When an Accounting Failure Becomes Misconduct

In one line

Almost every serious disciplinary case about money is, underneath, a case about an account that was not kept or not rendered.

In exam wording: breach of rules 25 to 32 of the Bar Council of India Rules is professional misconduct under section 35 of the Advocates Act 1961, and the reported cases show that misappropriation, retention without justification, and failure to intimate or account are among the gravest of professional misconducts.

The order in which these cases actually happen

A disciplinary case about money is usually told backwards, starting with the punishment. Told forwards it always has the same four stages, and seeing them is what makes the topic coherent.

Stage one: money comes in. From the client, from the court, from the other side.

Stage two: an entry is not made, or not made properly. No client ledger; or one that does not say whether the money was for fees or expenses; or one without dates.

Stage three: the client is not told. Rule 27 requires intimation as early as possible, and it is the rule most often broken first.

Stage four: the money is used, or simply not returned. By then there is no record to show what happened, and the advocate's own explanation is all there is.

The lesson for a student is the reverse of what it looks like. These are not cases about dishonest people who happened to keep bad accounts. They are cases in which bad accounts made the dishonesty possible and the defence impossible.

Grade one: misappropriation

Harish Chandra Tiwari v. Baiju, AIR 2002 SC 548, (2002) 2 SCC 67, decided 8 January 2002 by K.T. Thomas and S.N. Phukan JJ.

The accounting facts. Compensation of Rs 8,118 in a land acquisition case was deposited in court for a client described by the disciplinary committee as an old, helpless, poor illiterate person. The advocate applied for its release and withdrew it on 2 September 1987. He made no payment to the client and gave him no intimation. The client learnt of it long afterwards and could not get the money back.

The rules broken. Rule 27, the fact of receipt was not intimated as early as possible. Rule 25, no account was rendered showing the receipt and its date. Rule 28 gave no right to appropriate, the sum being compensation and not money sent for expenses, and there being no settled fee to appropriate towards.

The result. The Bar Council of India held him guilty of breach of trust but suspended him for three years. On his own appeal under section 38 the Supreme Court enhanced the punishment to removal of his name from the roll, holding that misappropriating a poor client's money is among the gravest professional misconducts and that a three-year suspension treated it too lightly.