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2023 (8) TMI 620
Anti-Competitive agreements - abuse of dominant position - scheme of merger by absorption of the Inox with PVR was sanctioned and the appointed date of the scheme was fixed mutually as 1st January, 2023 - alleged contravention of the provisions of Section 3(1) of Competition Act, 2002 - Appellant has vehemently argued that the Commission has committed an error on the ground that actual conduct is not being shown whereas the word used in Section 3(1) of the Act is ‘likely’ which mean something which is probable or something which might well happen as it conveys the sense of probability as distinguished from a mere possibility.
HELD THAT:- Section 3(1) deals with the anti competitive agreements whereas Section 5 of the Act talks of combination which says that “the acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises”.
It is apparent that both PVR and Inox have now become a single entity after merger and the effect of a combination as defined under Section 5 of the Act which is regulated by Section 6 of the Act has nothing to do with Section 3(1) of the Act which deals with the anti-competitive agreements in which both the entities retain their separate identities even after the agreement is entered into unlike the merger of two entities which takes effect of a combination in terms of Section 5 of the Act. It has come in the order itself that since the merger of PVR and Inox was not falling within definition of Section 5 because of the issue of threshold, therefore, the information under Section 19(1)(a) has been filed by the Appellant alleging the contravention of Section 3(1) of the Act despite knowing that both entities have become one and do not fall within the definition of Section 3(1) of the Act. Thus, in view of this matter, the application by itself is not in accordance with law for the purpose of initiating action under Section 19(1)(a) of the Act.
As regards, Section 4 of the Act is concerned, it is pertaining to abuse of dominant position for which the Commission has rightly observed that even if the proposed transaction is concluded (merger), dominance per se is not anti-competitive and it is only the conduct which falls within the provisions of Section 4 of the Act. The Commission has also further observed that post facto, if any matter of abusive conduct under the provisions of the Act is brought, or comes to the notice of the Commission, the same may be examined at that stage in terms of the provision of the Act - Which means a liberty has been given to the Appellant or the same even be exercised suo motu by the Commission if it comes to its notice that the dominant position has been abused but until and unless there is any such allegation which prima facie prove the conduct, the action under Section 4 could not also be taken.
There are no merit in the present appeal and the same is hereby dismissed.
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2023 (8) TMI 555
Auction of assets of company under liquidation - Refusal to extend the period for depositing the amount offered by the present appellant towards sale consideration - HELD THAT:- It is an admitted fact that the present applicant was supposed to deposit an amount of Rs. 73,23,30,000/- within a period of thirty days starts from the intimation of confirmation of the tender which was on 02.02.2023. The amount was to be paid on or before 03.03.2023. It is pertinent to note that the learned Single Judge, by an order dated 02.03.2023, that is, one day prior to the completion of the aforesaid period, granted thirty days time to deposit the entire amount. But, only Rs. 37 Crores was paid by the applicant. It is true that, under Clause 13.3 of the Terms and Conditions of the Approved E-Auction, High Court has the right to rescind, amend, delete, invalidate any of the settled terms and conditions. The High Court exercised its power once and extended the time for depositing the entire sale amount, but the applicant failed to comply the same.
The observations made by the learned Single Judge agreed upon - there are no reason to interfere with the judgment of the learned Single Judge - appeal dismissed.
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2023 (8) TMI 554
Seeking transfer of present petition to the National Company Law Tribunal [NCLT] - It is submitted that since no effective steps have been taken in the present matter pursuant to the appointment of the Provisional Liquidator, as such the present matter may be transferred to the NCLT - Section 434 (1)(c) of the Companies Act, 2013.
HELD THAT:- The Supreme Court in ACTION ISPAT AND POWER PVT. LTD. VERSUS SHYAM METALICS AND ENERGY LTD. [2020 (12) TMI 535 - SUPREME COURT] held that So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding-up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to NCLT to now be decided in accordance with the provisions of the Code. Whether this stage is reached would depend upon the facts and circumstances of each case.
In view of the judgment passed by the Supreme Court in Action Ispat, the present application is allowed subject to the petitioner clearing the expenses incurred by the OL. The OL is directed to raise a demand upon the petitioner within one week, which the petitioner will clear within two weeks thereafter.
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2023 (8) TMI 553
Contempt petition - Alleged wilful breach of orders of this Appellate Tribunal - Complainants alleged that Contemnors have been trying to start a competing jewellery business using deceptively similar names in order to take benefit of the trade mark and goodwill of CKC & Sons - whether there have been specific and clear orders for doing or not doing any stipulated action by the Contemnors or not - whether there could be one and only one interpretation without any ambiguity, whatsoever, to any party to the said order? - Section 2(b) of the Contempt of Court Act, 1971.
HELD THAT:- Section 2(b) of the Contempt of Court Act, 1971, Civil Contempt means disobedience to any judgment, decree, directions, orders or other process of Court or wilful breach of an undertaking given to Court. From this it becomes clear that in order to prove contempt, two elements are required to be established i.e., (i) Disobedience of any judgment, decree, directions, orders or other process of Court; (ii) Disobedience or breach must be wilful, deliberate and intentional.
Similarly, mere disobedience or breach of the Tribunal’s order by the Contemnor may not be sufficient to convert into contempt unless it is proven beyond doubt that such disobedience or breach was wilful. While doing so, we are duty bound to take into consideration whether if any alleged breach was of trivial or in nature of technical breach or it was gross and substantial breach with clear intention to take advantage over the other party/ complainants for seeking undue benefits for the Contemnors.
After conjoint readings of the contents of the order, relief sought and direction of the Tribunal not to precipitate of the matter, we are not in position to agree to the submissions of the Complainants regarding any violation of the orders of this Appellate Tribunal; leave aside wilful disobedience amounting to contempt. No specific directions can be read from this order except general restrain to both the parties by this Appellate Tribunal, that too at the best, in the context of the main appeal No. 65 of 2019.
Permission to hold Board Meeting in accordance with Section 173 of the Companies Act, 2013 r/w Section 8 of Companies (Meeting of Board and its Power) Rule, 2014 - HELD THAT:- This Appellate Tribunal gave direction to Respondent No. 9 therein- Mr. C. Ganesh Narayan therein/ Contemnor No. 1 herein not to take any coercive action against the matter concerned. This makes quite clear that the order dated 25.11.2021 by this Tribunal was only for Mr. C. Ganesh Narayan and not to any other (Complainants/ Contemnors) and this restrain order is required to be read with prayer made in I.A. No. 1075 of 2021 (I.A. filed by the Complainants herein), which was specifically in relation to holding Board Meeting in terms of Section 173 of the Companies Act, 2013. In this order, neither there has been any discussion regarding non operation of existing business or opening new store as brought out in present Contempt Case or any specific directions by this Appellate Tribunal on any other matter other than relating to Board Meeting only to Mr. C. Ganesh Narayan - we are not able to appreciate the case being made out by the Complainants regarding alleged violations or breach by Contemnors w.r.t order dated 25.11.2021 passed by this Appellate Tribunal.
There are no alleged contempt - the contempt case devoid of any merit(s) is dismissed.
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2023 (8) TMI 490
Enhancement of authorized share capital by resolution - Validity of Annual General Meeting held on 05.10.2017 - validity of Form DIR-12 in respect of appointment of 3rd and 4th respondents - compliance with Section 61(1) of the Companies Act, 2013 or not.
HELD THAT:- A perusal of the material on record shows that the Petitioner had sent an e-mail dated 26.09.2017 objecting to the AGM held on 28.09.2017 and on 03.10.2017 the Petitioner/Appellant received a Notice that the AGM would be held on 05.10.2017. Another notice was also received on 07.10.2017 calling for a Board Meeting on 14.10.2017 only to add more number of Members. It is contended that the 2nd respondent has filed INC-22 with the Registrar of the Companies, authorizing the shifting of the office from its registered office which is based on the meeting said to be conducted on 05.10.2017, against which act the Petitioner/Appellant had lodged a Complaint with the Police. On 13.10.2017, the Petitioner received an e-mail informing that due to the administrative reasons, the meeting was postponed to 18.10.2017. It is seen from the record that the Company Petition was filed on 25.10.2017 - It is seen from the record that the Company Petition was filed on 25.10.2017. It is the case of the Petitioner/Appellant that the 2nd Respondent had digitally signed and filed the DIR-12 on 04.11.2017 showing that the 3rd and 4th Respondents were appointed as Directors in the AGM held on 05.10.2017.
Enhancement of the Authorized Share Capital on 31.03.2016 - HELD THAT:- It is seen from the record that the extract of the Resolution Anx.R6 in which the Petitioner and the 2nd Respondent had signed, establishes the enhancement of the Authorized Share Capital. The Financial Statements of the Assessment Year of 2015-16, 2016-17 showing the enhanced share capital further substantiates that the enhanced share capital was accepted by the Petitioner as the Anx-4 document shows that these Financial Statements have been duly signed by the Petitioner, the 2nd Respondent and the Auditor of the Company. Therefore, this Tribunal agrees with the finding of the NCLT that the enhancement of the Share Capital of the 1st Respondent Company, vide a Company Resolution dated 31.03.2016, is valid.
A perusal of the material on record shows that there is some strained relationship between the two Directors viz. the Petitioner and the 2nd Respondent. A notice dated 07.09.2017 was issued to the Petitioner adhering with the statutory compliances of convening the AGM before 30.09.2017 and the Petitioner/Appellant is informed that the said AGM is scheduled to be held on 28.09.2017 - A Board Meeting was once again called on 14.10.2017 for approving the Financial Statements and the Directors and Auditor’s report. Once again the Appellant did not attend the Board Meeting held on 14.10.2017.
The record shows that the Petitioner owns 10% shares and the Minority Shareholder and had not attended the Board Meetings held on 28.09.2017, 05.10.2017 and also on 14.10.2017, despite service of notice, and therefore, now belatedly cannot raise the contention that the induction of the 3rd and 4th Respondents as Directors, is invalid, filing of the financial statements is non-est and that the very meetings have to be declared as illegal.
There are no legality or infirmity in the well-reasoned order of the NCLT, Kochi Bench and therefore this Appeal is dismissed.
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2023 (8) TMI 489
Oppression and Mismanagement - rejection of rectification application - non-speaking order - non-disclosure of fact regarding dismissal of the earlier appeal in the present appeal - Section 241-242 of the Companies Act, 2013 - HELD THAT:- Against the rejection of the appeal the appellant instead of preferring an appeal preferred to file a rectification application before the NCLT. It appears that the appellant was persuaded with some of the observations recorded by this Tribunal in its order [2022 (11) TMI 759 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] as if we permitted him to file rectification petition. However, this Tribunal was not inclined to interfere with the order since it was a consent order. In the said order i.e. order dated 11.11.2022 this Tribunal noticed that if an authorisation is given to a counsel and on authorisation such submission is made by the counsel, the integrity of the counsel may not be questioned that too without apprising the concerned Court. Such submission was not permissible to be raised before Appellate Court.
It is evident that Ms Malika Joshi, learned counsel who had given consent before the Tribunal had not signed this communication - the submission of the learned counsel for the Respondent agreed upon that in the aforesaid communication it has not even been indicated as if the signatory of the said praecipe has received any instructions or information from Ms Malika Joshi, learned counsel for the appellant. If the appellant was of the view that without any authorisation such consent was given by his counsel then in that event he would have taken immediate steps for filing a rectification application, instead of preferring an appeal before this Tribunal.
Admittedly the rectification application was filed for rectification of order dated 30.09.2022 against which the appellant had preferred appeal and the same was rejected by this Tribunal in [2022 (11) TMI 759 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI].
Non-disclosure of the fact regarding dismissal of the earlier appeal in the present appeal is itself enough to draw inference that appellant before this Tribunal has not come with clean hands and on this score also the appeal is required to be rejected - appeal dismissed.
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2023 (8) TMI 414
Oppression and Mismanagement - seeking to grant waiver to the Petitioners in order to enable them to file application under Section 241 of the Companies Act, 2013 - HELD THAT:- A reading of the provision of Section 399 of Companies Act, 1956, much less Section 399(4) would show that for the purpose of maintaining the petition under Section 399(1)(a)(b) of the Act, 1956, the Central Government was given the power to form an opinion in this regard as to whether it is just and equitable to do so.
It is categorically provided in Section 244 proviso that the Tribunal can waive all or any of the requirements specified in clause (a) or clause (b) of Section 244 to enable the members to apply under Section 241. Meaning thereby, if the conditions in Clause 244(a) and 244 (b) are not waived and the Applicant is not qualified so far as condition enumerated in Section 244(1)(a)(b) are concerned then the application itself would not be maintainable and the Tribunal cannot proceed with it for the purpose of taking it to any conclusion. It appears that original applicants sensed that it would be in their interest to seek waiver under Section 244 of the Act, therefore, application bearing 533 of 2020 was filed during the pendency of the main application. In the said application, the applicants of application bearing 272 of 2016, who have raised the issue regarding the maintainability of the application even under Section 399 of the Act, 1956.
The deemed waiver, which has been granted, is nowhere provided in Section 244 of the Act rather the Act says that the Tribunal has to take a decision in regard to the merit of the application as to whether the waiter has to be given in respect of clause (a) and (b) of Section 244(1) and that order should not be arbitrary or capricious but should be speaking and reasoned. Since, the reasons are conspicuous by its absence in the order which has been passed in Para 8 of the impugned order, which goes to the root of the case because until and unless waiver is granted the petition shall not be considered as maintainable and no further order can be passed in it.
There is serious error on the part of the Tribunal in recording its finding by which waiver has been granted and the petition has been held to be maintainable which deserves to be set aside - the impugned order is set aside.
The matter is remanded back to the Tribunal - Appeal allowed.
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2023 (8) TMI 358
Professional Misconduct - Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - Non-Compliance with SA 230 "Audit Documentation" - Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - Non-Compliance with other SAs - Non-Compliance with other SAs - Penalties and sanctions.
Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - HELD THAT:- The absence of due diligence and display of gross negligence by the EP run afoul of the provisions of the Chartered Accountants Act, 1949 and resulted in professional misconduct as conceived under Section 22, Clause 9 of Schedule I of the Chartered Accountants Act, 1949. The acceptance of an invalid appointment letter for the Statutory Audit of the Branch, the conduct of the audit based on an invalid appointment, convoluted logic and baseless reading of the law to justify the actions show the absence of professional skepticism and gross negligence on the EP's part. Therefore, we find that the charges in paras 13 and 14 above stand proven.
Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - HELD THAT:- The EP accepted the appointment letter issued by DHFL and issued the audit report without complying with the requirements of SA 210. Between 2015-16 and 2016-17, there was a significant change in the circumstances relating to the branch audit. In 2015-16 the AGM decided to have a separate branch auditor and company's auditor, while in subsequent years there was only one auditor (CAS) to audit the Company and all its branches. This calls for the application of para 13 of SA 210 as well. EP's negligence of the provisions of SA 210 resulted not only in accepting an illegal appointment and non-compliance with SA 210 but also in the absence of professional skepticism and professional judgment in understanding the objective and scope of the audit, thereby violating SA 200 also. Therefore, the charges stand proven.
Non-Compliance with SA 230 "Audit Documentation" - HELD THAT:- On examining the additional documents added by the EP in the interest of fairness, and have taken the evidence into consideration wherever it is supporting or corroborating the original audit documentation submitted to NFRA. However, the conclusion is inescapable that additional documentation submitted to NFRA was deficient in terms of the nature, timing and extent of the audit procedures performed, who prepared and reviewed the audit working papers (WPs) and the timing of the audit procedures. For example, the majority of the additional documents submitted (purportedly from the EP's previous year's audit file), only have the sign and stamp of the Audit Firm. It carries no indication of any audit procedure being performed in respect of the financial year in question i.e. 2017-18 - the EP did not follow the requirements of SA 230 and that the audit documentation does not give evidence of the nature, timing and extent of audit procedures performed, results of those audit procedures and conclusions reached during the. Hence the charges regarding non-compliance with SA 230 stand proven.
Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - HELD THAT:- SA 700 is applicable in this audit and as per the SA 700, the EP is required to evaluate the effect of the misstatements and decide to appropriately modify the opinion. Determination of materiality is therefore important in an audit. Despite noting the evidence for control deficiency such as the observations noted by EP in his working paper titled "Audit observation" for the Koehl branch, the EP did not document how this deficiency was immaterial and how it did not affect the financial information - There is also no determination of materiality thresholds in the audit file. In the absence of documented conclusions, insufficient audit documentation, determination of materiality and assessment of the risk of misstatements and the test of controls we observe that the audit opinion issued by the EP does not comply with SA 700. Hence, the charges stand proven.
Non-Compliance with other SAs - HELD THAT:- Non-compliance with para 6, 7, 8, 9 & 10 of SA 300 as the EP failed in establishing an overall audit strategy and development of audit plan etc. in accordance with SA 300 - the audit plan is not required since the scope of work is "well defined'' have no basis in the SAs and show the EP's absolute disregard to the quality of audit. Moreover, the audit plan now submitted by the EP was not forming part of the Audit File for 2017-18. Such contentions of the EP are against the fundamentals of SA 230 that require the maintenance of an Audit File that can enable an experienced auditor having no connection with the audit to understand the nature, timing and extent of the audit procedures performed to comply with the SAs. To evidence compliance with the requirements of the SAs, it is the fundamental stipulation of SA 230 that the auditor shall assemble the audit documentation in one audit file (and not multiple audit files of different years).
Non-compliance with para 5, 6 & 11 of SA 315 and para 1, 5 & 6 of SA 330 - HELD THAT:- As the audit file lacks any documentation regarding the performance of risk assessment procedures for material misstatements at the financial statement level and assertion level and response to such risks etc. - In the absence of any documentation in the audit file, the contention is only an afterthought and hence not admitted.
Non-compliance with para 10, 11 & 14 of SA 320 - HELD THAT:- Mandatory documentation requirements of SA 320 include the factors considered in the determination of materiality and materiality for the financial statements as a whole, the materiality level or levels for particular classes of transactions, account balances or disclosures, performance materiality and any revision of the materiality amounts as the audit progress. The audit documentation in the present case did not contain any of these details and hence the replies of the EP are not acceptable.
Non-compliance with para 5, 6, 8, 14 & 15 of SA 450 in the absence of the evaluation of identified misstatements and uncorrected misstatements - HELD THAT:- The EP submits that there were no instances of identified misstatements and material misstatements and hence SA 450 is not applicable. The reply of the EP is not acceptable in the absence of any documentation or conclusions in the audit file in this regard.
Non-compliance with para 6 & 9 of SA 500 in not designing and performing audit procedures to obtain sufficient appropriate audit evidence and not evaluating the reliability of information produced by the company - HELD THAT:- The replies are not accepted since there is no evidence in the Audit File of designing and performing audit procedures, such as an audit plan, the substantive procedures performed and the conclusions drawn.
Non-compliance with para 6 of SA 520 relating to the design and performance of analytical procedures - HELD THAT:- The EP submits that SA 520 is not applicable since it is not a financial statement audit. The reply is not accepted since, as explained earlier in this order, the SAs are applicable for the branch statutory audit also.
Non-compliance with para 4, 6, 7, 8 & 9 of SA 530 relating to the determination of sample design, sample size and required audit procedures - HELD THAT:- The conditions in the appointment letter do not evidence basis for EP's work and conclusions. The SAs casts a responsibility22 on the auditor to design and perform audit procedures to obtain sufficient appropriate audit evidence on which to base the audit opinion. The terms dictated by the company cannot substitute this responsibility. There is no evidence that any of the sampling and the related procedures as detailed in SA 530 have been complied with by the EP, while the audit opinion is based on sample testing. In the absence of any evidence to show compliance with the determination of sample design, sample size and audit procedures performed on it, the contentions of the EP are not accepted.
Penalties and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The law lays down a minimum punishment for such misconduct - The EP in the present case was required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to the reports issued to facilitate the Company's Auditor to form their opinion on the Financial Statements. As detailed in this order starting from the acceptance of the Audit to the conduct and conclusion of the audit, there were substantial deficiencies in the Audit and abdication of responsibility on the part of EP, CA Sam Varghese, which establishes the professional misconduct. Despite being a qualified professional, it is found that the EP, CA Sam Varghese has not adhered to the Standards of Audit.
Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality and keeping in mind the deterrence, proportionality, signalling value of the sanctions and time required for improvement in knowledge gaps, in the exercise of powers under Section 132(4)(c) of the Companies Act, 2013, proceed to order the following sanctions:
i. Imposition of a monetary penalty of Rs 100,000 (One Lakh) upon CA Sam Varghese;
ii. CA Sam Varghese is debarred for one year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (8) TMI 322
Professional Misconduct - Acceptance of audit appointment without complying with mandatory legal and ethical requirements and issuing audit report without a valid appointment as per the Act - Failure to comply with Standards on Auditing (SAs) - Non-Compliance with SA 210 “Agreeing the Terms of Audit Engagements” - Non-Compliance with SA 230 “Audit Documentation” - Non-Compliance with SA 700, “Forming an Opinion and Reporting on Financial Statements” - Non-Compliance with other SAs - Penalty and sanctions.
Acceptance of audit appointment without complying with mandatory legal and ethical requirements and issuing audit report without a valid appointment as per the Act - HELD THAT:- In the absence of a valid appointment order, EP’s acceptance vide letter dated 09.09.2017 of the appointment as statutory auditor of the branches and issuance of the “Independent Branch Auditor’s Report” for the eight Branches of DHFL, including the report required under CARO 2006 describing the engagement as Branch Statutory Audit shows the absence of professional skepticism and lack of due diligence on his part - The EP’s position, (shifting the onus on the Company), cannot be accepted as the EP was required to exercise due diligence under the SA 200 and adhere to the specific provisions of the CAs Act under Section 22 read with Clause 9 of the First Schedule. The non-compliance is thus professional misconduct in terms of section 132(4)(c) of the Companies Act 2013. The said lack of due diligence and gross negligence in accepting an invalid appointment is also professional misconduct as per the Chartered Accountants Act, 1949, the meaning of which is conceived in Section 132(4)(c) of the Companies Act 2013.
Non-Compliance with SA 210 “Agreeing the Terms of Audit Engagements” - HELD THAT:- EP’s negligence of the provisions of SA 210 has resulted in accepting an illegal and invalid appointment and issuing a report that is not appropriate to the situation. Thus, apart from the non-compliance with SA 210, this shows absence of professional scepticism and professional judgment in understanding the objective and scope of the audit, thereby violating SA 200 also. Therefore, charges stand proven.
Non-Compliance with SA 230 “Audit Documentation” - HELD THAT:- The lack of sufficient documentation in an audit is not a mere technical and procedural formality but is a serious issue which strikes at the very root of the audit and may defeat the very purpose of the audit itself. Lack of sufficient documentation has been viewed seriously by national and international regulators as well - In the absence of proof documented in the audit file, the inevitable conclusion is that the requirements of the SAs are not met. The facts are evidence that the EP did not follow the requirements of SA 230 and the audit documentation does not give evidence of the nature, timing and extent of audit procedures performed, results of those audit procedures and conclusions reached during the audit. Hence the charges regarding non-compliance with SA 230 stand established.
Non-Compliance with SA 700, “Forming an Opinion and Reporting on Financial Statements” - HELD THAT:- In the absence of any documented conclusions, determination of materiality and assessment of the risk of misstatements and the test of controls and based on the contradictory evidence available, we conclude that the unmodified opinion issued by EP is without any valid basis and therefore the EP did not comply with the provisions of SA 700. The Charges stand established - such lapses relating to the verification of documents during the audit are viewed seriously by audit regulators. A Chartered Accountant, in the audit of a Bank branch, did not verify the securities for debts and was held guilty of professional misconduct of absence of due diligence and gross negligence.
Non-Compliance with other SAs - HELD THAT:- Para 6,7, 8, 9 & 10 of SA 300 as the EP failed in establishing an overall audit strategy and development of audit plan etc. in accordance with SA 300 - para 5, 6 & 11 of SA 315 and para 1, 5 & 6 of SA 330 as the audit file lacks any documentation regarding the performance of risk assessment procedures for material misstatements at the financial statement level and assertion level and response to such risks etc. - para 10, 11 & 14 of SA 320 for determining materiality, performance materiality and documentation thereof - para 5, 6, 8, 14 & 15 of SA 450 absent the evaluation of identified misstatements and uncorrected misstatements - para 6 & 9 of SA 500 in not designing and performing audit procedures to obtain sufficient appropriate audit evidence and not evaluate the reliability of information produced by the company - para 5, 6 and 8 of SA 510 relating to the performance of necessary audit procedures and obtaining sufficient and appropriate audit evidence to ascertain the accuracy of Opening Balances and the accounting policies reflected in the Opening Balances - para 6 of SA 520 relating to design and performance of analytical procedures - para 4, 6,7, 8 & 9 of SA 530 relating to the determination of sample design, sample size and required audit procedures - para 8,9 & 10 of SA 580 regarding obtaining written representations from the management about their responsibilities.
Penalty and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The law lays down a minimum punishment for such misconduct.
Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality and keeping in mind the deterrence, proportionality, signalling value of the sanctions and time required for improvement in knowledge gaps we, in the exercise of powers under Section 132(4)(c) of the Companies Act, 2013, proceed to order the following sanctions:
i. Imposition of a monetary penalty of Rs 100,000 (One Lakh) upon CA Akash Goel;
ii. CA Akash Goel is debarred for one year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (8) TMI 263
Oppression and mismanagement - plea of the Appellant is that in the absence of holding any Shares, in the Applicant’s company, the 2nd Respondent, cannot be a Party, to a Petition, under Section 241 to 244 of the Companies Act, 2013, as she is neither a Member of the Appellant Company nor she is so authorized to do so by the Deceased - HELD THAT:- It must be exhibited that the conduct of Majority Shareholders, was Oppressive to Minority, as Members, and this requires that the events are to be considered as part and parcel of sequential narration.
The Hon’ble Supreme Court of India, in the decision SHANTI PRASAD JAIN VERSUS KALINGA TUBES LTD. [1965 (1) TMI 17 - SUPREME COURT], had held that the Law, has not defined Oppression and it is left to the Court, to decide on facts of each case, whether there is such Oppression, requiring action.
A Succession Certificate, can be granted, not only in respect of the Debt, but also in regard to the Shares, in a Company. Where a Succession Certificate, was granted in respect of Shares, in a Company, the Company, cannot insist upon production of Probate or Letters of Administration.
The 4th Respondent / 2nd Respondent / 2nd Petitioner, seeking Equitable Reliefs, under Section 241 of the Companies Act, 2013, on account of Oppression of their Rights, as Shareholders, and a Systematic Exclusion, from knowing / participating in the Management and the Affairs of the Appellant / 3rd Respondent / 1st Respondent Company. Further, the Petition, arose, in respect of the Family run Appellant / 3rd Respondent Company, in which, the 3rd and 4th Respondents / 1st and 2nd Respondents Family Wing, were specifically excluded from the Management, and Rights of the Shareholders, were denied.
Appeal dismissed.
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2023 (8) TMI 262
Professional Misconduct - Failure to maintain Audit File and to co-operate with NFRA - Misuse of Emphasis of Matters for issuing a modified audit opinion - Erroneous Application of Financial Reporting Framework by the Company - Failure to report the company's non-compliance with the provision of AS 5 and the Framework (issued 2000) - Deferred Tax Assets: failure to report non-compliance with AS 22 - Failure to report or address errors in Cash Flow Statement - Significant Accounting Policies not as per applicable accounting standards - Penalties and sanctions.
Failure to maintain Audit File and to co-operate with NFRA - HELD THAT:- Absence of audit documentation or failure to submit the Audit File to NFRA, is a clear evidence that the auditor failed to obtain reasonable assurance about whether the financial statements as a whole were free from material misstatement and that the auditor's opinion issued through the Independent Audit Report dated 20.05.2015 was without any basis and unreliable and hence, invalid. Accordingly, serious view is taken that of the failure of the EP to respond to NFRA's repeated communications and conclude that the EP by not responding to the proceedings undertaken by NFRA, has violated Section 132 (4) of the Act, 2013, which is a 'professional or other misconduct' in terms of Section 132 (4) (c) of the Act, 2013, read with Clause (2) of Part III of Schedule I of the Chartered Accountants Act, 1949.
Misuse of Emphasis of Matters for issuing a modified audit opinion - HELD THAT:- It is clear that the EP misused the Emphasis of Matter part of the Audit Report to include matters that should have been evaluated separately and considered for effecting modification to the audit opinion under para 6 of SA 705 Para 6 of SA 705 clearly states that auditor should modify the opinion when he concludes that the financial statements are not free from material misstatements or if he is not able to obtain sufficient appropriate audit evidence for the same. Resorting to EoM para in the matters detailed is a clear violation of provisions of SA 706.
Erroneous Application of Financial Reporting Framework by the Company - HELD THAT:- The Company was required under Section 211 of the Companies Act, 1956 to prepare Financial Statements in the form provided in part 1 of the Revised Schedule VI to the Companies Act, 1956 - The EP failed to report these-non- compliances in the Auditor's Report.
Failure to report the company's non-compliance with the provision of AS 5 and the Framework (issued 2000) - HELD THAT:- In Note 30 to the Financial Statements, the company has only disclosed the adjustment relating to waiver of balances and its accounting treatment. However, it has not disclosed the terms of concessions, revised loans balances, repayment period, and rate of interest of One Time Settlement with the lenders. As per para 25 of the Framework, qualitative characteristics of Financial Statements are the attributes that make the information provided in financial statements useful to users. Two of the qualitative characteristics are 'understandability' and 'relevance' given in para 26 and 27 of the Framework. In view of these requirements, the company should have disclosed the important terms of One Time Settlement with lenders, which it did not do. The EP has not pointed out the error in his audit report. This indicates lack of professionalism on his part and his failure to report the company's non-compliance with AS 5 is proved.
Deferred Tax Assets: failure to report non-compliance with AS 22 - HELD THAT:- The company had been in loss for the current reporting period FY 2013-15 and the previous reporting period FY 2012-13. Moreover, it is not clear from the financial statements whether the conditions for the recognition of deferred tax assets were met. EP should have exercised professional scepticism and challenged the management's judgement of recognising the deferred tax assets in the absence of virtual certainty of profits and concrete evidence of sufficient taxable income to realise the same. The EP has therefore failed to report non-compliance with the provisions of AS 22 regarding deferred tax assets as there is no comment in the Auditor's report.
Failure to report or address errors in Cash Flow Statement - HELD THAT:- The company has used Indirect Method to arrive at cash flows from operating activities in the Cash Flow Statements, whereby net profit or loss is to be adjusted for the effects of transactions of non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows - In this case, Net Profit before Tax is derived after considering the non-cash income relating to waiver of interest and leased rental charges by the lenders. However, these items being non-cash items should have been adjusted to arrive at 'Cash flow from Operating Activities'. Since the same has not been done, the Cash Flow from Operating Activities has been inflated - Further, waiver of principal amount of Rs 9.74 crores is shown as Increase/(Decrease) in other reserves in the Cash Flow Statement. Since waiver of principal amount is a non-cash transaction, it should have been excluded from Cash Flow Statement as per para 40 of AS 3 As this has not been reported by EP, the failure to report and address the errors in cash flow statement stands established.
Significant Accounting Policies not as per applicable accounting standards - HELD THAT:- Employee Benefit Expense of financial statements states that the provision for gratuity fund and leave encashment is made on ad hoc basis and not as per the actuarial valuation as required by AS 15. In contrast, in note 2(i) in Significant Accounting Policies, it is stated that the estimated liability for the employee benefits is determined in accordance with the requirements of AS 15 and liability for gratuity is determined and charged to Profit and Loss account based on valuation by independent actuary. The EP did not report these contradictory disclosures and non-adherence of provisions of AS 15, which shows lack of due diligence on his part.
Penalties and sanctions - HELD THAT:- In view of the fact that the EP has not only shown blatant disregard to the Standards on Auditing in conducting audit of a company that affects public interest, but has also shown scant regard to the legal process undertaken by NFRA under Section 132 (4) of the Companies Act, 2013 we take a serious view of his professional misconduct, which assumes further importance in light of the fact that he had long association with the company being its statutory auditor for five financial years from FY 2012-13 to FY 2017-18. As per information available in Annual Report for FY 2013-15, EP was paid Rs 12,20,000 (which included audit fees of Rs 8,00,000 and limited reviews of Rs 4,00,000 and Rs.20,000 for other services).
Considering that the professional misconducts by the EP have been proved and considering the nature of the violations and principles of proportionality, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, order:
i. Imposition of a monetary penalty of Rs.5,00,000 (Rupees Five Lakhs) on the EP, CAT. Raghavendra, proprietor of M/s T. Raghavendra & Associates.
ii. Debarment of CAT. Raghavendra, proprietor of M/s T. Raghavendra & Associates, for ten years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (8) TMI 261
Professional Misconduct - Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - Failure to comply with Standards on Auditing (SAs) - Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - Non-Compliance with SA 230 "Audit Documentation" - Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - Non-Compliance with other SAs - Penalty and sanctions.
Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - HELD THAT:- The absence of due diligence and display of gross negligence by the EP run afoul of the provisions of the Chartered Accountants Act, 1949 and resulted in professional misconduct as conceived under Section 22, Clause 9 of Schedule I of the Chartered Accountants Act, 1949. The acceptance of an invalid appointment letter for the Statutory Audit of the Branch, the conduct of the audit based on an invalid appointment, presenting convoluted logic and baseless reading of the law to justify the actions show the absence of professional skepticism and gross negligence on the EP's part. Therefore, the charges stand proven.
Failure to comply with Standards on Auditing (SAs) - HELD THAT:- The Branch Auditors accepted the "Statutory Branch Audit" assigned by the Company and issued the "Independent Branch Auditors' Report" stating therein that it was conducted in accordance with the SAs specified under the Act. Since these branch audit reports are clearly referred to by Company's Statutory Auditor (CAS) in its report to the members of the Company, here is examined the extent of compliance with the applicable SAs by the Branch Auditor notwithstanding the violation of ethical standards, the Chartered Accountants Act, 1949 and of the Companies Act 2013 in accepting an invalid appointment as the Branch Auditor. The principles and procedures laid down in the SAs including professional skepticism, audit documentation, sufficiency and appropriateness of audit evidence, audit planning, materiality, engagement risk, nature, timing and extent of evidence-gathering procedures and reporting are all applicable in the branch audit as well, being an audit of historical financial information.
Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - HELD THAT:- The EP accepted the appointment letter issued by DHFL and issued the audit report without complying with the requirements of SA 210. Between 2015-16 and 2016-17, there was a significant change in the circumstances relating to the branch audit. In 2015-16 the AGM decided to have a separate branch auditor and company's auditor, while in subsequent years there was only one auditor (CAS) to audit the Company and all its branches. This calls for the application of para 13 of SA 210 as well. EP's negligence of the provisions of SA 210 resulted not only in accepting an illegal appointment and non-compliance with SA 210 but also in the absence of professional scepticism and professional judgment in understanding the objective and scope of the audit, thereby violating SA 200 also. Therefore, the charges stand proven.
Non-Compliance with SA 230 "Audit Documentation" - HELD THAT:- The EP did not follow the requirements of SA 230 and that the audit documentation does not give evidence of the nature, timing and extent of audit procedures performed, results of those audit procedures and conclusions reached during the. Hence the charges regarding non-compliance with SA 230 stand proven.
Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - HELD THAT:- SA 700 is applicable in this audit and as per the SA 700, the EP is required to evaluate the effect of the misstatements and decide to appropriately modify the opinion. However, despite noting the absence of required information the EP did not document how this deficiency was immaterial and had not resulted in a misstatement - Nowhere in the audit file has it been documented how these deficiencies were resolved while reaching the conclusion that all documents were properly obtained by the EP and how its impact was considered by the EP in the audit opinion.
There is also no determination of materiality thresholds in the audit file. In the absence of documented conclusions, determination of materiality and assessment of the risk of misstatements and the test of controls and based on the above contradictory evidence available, we observe that the unmodified opinion issued by the EP does not comply with SA 700. Hence, the charges stand proven.
Non-Compliance with other SAs - HELD THAT:- Non-compliance with para 6, 7, 8, 9 & 10 of SA 300 as the EP failed in establishing an overall audit strategy and development of audit plan etc. in accordance with SA 300 - Non-compliance with para 5, 6 & 11 of SA 315 and para 1, 5 & 6 of SA 330 as the audit file lacks any documentation regarding the performance of risk assessment procedures for material misstatements at the financial statement level and assertion level and response to such risks etc. - Non-compliance with para 10, 11 & 14 of SA 320 for determining materiality, performance materiality and documentation thereof - Non-compliance with para 5, 6, 8, 14 & 15 of SA 450 in the absence of the evaluation of identified misstatements and uncorrected misstatements - Non-compliance with para 6 & 9 of SA 500 in not designing and performing audit procedures to obtain sufficient appropriate audit evidence and not evaluating the reliability of information produced by the company - Non-compliance with para 6 of SA 520 relating to the design and performance of analytical procedures - Non-compliance with para 4, 6, 7, 8 & 9 of SA 530 relating to the determination of sample design, sample size and required audit procedures.
Penalty and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The law lays down a minimum punishment for such misconduct - The EP in the present case was required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to the reports issued to facilitate the Company's Auditor to form their opinion on the Financial Statements. As detailed in this order starting from the acceptance of the Audit to the conduct and conclusion of the audit, there were substantial deficiencies in the Audit and abdication of responsibility on the part of EP, CA Mathew Samuel, which establishes the professional misconduct. Despite being a qualified professional, it is found that the EP, CA Mathew Samuel has not adhered to the Standards of Audit. On the contrary, the EP has tried to cover up the deficiencies by resorting to arguments not supported by law or evidence.
Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality and keeping in mind the deterrence, proportionality, signalling value of the sanctions and time required for improvement in knowledge gaps we, in the exercise of powers under Section 132(4)( c) of the Companies Act, 2013, proceed to order the following sanctions:
i. Imposition of a monetary penalty of Rs.100,000/- upon CA Mathew Samuel;
ii. CA Mathew Samuel is debarred for one year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (8) TMI 260
Professional Misconduct - Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - Failure to comply with Standards on Auditing (SAs) - Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - Non-Compliance with SA 230 "Audit Documentation" - Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - Non-Compliance with other SAs.
Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - HELD THAT:- It is found that the absence of due diligence and display of gross negligence by the EP run afoul of the provisions of the Chartered Accountants Act, 1949 and resulted in professional misconduct as conceived under Section 22, Clause 9 of Schedule I of the Chartered Accountants Act, 1949. The acceptance of an invalid appointment letter for the Statutory Audit of the branches, the conduct of the audit based on an invalid appointment, presenting convoluted logic and baseless reading of the law to justify the actions show the absence of professional skepticism and gross negligence on the EP's part. Therefore, the charges stands proven.
Failure to comply with Standards on Auditing (SAs) - HELD THAT:- Since these branch audit reports are clearly referred to by Company's Statutory Auditor (CAS) in its report to the members of the Company, we examine here the extent of compliance with the applicable SAs by the Branch Auditor notwithstanding the violation of ethical standards, the Chartered Accountants Act, 1949 and of the Companies Act in accepting an invalid appointment of the Branch Auditor. The principles and procedures laid down in the SAs including professional skepticism, audit documentation, sufficiency and appropriateness of audit evidence, audit planning, materiality, engagement risk, nature, timing and extent of evidence-gathering procedures and reporting are all applicable in the branch audit as well, being an audit of historical financial information.
Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - HELD THAT:- The EP accepted the appointment letter issued by DHFL and issued the audit report without complying with the requirements of SA 210. Between 2015-16 and 2016-17, there was a significant change in the circumstances relating to the branch audit. In 2015-16 the AGM decided to have a separate branch auditor and company's auditor, while in subsequent years there was only one auditor (CAS) to audit the Company and all its branches - EP's negligence of the provisions of SA 210 resulted not only in accepting an illegal appointment and non-compliance with SA 210 but also in the absence of professional skepticism and professional judgment in understanding the objective and scope of the audit, thereby violating SA 200 also.
Non-Compliance with SA 230 "Audit Documentation" - HELD THAT:- Even the additional documentation submitted to NFRA was deficient in terms of the nature, timing and extent of the audit procedures performed, who prepared and reviewed the audit working papers (WPs) and the timing of the audit procedures. For example, the majority of the additional documents submitted (purportedly from the EP's previous year's audit file), only have the sign and stamp of the Audit Firm. It carries no indication of any audit procedure being performed in respect of the financial year in question i.e. 2017-18. Similarly, the working papers on verification of cash balances, submitted with additional documentation, did not contain the details such as (a) whether it pertained to a surprise verification, (b) whether the verified cash tallied with the recorded cash, ( c) whether any evaluation was done regarding the controls over cash, (d) who were the responsible persons who verified the cash, (e) who reviewed the WP and what was the time of verification and (f) any cross-references to the related WPs where such details are available.
The EP did not follow the requirements of SA 230 and that the audit documentation does not give evidence of the nature, timing and extent of audit procedures performed, results of those audit procedures and conclusions reached during the. Hence the charges in para 24 above regarding non-compliance with SA 230 stand proven.
Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - HELD THAT:- SA 700 is applicable in this audit and as per the SA 700, the EP is required to evaluate the effect of the misstatements and decide to appropriately modify the opinion. Determination of materiality is therefore important in an audit - in the absence of materiality levels documented in the audit file, there is no justification for the final noting of EP that "unadjusted misstatements, including disclosure misstatements, are immaterial, based on the materiality level”.
In the absence of documented conclusions, insufficient audit documentation, determination of materiality and assessment of the risk of misstatements and the test of controls we observe that the audit opinion issued by the EP does not comply with SA 700.
Penalty and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The law lays down a minimum punishment for such misconduct.
Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality and keeping in mind the deterrence, proportionality, signalling value of the sanctions and time required for improvement in knowledge gaps we, in the exercise of powers under Section 132(4)(c) of the Companies Act, 2013, proceed to order the following sanctions:
i. Imposition of a monetary penalty of Rs.100,000 (One Lakh) upon CA Harish Kumar T K;
ii. CA Harish Kumar T K is debarred for one year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (8) TMI 203
Professional Misconduct - Acceptance of audit engagement disregarding Independence requirements - Tampering of Audit File and related lapses (SA 230, Audit Documentation) - Failure to understand the audited entity, to perform risk assessment procedure to identify, assess & respond to Risk of Material Misstatement due to fraud, and to prepare Audit Plan - Lapses in audit of fraudulent loan transactions with MACEL, fraudulent understatement of loans and evergreening of loans through structured circulation of funds - Lapses in audit of fraudulent recognition of Interest income - Lapses in audit of fraudulent diversion of funds to Giri Vidhyuth (India) Limited (GVIL) - Lapses in audit of fraudulent loan transactions with Tanglin Retail Reality Developments Pvt Ltd (TRRDPL) - Lapses in audit of suspected fraudulent diversion of amount given as land advances to related parties - Penalties and sanctions.
Acceptance of audit engagement disregarding Independence requirements - HELD THAT:- In this case, the Auditors failed to perform appropriate audit procedures to evaluate and maintain their independence from TDL. In spite of the Auditors having an independence threat, they accepted the audit engagement as statutory auditor of TDL from FY 2018-19 by disregarding and grossly violating the principles of lndependence mentioned in the Standards on Auditing and the Code of Ethics. In view of this, the charge stands proved that the Auditors have violated SQC 1, SA 200 and SA 220.
Tampering of Audit File and related lapses (SA 230, Audit Documentation) - HELD THAT:- It is clear that even the ICAI had also advised to document the timing of performing audit procedures in the Audit File. Therefore, the reply of the Auditors is misconceived. We cannot also give credence to the claim that the dates of conducting the audit by article assistants are available in time sheet maintained separately, because these records have not been maintained as part of the Audit File as required under SA 230 - The clear evidence of the Auditors tampering with the Audit File without valid reasons displays unprofessional behavior unbecoming of a professional auditor. We have already seen in the cases decided by PCAOB that internationally any attempt to tamper with the audit file is taken very seriously by the auditing regulators and entails significant regulatory sanctions - the charge that the Auditors have violated SQC 1, SA 200, SA 220 and SA 230 is proved.
Failure to understand the audited entity, to perform risk assessment procedure to identify, assess & respond to Risk of Material Misstatement due to fraud, and to prepare Audit Plan - HELD THAT:- As per SA 300, an auditor is required to establish an audit strategy including nature, timing and extent of planned risk assessment procedure. As per SA 315, an auditor is required to perform risk assessment procedures to provide a basis for identification and assessment of RoMM at the financial statement and assertion level. As per SA 330, an auditor is required to respond to the assessed RoMM. These are mandatory logical sequential audit procedures required for effective performance of an audit engagement. which the Auditors failed to perform. They failed to even understand TDL so as to perform an effective audit - It is found that the Auditors failed to perform these basic audit procedures in this case, and thus violated SA 300, SA 315 and SA 330.
Lapses in audit of fraudulent loan transactions with MACEL (Rs 2614.35 crores), fraudulent understatement of loans (Rs 474 crores) and evergreening of loans through structured circulation of funds - HELD THAT:- The disclosure of related party transactions in the Financial Statements and its routing through banking channel does not provide immunity to such transactions from PMLA. The fact is that Rs 474 crores was diverted to promoter owned company-MACEL and attempts were made to conceal this diversion by fraudulently understating this balance in the financial statements. Total fraudulent transactions with MACEL during the year were Rs 2614.35 crores. There was large scale evergreening of loans through structured circulation of funds involving many group companies. All this was done without proper authorization by the Board of Directors, without entering into any agreement and without obtaining any security. Money has ultimately moved to promoter owned company-MACEL. These are ample proof of cheating and dishonesty. Therefore, this is a clear case of money laundering as per PMLA, which Auditors failed to report in the Independent Audit Report.
The Auditors' contention that section 143(1) of the Act provides certain rights to auditor and does not cast any duty on the auditor is not acceptable as the auditor is required by section 14 3 (1)(b) to inquire whether the transactions of the company which are represented merely by book entries are prejudicial to the interest of the company. Obviously, the Auditors have failed to comply with these provisions in this case - the charge that the Auditors have violated section 143(1)(b), 143(12) of the Act, CARO, SA 200, SA 240, SA 250, SA 315, SA 330 and failed to report violation of section 179(3) of the Act by TDL, is proved.
Lapses in audit of fraudulent recognition of Interest income of Rs 75.58 crores - HELD THAT:- The importance of revenue recognition can be understood from the fact that SA 240, which deals with the auditor's responsibilities relating to fraud in an audit of financial statements, made it mandatory for auditors to presume fraud in recognition of revenue. The risk of material misstatement due to fraud is a significant risk and the auditor is required to obtain an understanding of the entity's related controls including control activities. The risk of fraud in revenue recognition is greater in listed companies where performance in measured in terms of year-over-year revenue growth or profit. TDL is a subsidiary company of a listed company, CDEL. Fraudulent recognition of interest income of Rs 75.58 crores has resulted in overstatement of revenue and profit of TDL and in tum profit of the listed company CDEL. This has materially impacted the financial performance of TDL and CDEL. We note that the Auditors had shown their gross negligence by not obtaining sufficient appropriate audit evidence in this important matter - the Auditors violated section 143(12) of the Act, SA 200, SA 240, SA 315 and SA 330, hence this charge stands proved.
Lapses in audit of fraudulent diversion of funds of Rs 507.05 crores to Giri Vidhyuth (India) Limited (GVIL) - HELD THAT:- It is already detailed how the loans were not actually recovered from MACEL but fraudulently understated by Rs 474 crores through receipt of cheques from MACEL. Further, evergreening of loans through structured circulation of funds among group companies including MACEL, GVIL & TRRDPL to clear cheques has also been proved. The financial positions of these companies clearly shows that MACEL had negligible business and GVIL did not have any business. MACEL & GVIL had negative net worth and were used by the promoters as conduits for diversion of funds. There were enough evidences that MACEL and GVIL did not have financial strength to repay loans. Accordingly, recognition of impairment loss allowance and writing off of non-recoverable portion of loans was required to be made, which was not done by TDL. The Auditors have failed to report non-compliance with Ind AS 109. The financial jugglery adopted by the TDL and GVIL was known to them as they were the Auditor for both TDL and GVIL - the charge that the Auditors have violated section 143(3)(e), 143 (12) of the Act, the CARO, SA 200, SA 240, SA 315 and SA 330, is proved.
Lapses in audit of fraudulent loan transactions of Rs 1743.42 crores with Tanglin Retail Reality Developments Pvt Ltd (TRRDPL) - HELD THAT:- The fact of TRRDPL becoming the nodal intermediary for sale of Mindtree shares is not documented in the Audit File. The Auditors have tried to give rationale to cover part of transactions of Rs. 1,743.42 crores with TRRDPL. Out of Rs 992.66 crores loan taken from TRRDPL, reply is given for Rs 775 crores only and similarly, out of Rs 750.76 crores loan given to TRRDPL, reply is given for Rs 500 crores only. Further, this part amount is not supported by any audit evidence available in the Audit File. These loan transactions were required to be evaluated by the Auditor at the time of performing audit procedures, which is not evident from the Audit File. Therefore, the Auditors have given this reply as an afterthought with intention to shield their deficiencies in audit.
The bank statements and bank reconciliation statements of TDL and other group companies, given in Chapter C-4 of this Order, all points to the fact that TRRDPL was used by the TDL for evergreening of loans and understatement of loans given to MACEL. This shows that the Financial Statements of TDL and TRRDPL were manipulated to hide diversion of funds to promoter controlled entity-MACEL. It was the Auditors' duty to exercise due diligence while conducting Audit of transactions with TRRDPL. Failure to do so shows their gross negligence in discharging the statutory duty cast upon them by the Auditing Standards and the Act - tthe charge that the Auditors have violated the CARO, SA 200, SA 240, SA 315, SA 330 and failed to report violation of section 179(3) of the Act by TDL is proved.
Lapses in audit of suspected fraudulent diversion of Rs 415 crores given as land advances to related parties - HELD THAT:- Release of huge amount to related parties on the pretext of land advance, title disputes of land for which money is advanced and return of advance on the flimsy explanation of non-suitability of land, were required to be evaluated by the Auditors with professional skepticism. But this was not done indicating that the Auditors had performed the audit in a perfunctory manner - the charge that the Auditors have violated section 143(12) of the Act, SA 240, 315 and SA 3 3 0 is proved.
Penalties and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed is evident from the fact that a minimum punishment is laid down by the law.
In the instant case, the Auditors, chose to preserve their professional relationship with the promoters of the auditee company, instead of discharging their statutory duty to protect public interest by exercising professional skepticism and questioning the promoters’ dubious activities and transactions leading to diversion of shareholders and stakeholders’ money on a large scale. Had they performed the required audit procedures with due professional skepticism, many of the dubious transactions would have been perhaps detected. But by failing to do so, they foreclosed this possibility causing immense harm to shareholders and stakeholders - Auditors were required to ensure compliance with Standards on Auditing, Laws and Regulations to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate their users. As detailed in this Order, substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the part of the Auditors establish their professional misconduct and lack of due diligence. Despite being qualified professionals, the Auditors have not adhered to the Standards and have thus not discharged the duty cast upon them.
Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, it is ordered as below:
(i) Imposition of a monetary penalty of Rs One crore upon M/s Sundaresha & Associates. In addition, M/s Sundaresha & Associates is debarred for a period of two years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
(ii) Imposition of a monetary penalty of Rs Five Lakhs upon CA C. Ramesh. In addition, CA C. Ramesh is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (8) TMI 132
Challenge to NCLT against striking off of companies - grievance of the petitioners is that despite having been struck off, the shell companies have been transacting with shares of the petitioner no. 1, thereby adversely affecting the commercial interests of the petitioner no. 1-Company, which amounts to financial fraud and corporate offence - HELD THAT:- A perusal of Section 248 of the 2013 Act indicates that the same merely extends up to the striking off of a company if it is not carrying on any business or operation for a period as stipulated in Section 248(1). Upon taking the steps as contemplated in sub-sections (1) to (4) of Section 248, the Registrar, under sub-section (5) thereof, may strike off the name of the company from the Register of Companies and publish a notice in the Official Gazette, upon which the company stands dissolved - However, there is nothing in the provisions of the 2013 Act which empowers the ROC to enquire into the antecedents and activities of a dissolved company. Section 250 of the 2013 Act provides that where a company stands dissolved under Section 248, it shall, from such date, cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from the said date, except for the purpose of realizing the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.
The argument of the petitioners, that the petitioners cannot go on filing repeated appeals against the revival orders, is not acceptable, since it is the aggrieved party who has to prefer such an appeal - In the event the petitioners feel that they are aggrieved in any manner with the revival of any of the previously struck off companies which are the shareholders of the petitioner no. 1-company, it is open for the petitioners to prefer a challenge before the NCLAT. However, it is not for the petitioners to route their own grievances through other agencies, including the ROC, by avoiding the responsibility of preferring such challenges in due course of law.
If the companies-in-question are revived under Section 252 of the 2013 Act after having been struck off initially, there is no bar on the said companies to carry on functioning. Hence, the cause of action in respect of the revived companies, as argued by the petitioners, lies only in a challenge before the NCLAT - it is well-known that the Ministry has been specifically sensitized to look into economic offences of the nature as complained of by the present petitioners, such as functioning of struck-off shell companies by transacting shares of companies like the petitioner no. 1.
Application disposed off.
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2023 (8) TMI 131
Oppression and Mismanagement - foreclosure of the Concession Agreement regarding construction of Kiratpur – Ner Chowk section of National Highway - Approval of proposed settlement between the National Highways Authority of India (NHAI) and Kiratpur Ner Chowk Expressway Limited (KNCEL) - power of NCLT to approve the “Settlement Agreement’ between KNCEL and NHAI - senior creditors were required to be heard before according such approval or not - calculation of “Debt Due” and the “Full and Final Settlement amount” has been done correctly or not - any estoppel would operate in view of the fact that the creditors/Appellants had accepted the distributed share of the settlement amount or not.
Whether the settlement agreement between KNCEL and NHAI is in accordance with the proposed Resolution Framework for IL&FS and its group companies? - HELD THAT:- It is noted that the procedure suggested by Union of India through its Affidavit dated 17.2.2020, which has been approved by NCLT and NCLAT dated 17.2.2020, gives various options for final resolution. These options include modalities for Group Level Resolution, Vertical Level Resolution and Asset Level Resolution. The Resolution Framework considers Asset Level Resolution as the most feasible option and includes sale of entity as Asset Level Resolution. This sale of entity can take place wherever feasible. The Resolution Framework also stipulates that Asset Level Resolution is to be undertaken in a fair and transparent manner to determine the best possible price to effect a change in the ownership and the relevant company in accordance with process supervised by the New Board and approved under section 242 of the Companies Act.
In the present case, it is seen that the resolution of KNCEL is proposed under the Guidelines of MoRTH for resolution of “stuck projects”. These Guidelines provide for settlement between the Concessionaire KNCEL and Concessioning Party NHAI and execution of a Supplementary Settlement Agreement to finalise and concretise the settlement between the two parties. Further, the settlement between the parties is worked out under the guidance of the Conciliation Committee of Independent Experts-II, which comprises of a Retired Hon’ble Judge of High Court and two Learned Technical Experts as conciliators.
Admittedly, the Concessionaire and Concessioning Party had signed the original Concession Agreement. Therefore, in our view they are the necessary parties to enter into a settlement agreement. We have noted earlier in this judgment that the settlement agreement has been worked out under the supervision of CCIE-II, which in para 2.1 notes the gross settlement amount of Rs.708.40 crores and the net due amount, after taking into account Rs.35.78 crores towards recoveries, is Rs. 672.42 crores - the Settlement between KNCEL and NHAI was in consonance with the provisions of the Resolution Framework for IL&FS and its group entities and approved by NCLAT, which was further approved by CCIE-II and Hon’ble Shri Justice D.K. Jain.
Whether the Termination Payment in accordance with Article 37.3.1 of the Concession Agreement as claimed by the Appellant will be applicable in the present case? - HELD THAT:- The procedure set out in the MoRTH Guidelines stipulates that Concession Agreement may be foreclosed vide a Supplementary Agreement, mutually agreed and executed between the parties. Annexure I of these guidelines refers to 90% of ‘Debt Due” amount, which is calculated in accordance with the formula which is discussed and then accepted by both the parties. Since the two original parties in the Concession Agreement were entering into a Supplementary Settlement Agreement, there does not appear to be any requirement to consult all stakeholders including financial creditors at the stage when the two parties to the Concession Agreement are settling their dispute. The amount of “Debt Due” which has been calculated by the Appellants based on the claims admitted by the Claim Management Consultant cannot be the amount of settlement.
In the present case, a settlement has been entered into between KNCEL and NHAI and a Supplementary Agreement was signed non mutually agreed terms between the two parties. Therefore, any reference to the clauses of the Concession Agreement for calculation of ‘Termination Payment’ is not justified and the full and final settlement amount in the present case is as per the settlement agreement.
The settlement entered into by KNCEL and NHAI for foreclosure of the Concession Agreement relating to Kiratpur - Ner Chowk Project under the MoRTH Guidelines is in accordance with the approved Resolution Framework in relation to the ILF&S and its group entities which are correctly approved by the NCLT by the Impugned Order.
The Appeal is, therefore, devoid of merit and is accordingly dismissed.
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2023 (8) TMI 130
Professional Misconduct - Acceptance of appointment as EQCR without ensuring eligibility criteria - Failure to Perform the role of EQCR Objectively - penalty and sanctions.
Acceptance of appointment as EQCR without ensuring eligibility criteria - HELD THAT:- The audit firm had the option to engage some other person, but CA Riya Agarwal had the option to refuse such appointment, if she felt that she was not qualified - the charge for acceptance of the role as Engagement Quality Control Reviewer without having prior experience is established. Such lapses have been viewed seriously by international regulators as well.
Failure to Perform the role of EQCR Objectively - HELD THAT:- The EQCR partner performed the review by routinely ticking a yes/no checklist and signing on some of the WPs prepared by the ET. The work of EQCR partner is not separately identifiable from that of the ET, which raises serious doubts on the performance of her statutory obligations. Accordingly, it is established that the EQCR Partner failed in her assigned role in the Statutory Audit of BCL by virtue of noncompliance with the requirements of SQC 1, SA 220 and SA 230 - Such lapses have been viewed seriously by international regulators as well.
Penalty and sanctions - HELD THAT:- It is the duty of an EQCR partner to conduct the review of the work of the ET and ensure that the Independent Auditor's Report issued is appropriate, as it provides useful information to the stakeholders and public, based on which they make decisions on their investments or do transactions with the public interest entity - Without a credible Audit, Investors, Creditors and Other Users of Financial Statements would be handicapped. The entire corporate governance system would fail and result in a breakdown in trust and confidence of investors and the public at large if the auditors do not perform their job with professional scepticism and due diligence and adhere to the standards.
Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law.
Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, and also keeping in mind that the EQCR Partner has accepted all the charges and taken responsibility for the lapses pointed out in the SCN, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered the imposition of a monetary penalty of Rs.1 Lakh upon CA Riya Agarwal.
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2023 (8) TMI 129
Professional Misconduct - Improper Assessment of Going Concern Basis - lmproper reporting of Going Concern in Independent Auditor's Report - Inconsistency in audit documentation - Penalty and Sanctions.
Improper Assessment of Going Concern Basis - HELD THAT:- Under the going concern basis of accounting, the financial statements are prepared on the assumption that the entity is a going concern and will continue its operations for the foreseeable future. According to para 21 of SA 570, if in the auditor's judgment the management's use of the going concern basis is inappropriate, then the auditor shall express an adverse opinion. The auditor has admitted that he performed limited quantitative analysis and also did not maintain sufficient documentation. The auditor failed to comply with SA 570 in failing to determine if the management's use of the going concern basis was inappropriate and express an opinion accordingly - the auditor has not performed analysis in accordance with the provisions of SA 570 and therefore the Auditor's opinion does not take into account his judgment on the Going Concern basis arrived at in accordance with SA 570. This is a clear violation of SA 570 - In addition the auditor has also violated Para 8 of SA 230 Audit Documentation, which requires an auditor to prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit to understand the procedures performed - It is evident that the EP's use of the Emphasis of Matter to include the Going Concern basis, without determining if he needed to modify his opinion on this account, was in clear violation of SA 706 - the EP failed to comply with SA 230, SA 570, SA 705 and SA 706 in applying the prescribed audit procedures to evaluate BCL's assumption of the use of going concern basis for the preparation of its Financial Statements.
lmproper reporting of Going Concern in Independent Auditor's Report - HELD THAT:- As per Para 22 of SA 570, if adequate disclosure about the material uncertainty is made by the entity in its financial statement, the auditor shall express an unmodified opinion and the auditor's report shall include a separate section under the heading "Material Uncertainty Related to Going Concern". However, in terms of para 23 of SA 570, if adequate disclosure is not made and the auditor opines that the use of going concern is doubtful, the auditor is required to express a qualified opinion or adverse opinion, as appropriate, in accordance with SA 705 - the charge against the EP that he violated SA 570 and SA 705 is established - Such lapses have been viewed seriously by international regulators as well.
Inconsistency in audit documentation - HELD THAT:- As per para 13 of SA 580, the date of written representation shall be as near as practicable to, but not after, the date of the auditor's report on the financial statements. In light of this, the charge is not further proceeded with.
Penalty and sanctions - HELD THAT:- It is the duty of an auditor to conduct the audit with professional scepticism and due diligence and report his opinion in an unbiased manner. Statutory audits provide useful information to the stakeholders and public, based on which they make their decisions on their investments or do transactions with the public interest entity - Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proven cases of professional misconduct are to be viewed, is evident from the fact that a minimum punishment is laid down by the law.
The EP in the present case was required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to Financial Statements - Despite the presence of a plethora of negative indicators indicating serious threat to the financial health of BCL, CA Shekhar Sharad failed to obtain sufficient appropriate audit evidence in support of assumption of Going Concern basis and failed to report the conclusions in accordance with the applicable provisions of SA 570 read with SA 705. The EP vide his reply to the SCN has accepted all the charges listed in the SCN and also stated that BCL was his first audit of a listed company, and the lapses have not occurred due to gross negligence, but due to error in making professional judgement.
Considering the proved professional misconduct, the nature of violations, principles of proportionality and deterrence against future professional misconduct, and also keeping in mind that the EP has accepted all the charges and taken responsibility for the lapses pointed out in the SCN, in exercise of powers under Section 132( 4)( c) of the Companies Act, 2013, it is hereby ordered the imposition of a monetary penalty of Rs.1 Lakh upon CA Shekhar Sharad.
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2023 (8) TMI 63
Seeking restoration of the name of the Appellant Company in the register maintained by the Registrar of Companies - HELD THAT:- In view of the fact that the Audited Balance Sheet as on 31st March, 2018 and Bank Account Statement for the Financial Years 2017-18 and especially for the month of June, 2017 show that the Appellant No. 1 Company was actively involved in business transactions at the time of Striking off the name of the Appellant No. 1 Company by the Respondent vide its Circular dated 30.06.2017. Therefore, it cannot be said that the Appellant No. 1 Company is not carrying on any business or operations. Hence, the order passed by the National Company Law Tribunal, New Delhi Bench (Court- II) as well as Registrar of Companies, NCT of Delhi & Haryana is not sustainable in law.
The name of the Appellant Company directed to be restored to the Register of Companies subject to the following compliances - application allowed.
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2023 (8) TMI 62
Professional Misconduct - Failure to obtain audit evidence regarding the existence and condition of inventory - Failure to identify the related party and related party transactions - Failure to obtain external confirmations for the Trade Receivables & Trade Payables - Failure to Plan the audit and failure to understand the entity and its environment - Failure to identify the TCWG and failure to communicate with TCWG - Failure to report Non-Compliance with laws & regulations - Failure to determine the materiality and performance materiality - Failure to document the sampling methodology adopted for substantive testing - Failure to appoint the Engagement Quality Control Reviewer (EQCR) - Penalty & Sanctions.
Failure to obtain audit evidence regarding the existence and condition of inventory - HELD THAT:- The Audit File does not contain any evidence of the sampling methodology used in audit. Paragraph 7 of SA 501 requires that if attendance at physical inventory counting is impracticable, the auditor shall perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory - The EP has displayed gross negligence in his audit of the inventories. In view of this, it is clear that the EP did not comply with the requirements of SA 501 in so far as it relates to his obligations in respect of inventory. Hence, the charge relating to EP’s failure to comply with SA 501 stands proven -
Failure to identify the related party and related party transactions - HELD THAT:- The EP’s submission in the present case makes it clear that the EP has not exercised any professional judgement and scepticism in relation to identification of the related parties even when 100% sales were being made to a single customer who had been already identified as a Related Party earlier in the financial year 2013-14 - It is thus concluded that the charge relating to EP’s failure to identify the Related Party and Related Party transactions stands proven.
Failure to obtain external confirmations for the Trade Receivables & Trade Payables - HELD THAT:- The EP has acknowledged that no external confirmations from debtors & creditors were carried out. The reply of the EP makes it clear that the management had imposed a limitation on the scope of the auditor. Limitations imposed by management may have other implications for the audit, such as for the auditor’s assessment of fraud risks and consideration of engagement continuance as per Para A9 of SA 705 . However, no assessment of fraud risk having been done by the EP is evident from the audit file, nor has he furnished evidence of the additional procedures being performed in the absence of external confirmation procedures - Denial of contact details of debtors & creditors to EP should have aroused the suspicion of the auditor for further procedures which evidently did not happen, and the EP failed to verify balances in violation of SA 505 - It is concluded that the charge regarding failure to obtain balance confirmation from creditors and debtors stands proven.
Failure to Plan the audit and failure to understand the entity and its environment - HELD THAT:- The replies of the EP are irrelevant to the charges, since as per para 11 of SA 300 the Audit Plan has to be documented which has not been done. In addition to para 11, detailed procedures regarding documentation are given in paras Al7 to A19 of SA 300 which are referred to in Para 11 of SA 300 and are required to be followed, which was not done. The reply also makes it clear that the EP has a serious lack of knowledge regarding the basic requirements of an audit. In view of the above, it is concluded that the charge regarding the failure on the part of the auditor to plan the audit and failure to understand the entity and its environment, stands proven.
Failure to identify the TCWG and failure to communicate with TCWG - HELD THAT:- In the Audit File there is no documentation of identification, determination and communication with TCWG. Communication with TCWG needed to be formalized in some manner for its evidentiary value and also to ensure compliance with SA 260. In view of this, it is concluded that the EP’s failure to identify and communicate with TCWG is established.
Failure to report Non-Compliance with laws & regulations - HELD THAT:- The EP in his submission has nowhere commented on the documentation in relation to the consideration of laws and regulations in the audit of WNLL for FY 2016- 17, as required under para 29 of SA 250, which says that the auditor shall document identified or suspected non-compliance with laws and regulations and the results of discussion with management and, where applicable, those charged with governance and other parties outside the entity. Though the EP has stated that defaults were not material to qualify the report, we find that materiality has not been defined in the Audit File. Therefore, the charge regarding the failure to report the non-compliance with laws & regulations stands proven.
Failure to determine the materiality and performance materiality - HELD THAT:- The EP was charged with the failure to determine the materiality, as required under Para 10 of SA 320, for the financial statements as a whole; and performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing, and extent of further audit procedures as required under para 11 of SA 320 - The EP in his reply has nowhere commented on the observation on materiality. In absence of any proper reply or evidence submitted by the EP, it is concluded that the charge relating to his failure to determine the materiality and performance materiality stands proven.
Failure to document the sampling methodology adopted for substantive testing - HELD THAT:- In the absence of any reference being made to audit documentation in the reply to the SCN, the charge relating to failure to document the audit sampling methodology adopted (extent of verification of sales & purchases transaction) during the course of audit stands proven.
Failure to appoint the Engagement Quality Control Reviewer (EQCR) - HELD THAT:- The EP was charged with failure to determine the appointment of EQCR of WNLL for FY 2016-17. This was in violation of SA 220, as WNLL is a listed company, and the auditor was required to determine that EQCR had been appointed in terms of Para 19(a) of SA 220 - In his reply to SCN, the EP has stated that a team of four persons was deputed for carrying out the audit of the Company and the same was led by a Chartered Accountant having experience of around 5 years. It is evident from the reply of the EP and the Audit File that no EQCR was appointed. In the absence of any documentation about the EQCR and no reference about the EQCR by the EP in his written and oral submissions, it is concluded that the charge regarding failure to determine the appointment of EQCR stands proven.
Penalty & Sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law - The EP in the present case was required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to financial statements to facilitate its users. As detailed in the foregoing paragraphs of this Order, substantial deficiencies in audit on the part of CA Hemant Khator establish his professional misconduct. Despite being a qualified professional, CA Hemant Khator has not adhered to the SAs and has thus not discharged the duty cast upon him. Under the circumstances, we proceed to impose sanctions keeping in mind the deterrence, proportionality, and the signalling value of sanctions.
Considering that professional misconducts have been proved and considering the nature of violations and principles of proportionality, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, order: a) Imposition of a monetary penalty of Rs. Two Lakhs upon CA Hemant Khator; b) In addition, CA Hemant Khator is debarred for two years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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