(a) Chartered Accountants Ordinance (X of 1961)‑‑‑

‑‑‑‑Ss.20D, 20C, 20B, 20A, 27 & Sched. II, Part I, Cl. (7)‑‑‑Chartered Accountants Bye‑laws, 1961, Chap. X‑‑‑Scope and application of Ss.20D, 20C, 20B, 20A, 27 & Sched. II, Part I, Cl.(7) of the Chartered Accountants Ordinance, 1961 and Chap. X of the Chartered Accountants Bye‑laws 1961‑‑‑Professional misconduct by member of the Institute of Chartered Accountants‑‑‑Enquiry by Investigation Commit tee‑‑‑Mandatory requirements‑‑‑Investigation Committee to "consider" the facts of the complaint of professional misconduct and form an "opinion", the criterion of which was to be purely objective‑‑ Consideration implied personal and formation of an opinion by the Committee about the correctness of the complaint or otherwise‑‑‑To "consider" would mean to carefully examine, to determine, to adjudicate and to apply mind fairly, honestly reasonably and bonafidely‑‑‑Terms "consider" and "opinion"‑‑‑Connotation‑‑‑Failure to follow mandatory procedure prescribed by the relevant statutory provisions both by the Investigation Committee and the council coupled with the complaint of professional misconduct being full of follies, loopholes and legal infirmities, reference to the High Court under S.20D(2) of the Chartered Accountants Ordinance, 1961 was liable to be rejected as provided under S.20F of the said Ordinance‑‑‑Principles‑‑‑Duty of Institute of Chartered Accountants to monito he affairs of its members outlined by the High Court.

Law requires the Institute that it shall lay the complaint containing relevant and necessary material before the Investigation Committee 'as and when received by it. On receipt of the complaint, Investigation Committee is required to consider the facts laid before it. On consideration of the facts if it is of the opinion that the facts or the complaint require investigation, it shall give a notice to the member concerned and hold an inquiry. The member concerned, after the service of notice, is to be given an opportunity of hearing and the proceedings of the Investigation Committee are necessarily to be conducted in presence of the member concerned. It is, thus, mandatory upon the Investigation Committee to "consider" the facts of the complaint laid before it and form an `opinion' to see as to whether ex facie a basis has been made for proceedings against a member. It is only then that an opinion is formed by the Investigation Committee after considering the material facts placed before it to proceed against a member, then a notice is to be served upon the member concerned and the proceedings are taken against him.

Use of term `consideration' and `opinion' in the Ordinance and Bye‑laws is significant and clearly shows that the Legislature intended the criterion to be purely objective. "Consideration" implies perusal and formation of an opinion by the authority concerned about the correctness of the report or otherwise.

The word `consider' means to look at attentively, or carefully, to think, to take into account, to regard, hold the opinion.

In the present case the Investigation Committee had to form its opinion on factual existence of certain grounds capable of objective determination.

To `consider' would mean to carefully examine, to determine, to adjudicate, and last but not least to apply mind. Undoubtedly such application of mind should be fair, honest, reasonable, and bona fide.

In the present case on receipt of the complaint from the Corporate Law Authority it was not laid before the Investigation Committee. But in derogation of the legal provisions the comments were called by the Institute from the accused members. Thus, the Investigation Committee had no occasion to consider the material in the complaint and form it's independent opinion. Instead the comments/explanation were referred to the Investigation Committee. Admittedly, the material forming the basis of the complaint was neither considered by the Investigation Committee nor any independent opinion was formed or recorded by the Investigation Committee to proceed against the accused members. Certainly, the Investigation Committee proceeded on the direction of the Institute. The Investigation Committee did not put the accused members on notice before taking into consideration the material placed before it, though the Ordinance and the Bye‑laws made thereunder specifically provided that it was mandatory upon the Investigation Committee to issue a notice to the concerned member before proceedings against him. Thus the provisions of law were flagrantly violated.

The Investigation Committee conducted ex parte inquiry against the accused members. The members were neither associated with the proceedings of inquiry nor were they provided opportunity of hearing by the Investigation Committee, either before conducting the inquiry, or during the proceeding‑s, or even after the conclusion of the inquiry. Thus, not only the provisions of law were flouted, but the proceedings were undertaken in sheer disregard of the fundamental principles of natural justice. After conducting ex parte proceedings against the members, Investigation Committee submitted a report to the Institute. On receipt of the report of the Investigation Committee the Council was required under the provisions of section 20C to record its findings to the effect either to direct that the proceedings against a member be instituted or, as the case may be, the complaint be filed. The Legislature has made it mandatory upon the Council to record a finding. Certainly that findings had to be recorded after evaluating the material made available to the Council as appearing in the inquiry report. Thus, the Council had to tentatively assess and examine the evidence and satisfy itself to the effect that on the basis of facts and circumstances substantiated by the material placed before the Council, action was warranted against the members. Term `satisfaction' has been defined as `actual persuasion'. That means a mind not troubled by doubt or which has reached a clear conclusion. However, no independent finding of the Council had been placed on record, as such the legal provisions were, once again, contravened. The proceedings of the Council which had been placed on record were ex parte in nature which, inter alia, authorize the Institute to initiate the proceedings against the members and for that purpose to contact some lawyer and to seek his services for filing reference. The prayer in the reference did not contain the recommendations of the Council as required under section 20D of the Ordinance. Penal Provisions were to be construed strictly. Benefit must be extended to the accused on account of illegalities and lapses committed on the part of the Institute, as the proceedings were undertaken in a prejudicial and unlawful manner. The proceedings against the members were initiated in a non‑serious; imprudent faint‑hearted manner, which were bound to suffer a set‑back.

On close scrutiny of the record it had come to light that the complaint filed by the Corporate Law Authority against the members was one and the same, which in the first instance seemed to have been dropped, by the Institute by accepting the apology tendered by the members. In fact the complaint was not taken seriously and appeared to have been buried by the Institute. However, subsequently when the Corporate Law Authority again furnished serious and minute details of the professional misconduct allegedly committed by the members, the Management of the Institute, which had by then changed, was constrained to initiate the proceedings in a mindless, half‑hearted and haphazard manner under the pressure of events, which led to failure due to the absence of legality. In the circumstances the legal objection raised by the members to the effect that the complaint having already been disposed of, could not be revived, had much force. There was no other option except to sustain the contention.

The complaint being full of follies, loopholes and legal infirmities the Reference was liable to be rejected as provided under section 20F of the Ordinance.

High Court observed, that the present case if looked into in the context, reflects a terrible state of affairs. Institute of Chartered Accountants which has been vested with the authority to monitor the affairs of its members, has duty towards the 'Nation in general and the shareholders in particular to take serious and stringent measures to prevent any mishap. It has been noted with serious concern that the proceedings in the present case were initiated by the Institute in a half‑hearted manner which adversely reflected the role of the Institute itself, and was bound 4o erode confidence of the shareholders in the Auditors, which requires to be checked. It was because of the lapses on the part of Applicant Institute that the reference had to be rejected.

1991 PCr.LJ 110; 1987 SCMR 1967 and PLD 1995 SC 4101 distinguished.

Abdul Majid Beg v. K. Karimuddin and others 1968 SCMR 867; Shahbuddin v. Inspecting Assistant Commissioner of Income‑tax, Range‑1, West Zone, Karachi and 4 others PLD 1988 Kar. 587 and Angland v. Payne 1944 NZLR 610‑(626) ref.

(b) Companies Ordinance (XLVII of 1984)‑‑‑

‑‑‑‑Ss. 252 & 254‑‑‑Auditor, function of‑‑‑Auditing‑‑‑Meanings‑‑ Condescending of auditors to the demand. of management of companies ,causes a devastating effect if the auditor puts a seal of approval on the misleading accounts of company.

As required under section 252 of the Companies Ordinance, 1984, each company must, at their annual general meeting, appoint an Auditor to hold office until the next annual general meeting. Only a person who is Chartered Accountant within the meaning of Chartered Accountants Ordinance, 1961 can be appointed to act as an Auditor of a public company as provided under section 254 of the Ordinance.

An Auditor is not to be confined to the mechanism of checking vouchers and making arithmetical computations. He is not to be written off as a professional "adder upper and subtractor". His vital task is to take care to see that errors are not made, be those errors of computation or errors of omission or commission or downright untruths. To perform this task properly he must come to it with an enquiring mind not suspicious of dishonesty, but suspecting that someone may have made a mistake somewhere and that a check must be made to ensure that there has been none.

Auditing may be defined as the independent examination and investigation of the books, accounts and vouchers of a business with a view to enabling the auditor to report whether the Balance Sheet and Profit and Loss account are properly drawn up so as to show a true and fair view of the state of the affairs and the profit and loss of the business according to the best of the information and explanations obtained by the auditor."

The auditors are the ultimate watchdogs of the shareholders' interest: According to the set practice‑, the auditors are required to give a report which is either "clean" or "qualified". By issuing a "clean" report, the auditor certifies that the financial statement reflects "true and fair" view of the company's affairs and a "qualified" report. subjects such opinion to some observation of irregularity or inconsistency. The managements of large companies which are dependent on the public confidence, had been frenziedly trying to secure a "clean" audit report from their auditors. Since the auditors are recommended (and virtually appointed) by the Board of Directors, some of them are made to condescend to the management demands. Undoubtedly it causes a devastating effect if the auditors put a seal of approval on the misleading accounts of company.

Fomento Sterling Area Ltd. v. Selsdon Fountain Pen Co. Ltd. (1958) 1 ‑WLR 61 and Principles and Practice of Auditing by R. Glynne Williams ref.

Ghulam Abbas Pishori for Applicant.

Syed Himayat Ali Pirzada for Respondents

Date of hearing; 18th January, 2002.

JUDGMENT

This is an application under section 20D (2) read with clause (7) of part of Schedule II of the Chartered Accountants Ordinance, 1961 which has been registered as a Civil Reference.

(1) The facts giving rise to the filing of this Application/Reference as disclosed therein are enumerated hereunder: ‑

The applicant Institute was established under the Chartered Accountants Ordinance, 1961 and the Bye‑Laws framed thereunder. The Ordinance was promulgated for the purpose of regulating the profession of Accountants in Pakistan. The respondent No.1 is a partnership firm of Chartered Accountants and a member of the applicant Institute while respondent No.2 is the partner of respondent No.1 being in practice in terms of section 2(2) of the Ordinance.

It is alleged in the application that by Letter No.19(151)OF/ISS/71, dated 20‑2‑1.983, the Chief of the Corporate Law Authority, Government of Pakistan informed the applicant that the accounts of Hyesons Sugar Mills Limited as of 30‑9‑1980 audited by the respondent did not give the disclosure requirements of the Second Schedule of the Securities and Exchange Rules, 1971 and that the said accounts were not drawn in conformity with the relevant provisions nor otherwise exhibited a true and correct position of the state of affairs of the said company. The applicants were, therefore, requested by the Corporate Law Authority to take action against the respondents as the applicant called for the explanation of the respondents. On receipt of the comments and explanation, the applicants prepared and sent a report to Corporate Law Authority on 28‑8‑1983. As per averments made in the Application/Reference, the applicants received Letter No.20(83)/CR/Misc/82, dated 25‑7‑1984 from the Corporate Law Authority, Government of Pakistan by which specific irregularities and lapses on the part of the respondents in the audit and reporting of the accounting affairs of Messrs Hyesons Sugar Mills Ltd. were pointed out to establish that the respondents had failed to discharge their duties and responsibilities enjoined upon them by the law. It was stated that the shortcomings of the respondents which were pointed out were prima facie actionable under the Ordinance and the Bye‑laws made thereunder. The applicants were, therefore, required to take such action against the respondents.

In view , of the report of the Corporate Law Authority, the applicants vide letter dated 28‑8‑1984 called upon the respondents to submit their comments. The respondents submitted their comments vide letter dated 21‑10‑1984. Subsequently, the complaint against the respondents was laid before the Investigation Committee as provided under section 20A(2) of the Ordinance for investigation and giving findings after considering the explanation of the respondents. It is pleaded that after completion of the enquiry, the Investigation Committee submitted report of its finding under section 20B(3) of the Ordinance on 15‑7‑1987. The report of the Investigation Committee under and were also offered opportunity of hearing which was 6‑7‑1989 before the Council of the applicants. acknowledged receipt of `the report of the Investigation submitted a reply vide letter dated 24‑6‑1989 stating therein that in addition to the verbal representations made by them, the Council should also take into considerations letter dated 21‑9‑1983 of the applicants, copy of which was enclosed with the said letter.

It was averred by the applicants that the respondents were found grossly negligent in the conduct of their professional duties. The matter was, accordingly referred to this Court for taking action against the respondents.

3. After registration of this reference, notices were issued against the respondents. The respondents filed their written statement on 29‑1‑1992.

4. In their written statement the respondents took the plea that the applicant Institute had not come with clean hands and that the reference was liable to be dismissed on the ground that a duly constituted council passed order on 28‑8‑1983 whereby the matter was constituted and the respondents were warned to be careful in future on their accepting the lapses. It was pleaded that the Reference was belated and hopelessly time‑barred as the same was not, filed within the stipulated period as provided under section 20K. It was further pleaded that since the duly Constituted Council had previously considered the matter of lapses and the matter having already been decided, it could not be reopened by a new Council at a belated stage. It was also pleaded in the written statement that unconditional apology having been submitted by the respondents and accepted by a competent Council, the matter was a past and closed transaction.

5. I have heard Mr. Ghulam Abbas Pishori, Advocate for the applicants and Syed Himayat Ali Pirzada, Advocate appearing for the respondents. Both learned counsel have also filed written arguments.

6. Learned counsel for the applicant submitted that, in fact, the Corporate Law Authority made two complaints against the respondents, the first one on 20‑2‑1983 and the second on 25‑7‑1984. He stated that the proceedings in complaint dated 20‑2‑1983 were closed as. apparent from letter dated 21‑9‑1983 issued by the Executive Director of the applicant. He, however, contended that the instant proceedings were the result of second complaint made by the Corporate Law Authority on 25‑7‑1984 against the respondents. He submitted that the investigation was conducted by the Investigation Committee and the respondents were found guilty of professional misconduct. The respondents were offered opportunity of personal hearing before the Council which the respondents did not avail, resultantly the Reference was competently filed. It was argued that the respondents were liable to the penalties provided section 20D of the Ordinance.

7. Conversely, learned counsel appearing for the respondents submitted that on tendering unconditional apology by the respondents, they were pardoned and, therefore, reopening of the complaint and initiating proceedings against them was in violation of the Injunctions of Islam as well as the provisions of Article 13 of the Constitution. It was contended by him that a person cannot be vexed twice for the same offence. He further contended that Reference could not be filed in view of the provisions of section 20K of the Ordinance. In support of his contention, learned counsel for the respondents relied upon the cases reported in (i) 1991 PCr.LJ 110 (ii)1987 SCMR 1967 and (iii) PLD 1995 SC 410.

8. It appears necessary to advert, in the first instance, to the authorities relied upon by the learned counsel for the respondents.

In the authorities cited (i) and (ii), the proceedings were initiated under sections 3 and 4 of the Contempt of Court Act in which the contemnors tendered unconditional apology and placed themselves at the mercy of the Court. It was held that grace lies and cause of justice is also advanced in showing indulgence to the person who places himself at the mercy of the Court resultantly, the proceedings against the contemnors were dropped in the cited cases.

The case at serial No. 3 is in respect of section 11 and Order II, rule 2, C.P.C wherein a dictum has been laid down by the Honourable Supreme Court that the pleas which were available to the petitioner were, not raised in the earlier suits between the parties, the suit was barred under section 11 read with Order 2, rule 2, C. P. C. .

All the three rulings cited by the, learned counsel are thus of little relevance to the facts of the present case and does not advance the case of the respondents. '

9. It will be advantageous to enumerate the provisions of law applicable in the matter.

Chapter V‑A. of the Chartered Accountants Ordinance; 1961 deals with the misconduct: Section 2t)A of the Ordinance provides that in member of the Institute has prima facie been guilty of any professional misconduct specified in Schedule I or Schedule II, the Secretary of the Institute shall, and any member or any aggrieved person may, bring before the Investigation Committee any such fact. It further provides that where a complaint is received by the Institute that any member of the Institute or student is guilty of professional misconduct, the complaint shall, with relevant and necessary facts, be laid before the Investigation Committee. Section 20B provides the mechanism for the Investigation to be conducted by the Investigation Committee. Sub section (1) of section 20B provides that if on considering the facts or complaint laid before it under section 20A, the Investigation Committee is of the opinion that such facts or complaint require investigation, it shall after giving a notice to the member of the institute or student whose conduct is in question, hold an inquiry. Subsection (2) of the said section provides that a member of the Institute or a student whose conduct is in question shall be given an opportunity of being heard and, if such member or student so desires, the Investigation Committee shall permit such member or student to be represented before it by a counsel or by a member of the Institute. Subsection (3) further provides that after the completion of the enquiry, the Investigation Committee shall report the result of the enquiry of the Council.

Section 20C of the Ordinance provides that if on receipt of the report under section 20A, the Council finds that the member of the Institute or student, as the case may be, is not guilty of any professional misconduct, it shall record its findings accordingly and direct that the proceedings or as, the case may be, the complaint be filed.

Section 20D deals with the cases in which a member is found guilty. It provided that if on receipt of the report under section 20B, the Council is of the opinion that the member of the Institute has been guilty of the offence specified in Schedule I, it may, after affording such member an opportunity of being heard, either personally or through counsel or another member of the Institute, make any of the following order, which include reprimand, imposition of penalty, and removal of the name of such member from the Register for a period not exceeding five years:

Provided that where it appears to the Council that the case is one in which the name of such member ought to be removed from the Register for a period exceeding five years or permanently, it shall not make any order but shall refer the case to the High Court with its recommendations thereon.

Subsection (2) of the section 20D of the Ordinance provides that if the Council is of opinion that the member of the Institute is guilty of a professional misconduct specified 'in Schedule II, it shall refer the case to the High Court with its recommendations thereon.

Section 27 of the Ordinance empowers the Council to make bye laws for the purpose of carrying out the objects of this Ordinance by a notification in the Official Gazette.

Chapter X of the C.A. Bye‑Laws, 1961 prescribes the procedure for enquiries relating to misconduct of members. Bye‑Law 98 provides that it shall be the duty of the Secretary and the right of any member or of any aggrieved person to lay before the Investigation Committee any fact, inter alia, indicating that a member has become liable to exclusion, suspension or reprimand under any provision of the Ordinance or these bye‑laws. It further provides that where a complaint has been received by the Institution, the Council or the Secretary that any member has become liable as aforesaid, the complaint shall forthwith be laid before the Investigation Committee. Bye‑Law 99 imposes certain duties on the Investigation, Committee. It requires that it shall be the duty of the Investigation Committee to consider the facts or complaint laid before it under the provisions of the last proceeding bye‑law and where it is of the opinion that the facts or complaints require investigation, if shall forthwith give notice to the member of its intention to consider the complaint. The Investigation Committee shall give such opportunity to a member of being heard before it and shall, if the member so desires, permit such member to be represented before it by counsel or by a solicitor or by a member of the Institute. The Investigation' Committee shall thereafter report the result of its inquiry to the Council. According to Bye‑law 100 if on receipt of such report the Council finds that a formal complaint has not been proved. It shall record its findings accordingly and direct that theproceedings shall be filed or the complaint shall be dismissed as the case may be However, if on receipt of such complaint the Council finds that a formal complaint has been provided, it shall record a finding to that effect and shall afford to the member either personally orthrough a counsel or a solicitor or a member of the Institute, an opportunity of being heard before orders are passed against him on the case and may thereafter make any order .including reprimand, suspension, exclusion of the member from membership. Notice of the finding and decision of the council shall forthwith be given to the member.

Bye‑law 101 provides that when the Council finds‑that a formal complaint has been proved, it shall cause its findings and decision to be published in the Gazette of Pakistan and in such journals as it shall think desirable and as soon as practicable after such finding and decision are pronounced. However, in case a formal complaint has not been proved, the Council may make such publication, if any, as in the circumstances of the case it considers desirable.

10. The aforesaid provisions of the Ordinance as well as the Bye- Laws are quite clear and unambiguous with regard to dealing with the cases of professional misconduct. Law requires the Institute that it shall lay the complaint containing relevant and necessary material before the Investigation Committee as and when received by it. On receipt‑ of the complaint, Investigation Committee is required to consider the fact laid before it. On consideration of the facts if it is of the opinion that the facts or the complaint require investigation, it shall give a notice to the member concerned and hold an inquiry. The member concerned after the service of notice is to be given an opportunity of hearing and the proceedings of the Investigation Committee are necessarily to be, conducted in presence of the member concerned. It is, thus, mandatory upon the Investigation Committee to "consider" the facts of the complaint laid before it and form an `opinion' to see as to whether ex facie a basis has been made for proceedings against a member. It is only when an opinion is formed by the Investigation Committee after considering the material facts placed before it to proceed against a member, then a notice is to be served upon the member concerned and the proceedings are taken against him.

11. It will be noted that the use of term 'consideration' and 'opinion' in the Ordinance and Bye‑Laws is significant and clearly shows that the Legislature intended the criterion to be purely objective. Term 'consideration' came to be discussed by the Hon'ble Supreme Court in Abdul Majid Beg v. K. Karimuddin and others 1968 SCMR 867: and it was observed that "consideration" implies perusal and formation of an opinion by the authority concerned about the correctness of the report or otherwise." This observation was made in the context of consideration of inquiry report by the competent Authority under the Railway Servants (Efficiency and Disciplinary) Rules, 1961.

It was observed by Division Bench of this Court in the case of Shahbuddin v. Inspecting Assistant Commissioner of Income‑tax, Range‑I, West Zone, Karachi and 4 others PLO 1988 Karachi 587 that: the word 'consider' means to look at attentively, or carefully, to think, to take into account, to regard, hold the opinion.

In the present case the Investigation Committee has to form it's opinion on factual existence of certain grounds capable of objective determination.;."`<

Keeping in view the dicta laid down in the citations mentioned above, I am of the humble opinion that to 'consider' would mean to carefully examine, to determine, to adjudicate, and last but not least to apply mind. Undoubtedly such application of mind should be fair, honest, reasonable, and bona fide.

12. In the case in hand, it would be seen that on receipt of the 'complainant from the Corporate Law Authority it was not laid before the Investigation Committee. But in derogation of the legal provisions the comments were called by the applicant Institute from the respondents. Thus, the Investigation Committee had no occasion to consider the material in the complaint and from it's independent opinion. Instead the comments/explanation were referred to the Investigation Committee. Admittedly, the material forming the basis of the complaint was neither considered by the Investigation Committee nor, any independent opinion was formed or recorded by the Investigation Committee to proceed against respondents. Certainly, the Investigation Committee proceeded on the direction of the Institute. Strangely enough, the Investigation Committee did not put the respondents on notice before taking into consideration the material placed before it, though the Ordinance and the Bye‑laws made thereunder specifically, provide that it is mandatory upon the Investigation Committee to issue a notice to the concerned member before proceedings against him. Thus, the provisions of law were' flagrantly violated.

13. Admittedly, in the present case, the Investigation Committee conducted ex parte inquiry against the respondents. The respondents were neither associated with the proceedings of inquiry nor were they provided opportunity of hearing by the Investigation Committee, either before conducting the inquiry, or during the proceedings, or even after the conclusion of the inquiry. Thus, not only the provisions of law were flouted, but the proceedings were undertaken in sheer disregard of the fundamental principles of natural justice. After conducting ex parte proceedings against the respondents, Investigation Committee submitted a report to the Institute. On receipt of the report of the Investigation Committee the Council was required under the provisions of section 20C to record its findings to the effect either to direct that the proceedings against a member be instituted or, as the case may be, the complaint be filed. The Legislature has made it a mandatory upon the Council to record a finding. Certainly that findings has to be recorded after evaluating the material made available to the Council as appearing in the inquiry report. Thus, the Council has to tentatively assess and examine the evidence and satisfy itself to the effect that on the basis of facts and B circumstances substantiated by the material placed before the Council, action was warranted against the respondent. Term 'satisfaction' has been defined as 'actual persuasion'. That means a mind not troubled by doubt or which has reached a clear conclusion. (See Angland v. Payne 1944 NZLR 610 (626). However, no independent finding of the Council has been placed on record, as such the legal provisions were, once again, contravened. The proceedings of the Council which have been placed on record are ex parte in nature which, inter alia, authorize the Institute to initiate the proceedings against the respondents and for that purpose to contact some lawyer and to seek his services for filing reference. The prayer in the reference does not contain the recommendations of the Council as required under section 20D of the Ordinance. It is a settled principle of law, that the penal provisions are to be construed strictly. Benefit must be extended to the respondent on account of illegalities and lapses committed on the part of the Institute, as the proceedings were undertaken in a prejudicial and unlawful manner. It may be observed with unease that for obvious reasons the proceedings against the respondent were initiated in a non- serious, imprudent faint hearted manner, which were bound to suffer a set back.

14. On close scrutiny of the record it has come to light that the complaint filed by the Corporate Law Authority against the respondent was one and the same, which in the first instance seems to have been dropped by the Institute by accepting the apology tendered by the respondent. In fact the complaint was not taken seriously and appears to have been buried by the Institute. However, subsequently when the Corporate Law Authority again furnished serious and minute details of the professional misconduct allegedly committed by the respondents, the Management of the Institute, which has by then changed was constrained to initiate the proceedings in a mindless half hearted and haphazard manner under the pressure of events, which lead to failure due to absence of legality. In the circumstances the legal objection raised by he learned counsel for the respondents to the effect that the complaint having already been disposed of, could not be revives has much force. There is no other option except to sustain the contention.

15. As is abundantly clear from the above discussion the complaint being full of follies, loopholes and legal infirmities the Reference is liable to be rejected as provided under section 20F of the Ordinance. The Reference is accordingly rejected.

16. Though the Reference in this matter has been rejected on account of illegalities in the proceedings, yet some observations are deemed necessary to be made. As required under section 252 of the Companies Ordinance, 1984, each company must at their annual general meeting appoint an auditor to hold office until the next annual general meeting. Only a person who is Chartered Accountant within the meaning of Chartered Accountants Ordinance, 1961 can be appointed to act as an auditor of a public company as provided under section 254 of the Ordinance.

17. As regards the function of an Auditor, it would be advantageous to reproduce the following observations of Lord Denning in the case reported as Fomento Sterling Area Ltd. v. Selsdon Fountain Pen Co. Ltd. (1958) 1 WLR 61;----

"An auditor is not to be confined to the mechanism of checking vouchers and making. arithmetical computations. He is not to be written off as a professional `adder upper and subtractor'. His vital task is to take care to see that errors are not made, be they errors of computation or errors of omission or commission or down right untruths. To perform this task properly he must come to it with an enquiring mind not suspicious of dishonesty but suspecting that someone may have made a mistake somewhere and that a check must be made to ensure that there has been none."

18. It would not be out of place to incorporate hereinbelow the definition of word "auditing" as provided in the book. "Principles and Practice of Auditing". by R. Glynne Williams:‑‑

"Auditing may be defined as the independent examination 'and, investigation of the books, accounts and vouchers of a business with a view to enabling the auditor to report whether, the Balance Sheet and Profit and Loss account are properly drawn up so as to show a true and fair view of the state or the affairs and the profit and loss of the business according to the best of the information and explanations' obtained by the auditor. "

19. It is thus clear that the auditors are the ultimate watchdogs of the shareholders' interest. According to the set practice, the auditors are required to give a report which is either "clean" or "qualified". By issuing a "clean" report, the auditor certifies that the financial statement reflects "true and fair" view of the company's affairs and a "qualified" report subjects such opinion to some observation of irregularity or inconsistency. Of Late the managements of large companies in our country which are dependent on the public confidence; had been frenziedly trying to secure a "clean" audit report from their auditors. Since the auditors are recommended. (and virtually appointed) by the Board of Directors, some of them are made to condescend to the management demands. Undoubtedly it causes a devastating affect if the auditors put a seal of approval on the misleading accounts of company.

The case under discussion, if looked into in the above context, reflects a terrible state of affairs. Institute of Chartered Accountants which has been vested with the authority to monitor the affairs of its members, has duty towards the Nation in general and the shareholders in particular to 'take serious and stringent measures to prevent any mishap. It has been noted with serious concern that the proceedings in the instant case were initiated by the Institute in a half‑hearted manner which adversely reflects the role of the Institute itself, and was bound to erode confidence of the shareholders in the Auditors, which requires to be checked. It is because of the lapses on the part of Applicant Institute that the reference has to be rejected.

Let a copy of this judgment be forwarded to the Chairman, Corporate Law Authority, Government of Pakistan, Islamabad, for taking appropriate steps for. effective implementation of the lave.

M. B. A./I‑61/KReference rejected.