CA Karan, a practicing Chartered Accountant, was approached by Greentech Solutions Ltd. requesting him to issue a certificate regarding the…

According to Clause (7) of Part I of Second Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he does not exercise due diligence or is grossly negligent in the conduct of his professional duties. It is a vital clause which unusually gets attracted whenever it is necessary to judge whether the accountant has honestly and reasonably discharged his duties. The expression negligence covers a wide field and extends from the frontiers of fraud to collateral minor negligence. Further, as per Clause (8) of Part I of Second Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion. In the given case, CA Karan issued a utilization certificate for a term loan of 25crores stating that the entire amount was utilised for the intended expansion project without conducting adequate verification procedures. His review was restricted to summary reports provided by the finance manager and discussions with the managing director, while he failed to examine supporting documents such as bank statements, invoices, contracts, and payment records. The certificate also did not disclose any limitations or assumptions in the verification process. Subsequently, it was discovered that 5crores had been diverted for purposes other than the approved project. This indicates gross negligence and lack of due diligence in the discharge of professional duties, as the certificate was issued without obtaining sufficient appropriate information which is necessary for expression of an opinion. Therefore, CA Karan is guilty of professional misconduct under Clause (7) and Clause (8) of Part I of Second Schedule of the Chartered Accountants Act, 1949.