Judgment :- 1. This is a reference by the Council of the Institute of Chartered Accountants under sub-section (5) of S.21 of the Chartered Accountants Act, 1949. The finding of the Council reads as follows: "The respondent was guilty of professional misconduct under S.21 of the Chartered Accountants Act, 1949 read with clause (7) of Part I of the Second Schedule to the Act." "It was decided to recommend to the High Court that the name of the respondent may be removed from membership of the Institute for a period of two years." Clause (7) of Part I of the Second Schedule provides that a chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he is "grossly negligent in the conduct of his professional duties". 2. The complaint against the respondent was made by the the Registrar of Companies, Kerala State. It related to his conduct as the auditor of the Alagappa Textiles (Cochin) Limited in respect of the years ended 3112 1952 and 3112 1953. The auditor's report for 1952 is Ext. 6 and for 1953 is Ext. 7. 3. The Disciplinary Committee of the Council found that three of the charges charges (a), (b) and (g)-have been brought home to the respondent. We shall deal with them in that order. 4. Charge (a) relates to a sum of Rs. 10,000/- debited to the account of the Indo Agencies Limited on 221 1953. That debit, though not supported by any acknowledgment signed by the payee, was not commented upon or objected to by the respondent in his report. The Disciplinary Committee dealt with the matter as follows: "The defence of the respondent is (1) that he having only test checked the cash vouchers, it is possible that the voucher in question had escaped his notice, and (ii) that in any event the voucher having been signed by Dr. Alagappa Chettiar who was the founder and a major share-holder of both the Alagappa Textiles (Cochin) Ltd., and Indo-Agencies Ltd., and the management of both the companies being closely inter-connected, no objection could be raised against his action in having accepted the acknowledgment by Dr. Alagappa Chettiar who was the founder and a major share-holder of both the Alagappa Textiles (Cochin) Ltd., and Indo-Agencies Ltd., and the management of both the companies being closely inter-connected, no objection could be raised against his action in having accepted the acknowledgment by Dr. Chettiar, as one on behalf of Indo-Agencies Ltd. Shri A.P.Roy, the Solicitor attached to the office of the Regional Director, Department of Company Law Administration, Madras, on the other hand contended that in the circumstances of the case, all the vouchers should have been checked, and no consideration could be shown to the Respondent on the ground that he had test checked only some of them; also that the company (Indo-Agencies Ltd.) to whom the money is shown to have been paid having not acknowledged the amount, the fact, in all events should have been reported to the share-holders. No evidence has been led before the Committee whether any internal check operated over the accounts of Alagappa Textiles (Cochin) Ltd. or that the Respondent had taken care to verify its existence. Test-checks, ordinarily, only can be applied to routine payments which are of a revenue nature and that too when there is in existence an efficient system of internal check and the auditor has taken care to examine its existence. Such conditions did not obtain in the case discussed above. Also it can be well assumed that a cash payment of Rs. 10,000/-in any event would attract the attention of the auditor and more particularly when it is a payment to a person connected with the management by debit to the account of an associated company, and the payment has not been acknowledged by that company. For these reasons the duties of the Auditor have to be construed strictly and the plea of his having applied test-check to cash payments, cannot be accepted. On the foregoing consideration the Committee "The allegation is that the account of Alagappa Estates Ltd., was debited with Rs. For these reasons the duties of the Auditor have to be construed strictly and the plea of his having applied test-check to cash payments, cannot be accepted. On the foregoing consideration the Committee "The allegation is that the account of Alagappa Estates Ltd., was debited with Rs. 75,000 on 30 4 53 and the relevant credit was afforded to the account of Jupiter Airways Ltd. (in liquidation) without any document having been executed that might show that Alagappa Estates Ltd., had agreed to accept the debit, and that the auditor had failed to draw the attention of the share-holders to this in holds the Respondent guilty of gross negligence." We have gone over the ground afresh; but see no reason to differ from the conclusion reached by the Committee. 5. The Disciplinary Committee summed up charge (b) as follows: his report." "The facts are that the Jupiter Airways Ltd. (in liquidation) owed Rs. 75,000 to Alagappa Textiles (Cochin) Ltd. The liquidator had accepted the claim of the company as an unsecured debt. Subsequently, when the liquidator took out misfeasance proceedings against Dr. Chettiar he compromised the action against him. by agreeing that the company (Alagappa Textiles (Cochin) Ltd.) would surrender its claim against Jupiter Airways Ltd. (in liquidation.) Such an agreement was entered into without either the consent of Alagappa Textiles (Cochin) Ltd. or that of Alagappa Estates Ltd., having been obtained. In pursuance to the agreement the sum of Rs. 75,000, outstanding against Jupiter Airways (in liquidation) was transferred to the account of Alagappa Estates Ltd., as aforementioned. Normally when the balance in the account of a party is transferred to that of another, it is necessary for the auditor to ascertain whether the parties had mutually agreed to the transfer; also whether the chances of its recovery had not been affected in any way as a result of such a transfer. In this case, neither of these tests appear to have been applied, presumably because the auditor was unduly influenced by the fact that the entries had been made under the direction of a person who was all in all, so far as the management of the two companies was concerned and he considered that it was unnecessary for him to question his authority. In the opinion of the Committee the Respondent had completely abdicated his duty in having failed to verify the basis of the transfer of so large a sum from one account to another as well as by not having cared to ascertain the effect it would have on the recovery of the debt, and as such he must be held guilty of gross negligence." The second resolution at the meeting of the Directors of the Alagappa Textiles (Cochin) Limited held on 25 41953 reads as follows: "Resolved that in consideration of M/S. Alagappa Estates Limited having undertaking the liability for a sum of Rs. 75,000/- (Rupees Seventy five thousand) only due from the Jupiter Airways Limited (in liquidation), this company hereby releases the Official Liquidator to the Jupiter Airways Limited (In liquidation) from the liability to pay the said sum of Rs. 75,000/-or any dividend in the winding up in respect thereof." In view of the opening words of the resolution, "in consideration of Messrs. Alagappa Estates Limited having undertaking the liability for a sum of Rs. 75,000"-"undertaking" must be a mistake for "undertaken"-, we cannot say that the respondent had no basis for his inference that there was an undertaking on the part of Alagappa Estates Limited to pay the sum of Rs. 75,000 to the Alagappa Textiles (Cochin) Limited. It has to be noted that one of the three Directors present at the meeting on 25 41953 was Mr. T. R. Velunny, a Director nominated by the Government of Travancore-Cochin, apparently for the purpose of ensuring that everything was proper and in order. 7. Charge (g) relates to an amount of Rs. 68, 304 8 9 included by the respondent under the head "Investment: Fully paid Shares of Joint Stock Companies at Cost" in the balance-sheets for 1952 and 1953. The Disciplinary Committee dealt with the matter as follows: "The allegation as regards this matter is that both in the balance-sheet for the year 1952 and that for the year 1953 the sum of Rs. 68,304 8 9 representing investment in partly paid shares held by the company in the capita! of Travancore Electro Chemical Industries Ltd., had been shown under the Group Heading ‘Investment in fully paid shares of joint stock Companies'. 68,304 8 9 representing investment in partly paid shares held by the company in the capita! of Travancore Electro Chemical Industries Ltd., had been shown under the Group Heading ‘Investment in fully paid shares of joint stock Companies'. The Respondent, when confronted with this charge, accepted that it was a mistake but added by way of an explanation that though he had been correctly classifying the investments in the Balance Sheets for the earlier years, only through an over-sight the amount had been wrongly classified and pleaded that this may be looked upon as a mere clerical error. The examination of the Balance Sheets for the years 1950 and 1951 however disclosed that the amount is correctly disclosed in the Balance Sheet for 1950 but not in that for 1951. The Committee is not-impressed with the explanation put forward by the Respondent for such a lapse. It may also be mentioned that due to nonpayment of calls the shares in question were subsequently forfeited and the amount invested therein was lost to the company. On these grounds, the Committee is of the view that the auditor was guilty of gross negligence in the discharge of his duties as far as incorrect disclosure of the amount invested in partly paid shares is concerned." 8. It is not clear why the Disciplinary Committee says that "the shares in question were subsequently forfeited" in the last sentence of the first paragraph of the extract given above. The letter from the Travancore Electro Chemical Industries Limited dated 16 111950 and reproduced on page 134 of the original paper book indicates that the shares were as a matter of fact forfeited prior to that date. 9. The main object of an audit is the verification of the accounts kept & the statements prepared. Of equal importance is the detection of fraud and the detection of errors. The auditor need not necessarily be a blood-hound; he must certainly be a watch-dog. May be he need not bay to the whispering wind; perforce he must give an honest bark. 10. Of equal importance is the detection of fraud and the detection of errors. The auditor need not necessarily be a blood-hound; he must certainly be a watch-dog. May be he need not bay to the whispering wind; perforce he must give an honest bark. 10. The duties of an auditor have been dealt with in man, Halsbury sums them up as follows: "It is the duty of an auditor to verify not merely the arithmetical accuracy of the balance sheet, but its substantial accuracy, to see that it includes the particulars required by the articles and by statute, and contains a correct representation of the state of the company's affairs. While, therefore, it is not his duty to consider whether the business is prudently conducted, he is bound to consider and report to the share-holders whether the balance sheet shows the true financial position of the company. To do this he must examine the books and take reasonable care to see that their contents are substantially accurate." (3rd Edition, Vol. 6, page 387). 11. A question of jurisdiction raised by counsel for the respondent alone remains for consideration. According to him the proviso to explanation I in S.21 applies to this case. That explanation reads as follows: "In this section'High Court' means the highest Civil Court of appeal, not including the Supreme Court, exercising jurisdiction in the area in which the person whose conduct is being inquired into carries on business, or has his principal place of business at the commencement of the inquiry: Provided that where the case relating to two or more members of the Institute have to be forwarded by the Council to different High Courts, the Central Government shall, having regard to the ends of justice and the general convenience of the parties, determine which of the High Courts to the exclusion of the others shall hear the cases against all the members." The case before us does not relate to two or more members of the Institute; it relates only to the conduct of the respondent. (1963) II MLJ. 42 to which our attention has been drawn has nothing to do with this case, and it should be evident that the proviso has no application. 12. (1963) II MLJ. 42 to which our attention has been drawn has nothing to do with this case, and it should be evident that the proviso has no application. 12. In the light of what is stated above we have come to the conclusion: (1) that the findings recorded are right; (2) that there was some justification for the approach of the respondent to the sum of Rs 75,000/- debited to the Alagappa Estates limited; and (3) that the interests of justice will be satisfied if we direct that the name of the respondent be removed from the membership of the Institute for a period of one year. We order accordingly; and direct the parties to bear their respective costs.