 14/01/2026 in ICAI vs Shri S.N. Shivakumar