Manipulation of Public Issue, Ante-Dated Stock-Invests by Chartered Accountant Unbecoming of the Profession: Delhi High Court Suspends ICAI Member for One Year

“Chartered Accountants are not merely professionals for hire – they are guardians of financial probity and any breach of that trust undermines the entire market ecosystem” – Delhi High Court

In a stern message reinforcing the ethical boundaries governing the accounting profession, the Delhi High Court accepted a statutory reference by the Council of the Institute of Chartered Accountants of India (ICAI) and directed suspension of a chartered accountant found guilty of “other misconduct” involving manipulation of a public issue. The case titled Council of Institute of Chartered Accountants v. Shri Kishan Gupta & Anr. [CHAT.A.REF No. 2 of 2018] was decided by a Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar, who found the misconduct “clearly established” and “detrimental to public trust in financial markets.”

Exercising powers under Section 21(6) of the Chartered Accountants Act, 1949, the Court ordered that Shri Kishan Gupta, a Chartered Accountant and former Chairman and Whole-Time Director of Bharthari Financial Services Ltd (BFSL), be suspended from ICAI membership for one year, and be restrained from rendering any services as a Chartered Accountant during the suspension period. The Court also imposed costs of ₹10,000 on the respondent.

“Connivance in artificial oversubscription, share allotments without payment, and misuse of stock invests proves intent to defraud” – Disciplinary Findings Upheld

The genesis of the case lies in a 2002 SEBI investigation, which found that Kishan Gupta, as Director and Chairman of BFSL, had connived with another chartered accountant, Ashok Chawla, in a fraudulent scheme to inflate public subscription figures through ante-dated stock-invests. These applications were made after closure of BFSL’s public issue but were shown as if submitted on time, facilitating irregular allotment of shares without receipt of funds.

Despite these applications being withdrawn, shares were allotted and certificates issued. The Disciplinary Committee of ICAI recorded that:

“The Respondent, despite knowledge of the public issue closure on 05.10.1995, accepted applications backed by stock-invests issued on 23.11.1995. The company issued shares even after withdrawal of applications, and without receiving funds, to the detriment of genuine investors.”

The Committee further noted that the stock invests were returned not to the applicants, but to Ashok Chawla, establishing clear connivance and manipulation.

These findings were based on materials from SEBI's own proceedings, including the SEBI order dated 12.12.2002 under Section 11B of the SEBI Act and the Securities Appellate Tribunal's order dated 02.06.2006, which upheld SEBI’s findings and reduced a lifetime ban to 7 years. The SAT order observed:

“It is obvious that Ashok Chawla and S.K. Gupta had both connived with each other to artificially oversubscribe the issue so that value of the scrip increases in the market. When this is manipulated, it affects the innocent investor who pays more than the worth of the share.”

“Respondent’s silence before the Court and failure to contest charges speaks volumes” – High Court finds misconduct established on record

The reference under Section 21(5) was initiated by the Council of ICAI after accepting the Disciplinary Committee’s 2014 report. Though the respondent filed a late representation in 2017 denying misconduct, the Court noted that he failed to appear or contest the matter meaningfully despite opportunities.

Justice Rao, writing for the Bench, held: “The respondent remained unrepresented and did not file any formal reply. In such circumstances, the allegations and the findings of the Disciplinary Committee remain unrebutted and must be taken as established on record.”

The Court also emphasized that SEBI’s findings, the SAT’s confirmation, and the lack of appeal by the respondent reinforce the disciplinary conclusions under ICAI's statutory framework.

“A Chartered Accountant’s duty is not limited to technical compliance – the profession demands ethical conduct in its highest form”

The judgment strongly invoked the ethical obligations of chartered accountants under the Chartered Accountants Act, particularly the responsibility to uphold fiduciary integrity in matters involving public funds, securities, and investor confidence.

The Court stated:

“It is expected from Chartered Accountants that they shall ensure the highest standards of integrity and ethics are maintained, not only for their clients, but as custodians of the financial markets for the benefit of the general public.”

The Bench also referred to its earlier decision in Council of ICAI v. Ashok Kumar & Anr., 2017:DHC:7218-DB, where similar misconduct by CA Ashok Chawla was dealt with identically. The Bench noted that the facts were “on all fours” with the current case, and the disciplinary consistency was essential.

Quoting that earlier judgment, the Court reiterated: “Even if one were to believe that the applications and stock invests were tampered with by S.K. Gupta, there is no reason whatsoever why the respondent, a CA by profession, ought to have handed over applications and blank monetary instruments to enable such tampering.”

“Deliberate violation of investor trust in public issue merits exemplary response” – Suspension Ordered

Rejecting the respondent’s defence that he was merely a “non-executive” chairman and that intermediaries were responsible, the Court held that his role as Whole-Time Director and promoter, coupled with his signature on key correspondence and association with Ashok Chawla, pointed to active involvement.

Justice Rao held: “The respondent’s conduct in permitting irregular allotments, despite knowledge of withdrawn applications and without receipt of funds, is directly attributable to him. His silence, both before the Disciplinary Committee and this Court, amounts to admission.”

Finding the case fit for penalty under Section 21(6) of the Act (pre-amendment), the Court directed: “The respondent shall be suspended from membership of ICAI for a period of one year and restrained from rendering any services as a Chartered Accountant. Costs of ₹10,000 are also imposed.”

In reaffirming the vital role played by Chartered Accountants in ensuring the probity of financial systems, the Delhi High Court has made it clear that ethical misconduct in capital markets will not be tolerated. The judgment not only underscores the statutory duty of ICAI to protect the sanctity of the profession but also sends a message that disciplinary actions cannot be neutralized by silence or non-cooperation.

By holding a senior CA accountable for orchestrating irregular allotments and financial manipulation in a public issue, the Court has reiterated that professional misconduct includes not just breach of law but breach of trust.

Date of Decision: December 23, 2025