Home Case Index All Cases Companies Law This

Law	-- All -- GST Income Tax Benami Property Customs Corporate Laws Securities / SEBI Insolvency & Bankruptcy FEMA Law of Competition PMLA Service Tax Central Excise CST, VAT & Sales Tax Wealth tax Indian Laws
Court	-- Any -- Supreme Court SC Orders / Highlights High Court Appellate Tribunal Tribunal Appellate authority for Advance Ruling Advance Ruling Authority National Financial Reporting Authority Competition Commission of India ANTI-PROFITEERING AUTHORITY Commission Central Government Board DISTRICT/ SESSIONS Court Commissioner / Appellate Authority Other
Citation	--Year-- 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 1951 1950 Upto 1949 - -Volume- 1 2 3 4 5 6 7 8 9 10 11 12 -
Landmark	Nil - N/A Referred in >= 2 Cases Referred in >= 4 Cases Referred in >= 5 Cases Referred in >= 10 Cases Referred in >= 15 Cases Referred in >= 25 Cases Referred in >= 50 Cases Referred in >= 100 Cases
Order by	TMI Citation Date of Decision

Advanced Search Options

Companies Law - Case Laws

Showing 401 to 420 of 15082 Records

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 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.

  ---

• 2023 (8) TMI 14
  

  Professional Misconduct - Incorrect reporting of outstanding liability arising out of Foreign Currency Loan - Incorrect accounting treatment of Assets given on Lease - Not reporting non-compliance with the format of Financial Statements - Other charges showing lack of duc diligence by EP - Violations of Standards on Auditing - penalties and sanctions.

  Incorrect reporting of outstanding liability arising out of Foreign Currency Loan - HELD THAT:- Since the foreign currency loan, which was material as per the balance sheet size, has not been correctly translated at the closing rate and there are no circumstances justifying use of any rate other than the closing rate, the charges that the FP did not report non- compliance by the Company with the requirements of AS 11 stands proven.

  Incorrect accounting treatment of Assets given on Lease - HELD THAT:- The explanation given by the FP cannot be accepted as Assets given on finance lease have to be presented by the Lessor as Receivables as per para 26 of AS 19. However, they have been presented under Tangible Assets in Balance Sheet as on 31.3.2016, following the format given in Schedule III to the Companies Act, 2013. It is misleading and erroneous to present unpaid finance lease receivables as fixed assets because definition, recognition and measurement and disclosure requirements for fixed assets and lease receivables are completely different. Hence, the charge of incorrect accounting of Assets given on lease stands proven.

  Not reporting non-compliance with the format of Financial Statements - HELD THAT:- In respect of Depreciation, the EP explained that it is an age-old practice to give the depreciation schedule as given by the Company and has attached the financial statements of a few companies to substantiate his explanation - The explanation given by the EP cannot be accepted as Schedule III of the Companies Act, 2013 clearly provides that the corresponding amounts for the previous reporting period need to be given for all items in the Financial Statements including notes. Further, a wrong practice does not become Iegitimate just because it is being followed by other companies and not being reported by other auditors.

  Other charges showing lack of due diligence by EP - HELD THAT:- The EP was charged with not reporting the omission of Note no. 2.3(ix), 2.3(x) and 2.3(xi) in the financial statements of the Company. In the Financial Statements for 2015-16, Note no. 2.3(viii) is followed by Note no. 2.3(xii) in both the printed and signed copy of the Financial Statements. In his first response letter dated 28.10.2022, the EP reiterated that the said Notes were available in their signed copy and were inadvertently missed later on. However, in the second response letter dated 05.12.2022, the EP accepted the error and submitted that it was a typographical error - while the charges in paras 30 to para 33 may not be ‘material misstatement’ but signal lack of due diligence on the part of the EP. Lack of due diligence is a professional misconduct under Clause (7) of Part 1 of Second Schedule of Chartered Accountants Act, 1949.

  Violations of Standards on Auditing - HELD THAT:- As per para 10 of SA 320, when establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole. Further, as per para 11 of SA 320, the auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. There is no work paper in the audit file showing that the materiality benchmarked in the previous years’ audit has been kept the same in the year under review - A percentage is often applied to a chosen benchmark as a starting point in determining materiality for the financial statements as a whole (Para A2 of SA 320). Even though the fixed percentage and the underlying benchmark is kept the same across the years by the EP, the amount of Materiality and Performance Materiality will depend upon the balance sheet numbers and need to be documented accordingly in the Audit File. There is not a single work paper in the audit file which states the determination of Materiality and Performance Materiality for FY 2015-16. The explanation given by the auditor is not accepted and we conclude that the charge is proven.

  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 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. Independent Auditors of Public Listed Companies serve a critical public function of enabling the users of Audited Financial Statements to take informed decisions. Absent a robust system of Auditing, Investors, Creditors and Other Users of Financial Statements would be handicapped and their work compromised - Thus, the auditor is duty bound to examine and ascertain the integrity of Financial Statements of such entities¹⁰ in larger public interest. This is all the more important for a financial services entity, like Nicco that involve considerable public interest and public funds. The EP, in this case, has not carried out the audit as per the Standards on Auditing and failed to report several non-compliances by the Company with Accounting Standards in preparing its financial statements.

  All these show a collective lack of due diligence in the audit and gross negligence specifically relating to incorrect valuation of foreign currency loans and failure to report incorrect reporting of assets on Iease.

  Considering the fact 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 imposition of a monetary penalty of Rupees One Lakh upon CA Gautam Guha.

  ---

• 2023 (7) TMI 1559
  

  Sanction of Scheme of Amalgamation - Sections 230 & 232 of the Companies Act, 2013, read with Section 66 of the Companies Act, 2013 - HELD THAT:- The proposed Scheme contemplated between the Petitioner Companies, appears to be prima facie in compliance with all the requirements stipulated under the relevant Sections of the Companies Act, 2013. As the representation from the Statutory Authorities has been duly addressed by the Petitioner Companies and since all the requisite statutory compliance have been fulfilled, this Tribunal sanctions the proposed Composite Scheme of Amalgamation and Arrangement appended as Annexure-A1 of the Petition.

  The scheme is sanctioned - petition allowed.

  ---

• 2023 (7) TMI 1495
  

  Seeking dissolution of the Company Remedy Finance Private Limited (in members voluntary liquidation) - HELD THAT:- The Official Liquidator sent a letter dated 10.02.2021 to Income Tax Department regarding their no objection/objection, if any. The said department vide their letter bearing No.58 dated 05.03.2021, had requested the official liquidator to furnish the PAN of the Company and the same was informed to the Income Tax Department vide letter dated 12.03.2021. However despite reminders, no response was received. The Official Liquidator verified the e-filing portal of the Income Tax Department, w.r.t. the said company, which shows that w.r.t. Remedy Finance Private Limited – ‘No Pending Action Found’ as on 06.02.2021.

  The Official Liquidator is also satisfied that the necessary compliance of Section 497 and other relevant provisions of the Act have been made and the affairs of the said company have not been conducted in a manner prejudicial to the interest of its members or to the public interest and the said company may be dissolved.

  In view of the satisfaction accorded by the OL by way of the present petition, the Court is convinced that the relief sought for deserves to be granted. Accordingly, the Remedy Finance Private Ltd. is hereby wound up and shall be deemed to be dissolved with effect from the date of the filing of the present petition i.e. 26.05.2023.

  Petition disposed off.

  ---

• 2023 (7) TMI 1493
  

  Final dissolution of a company by the Official Liquidator - Rule 9 of the Companies (Court) Rules, 1959 - HELD THAT:- In the opinion of the Court, the liquidation proceedings deserve to be brought to an end. Consequently, M/s GENESIS WELLNESS CLINIC PRIVATE LIMITED is dissolved. The amount of Rs. 23,749/- be also transferred to the Common Pool Fund.

  The petition along with all pending applications is disposed of, and the Official Liquidator is discharged.

  ---

• 2023 (7) TMI 1492
  

  Transfer of winding-up petition to NCLT - whether Resolution ought to be explored by it first or the company should straightaway be taken to liquidation? - Section 434 of the Companies Act, 2013 - HELD THAT:- It is found that in Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd. [2019 (1) TMI 1442 - SUPREME COURT], the Hon’ble Supreme Court held that once an application for transfer is filed, the High Court must transfer such proceedings to NCLT which will then deal with the same as an application for initiation of corporate insolvency resolution process.

  From a perusal of the second proviso to Section 434(1)(c) as also the aforesaid judgement it is clear that any matter, which is transferred, is to be dealt with by the NCLT as an application for initiation of Corporate Insolvency Resolution Process (CIRP) process under the IBC, 2016.

  Thus, it is clarified that the NCLT would have to strictly proceed in accordance with the said provision and treat the petition as an initiation of CIRP process.

  Application disposed off.

  ---

• 2023 (7) TMI 1362
  

  Seeking Condonation of Delay of 43 days in filing of the present Appeal - Sufficient cause for delay or not - HELD THAT:- In case of expiry of the statutory period of the 45 days, proviso to Section 421(3), further provides a period of 45 days for a litigant to file the Appeal after showing sufficient cause for not approaching the Court within the statutory period provided under Section 421(1) and can maintain the Appeal provided it is proved that he could not approach the Court within a prescribed time due to a sufficient cause.

  Hence, the sufficient cause is a Sine-Qua-Non for the purpose of entertaining an Application and granting Condonation of Delay in such cases - On considering the arguments of the Counsel for the Appellant and after perusal of the averments made in the Application, the considered opinion is that the reason given in the Application do not constitute sufficient cause because the Appellant had been seeking under unnecessary beliefs.

  The present Application is hereby dismissed.

  ---

• 2023 (7) TMI 1341
  
  The Supreme Court of India dismissed the Special Leave Petitions under Article 136 of the Constitution. The petitions are accordingly dismissed, and any pending application stands disposed of.

  ---

• 2023 (7) TMI 1296
  

  Application for permission to travel abroad - HELD THAT:- It is stated by learned Counsel for the Ministry of Corporate Affairs that the allegations against the Petitioner are serious as a substantial amount of money has been siphoned off by the Petitioner, who is a whole time director in LEEL Electricals Limited.

  List on 16.08.2023.

  ---

• 2023 (7) TMI 1247
  

  Removal of unauthorised occupants from Premises - seeking to ensure a clear passage of 20 feet from the front portion of the main road so to enable the entry of vehicles into premises - HELD THAT:- In terms of the order dated 25 April, 1990, the applicant was directed to pay the balance purchase consideration in quarterly instalments over a period of 18 months. The applicant has only paid an aggregate amount of only Rs. 40,25,000/-. Admittedly, there remains an amount of Rs. 17,25,000/- due and payable. The obligation of any purchaser to ultimately pay the entire purchase consideration within the prescribed time period is a necessary pre-condition to any sale. To this extent, the confirmation of sale is in one sense incohate. There is a shortfall in the sale consideration even after a period of 33 years. The applicant is solely responsible for such default. The duty to timely pay the entirety of the purchase consideration in terms of the order dated 25 April, 1990 was squarely on the applicant. Non-payment of the entire consideration in terms of the order dated 25 April, 1990 renders the sale a nullity.

  On a plain reading of section 54 of the Transfer of Property Act, 1882, the time of payment of price is not necessarily a sine qua non to the completion of the sale. However, the order dated 25 April, 1990 provided for a stipulated time period for payment which assumes significance in cases of sale by Courts.

  The exercise of any discretion must be in good faith, fairly, for the purpose for which the power is being conferred and without exceeding the limits of such power. No discretion should be legally unfettered. The exercise of any discretion cannot be arbitrary, vague and fanciful; but legal, regular and according to reason. The Rule of Law requires that no discretion should be unconstrained so as to be potentially arbitrary - Section 457 of the Companies Act, 1956 read with Rule 272 of the Company Court Rules, 1959, govern sales by the Official Liquidator. The duty of the Company Court while conducting a sale under Rule 272 is a more onerous task than an ordinary sale conducted by Court in executing a decree. In a sale by the Company Court, the Court holds a fiduciary duty position protecting the interests of all stakeholders. On the other hand, in sales in execution of a decree the sale is rarely held without notice to the judgment debtor. Ordinarily, the judgment debtor in such sales is present to protect its interests.

  There has been a conscious effort to perfect the so very imperfect marketable title of the applicant and the original owners vis-a-vis the premises. There are no grounds either pleaded nor which exist which warrant condonation of the inordinate delay in the applicant being unable to make payment of the balance consideration after a period of 33 years. There is no question either in law or equity to permit the applicant to pay the shortfall in price after a delay of 33 years. The benevolence and magnanimity shown to the applicant must end.

  There are no substance in the contention that the application is not maintainable since there is a permanent stay of the winding up proceedings. The order of permanent stay does not completely obliterate the winding up order. Company petitions even when dismissed on merit are traditionally not regarded as dismissed or disposed of but as permanently stayed - the sale in terms of the order dated 25 April, 1990 is declared to be a nullity.

  Application dismissed.

  ---

• 2023 (7) TMI 1246
  

  Professional Misconduct - failure to report non-compliance with accounting standards - Non-provision of Interest Costs on Borrowings from Bank and NBFCs - Non-provisioning for Trade Receivables- Unsecured, Considered Doubtful - Wrong Accounting of Deferred Tax Assets - Non-disclosure of Cost Formula for the Measurement of Inventories - Wrong amortization of Expenses - Non-compliance with the format of Financial Statements - Non-compliance with requirements of SA 230 regarding Audit Documentation - Non-compliance Regarding Agreement on Terms of Audit Engagements - Non-compliance Regarding Appointment of Engagement Quality Control Reviewer - Non-compliance Regarding Communication with TCWG.

  Non-provision of Interest Costs on Borrowings from Bank and NBFCs - HELD THAT:- The charges relating to failure to report non-provision of Interest Costs pertaining to Borrowings from bank and NBFCs stand proven. The omission being material in nature, the EP should have taken them into consideration before issuing his opinion in accordance with SA 705 , which he failed to do.

  Non-provisioning for Trade Receivables- Unsecured, Considered Doubtful - HELD THAT:- SA 200 requires the auditor to comply with all SAs relevant to the audit and mandates an understanding of the entire text of an SA, including its application and other explanatory material, to understand its objectives and to apply its requirements properly. Objective of SA 705 is to express clearly an appropriately modified opinion on the financial statements when the conditions for modifications are met - The opinion expressed in this case is ambiguous as the basis of qualification did not have a proper description and quantification of the financial effects of the misstatement or other explanations as required by Para 17 of SA 705. Hence, the audit opinion is not meeting the objective of SA 705. Such an opinion is misleading to the users of the financial statements as well. The charges regarding non-compliance with SA 705, therefore, stand proven.

  Wrong Accounting of Deferred Tax Assets - HELD THAT:- It is noted that there is no documentation of evaluation of misstatement identified during the audit as required under SA 450. It is important to note that SA 450 requires the auditor to accumulate misstatements identified during the audit, determine whether overall audit strategy and audit plan needs revision, communicate all misstatements accumulated to the appropriate level of management, evaluate the effect of uncorrected misstatements after reassessing materiality in the context of entity's actual financial result and determine whether uncorrected misstatements are material individually or in the aggregate taking into account the financial statements as a whole and also communicate the same to TCWG. However, none of these steps were performed by the EP - In the absence of such an evaluation in the Audit File, there is no evidence of how the EP assured himself of "reasonable assurance". Hence the arguments regarding DT A not being material and being 2% of total balance sheet are afterthoughts and the charges regarding non-reporting the wrong accounting of DTA stand proven.

  Non-disclosure of Cost Formula for the Measurement of Inventories - HELD THAT:- The replies of the EP are not acceptable as disclosure of cost formula for inventory is a mandatory requirement under the AS 2 and the financial statements of the company do not indicate the same. Use of specific cost for measurement is also a type of cost formula and should have been included in the Accounting Policies of the company. Use of different formulae permitted under para 14-1 7 of AS 2 can have material impact on the carrying amount of inventories in the Balance Sheet & cost of sales in the Profit or Loss. Therefore, disclosure of cost formula in the Financial Statements has relevance & significance to the users - As a diligent auditor, it was necessary for him to take up with the TCWG/Management to ensure that there is proper disclosure of accounting policy. In the absence of such action taken by the EP or any work paper in the Audit File pointing to same, the charge regarding not reporting the non-disclosure of cost formula for valuation of inventories in the financial statements stands proven.

  Wrong amortization of Expenses - HELD THAT:- EP has admitted his mistake and was of the view that these were presentation errors and not material and sought pardon for the same - In light of the auditor's acceptance of his errors, it is clear that the provisions of AS 26 and AS 22 have not been adhered to and the charge regarding non-reporting of the wrong amortization of expenses stands proven.

  Non-compliance with the format of Financial Statements - HELD THAT:- Section 129(1) of the Act very clearly states that the financial statements shall be in the format as may be provided for different class or classes of companies in Schedule III. Therefore, any deviation from the prescribed format is a non-compliance with the statutory provisions and therefore the auditor's submission in this regard is unacceptable as it is auditors' responsibility to report such non-compliances with the prescribed format.

  Non-compliance with requirements of SA 230 regarding Audit Documentation - HELD THAT:- As per para A21 of SA 230, Audit Documentation, the Audit File needs to be compiled within a period of 60 days from the date of signing of the Audit Report, not six months as mentioned by EP. This time period of sixty days is given in the Standards on Auditing taking into consideration the constraints faced by the chartered accountants. As the auditor has stated that the documents were scattered in various files and have been compiled only for the submission of Audit File to NFRA, it is evident that the Audit File had not been compiled by the Auditor even after 5 years of signing of Audit Report. The charges against the EP are, therefore, proved.

  Non-compliance Regarding Agreement on Terms of Audit Engagements - HELD THAT:- The contention of the EP is not acceptable as in case of recurring audits, Para 12 of SA 220 requires an assessment from the auditor of whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms. There is no document evidencing such an assessment and there is no such procedure documented in the Audit File. Moreover, there was no audit engagement letter (as prescribed by SA 210) in the Audit File. Hence the charges against EP stand proven.

  Non-compliance Regarding Appointment of Engagement Quality Control Reviewer - HELD THAT:- The EP was charged for not complying with para 19(a) of SA 220 and para 60 of SQC-1 as there was no evidence that he had determined that Engagement Quality Control Reviewer (EQCR, hereafter) had been appointed, which is required for audits of listed entities - there are no other persons accountable for this assignment. Therefore, there was no requirement for the appointment of any other person on quality control.

  Non-compliance Regarding Communication with TCWG - HELD THAT:- The EP was charged for not complying with para 7, 10, 11, 12, 13 & 19 of SA 260 & SA 265 as he did not determine TCWG and did not communicate with TCWG about the responsibilities of auditor, overview of planned scope and timing of the audit etc. and did not make required documentations. The Audit File did not have any documentation regarding communication with TCWG - The mistakes made in the audit were unintended and happened due to lack of knowledge of accounting standards and standards on auditing. He further added that he was a budding Chartered Accountant and had only four years of experience at the time of this audit. It was his first audit of a listed company and that he is not doing audits of any listed companies anymore. In addition, the EP showed his inclination for further studying the Accounting Standards and Standards on Auditing and the Act and submitted that the sanctions be imposed lightly lest they adversely impact his career.

  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 seriousness with which the Companies Act views cases of professional misconduct is evident from the fact that a minimum punishment is laid down by the law.

  Considering the proven professional misconduct by CA Sachin Kansal, acceptance of mistakes by him, the nature of violations, size of the audit firm, and applying the principles of proportionality, following sanctions under Section 132( 4 )( c) of the Companies Act, 2013 have been ordered:

  (i) Imposition of a monetary penalty of Rs 1,00,000 (Rupees One Lakh) upon CA Sachin Kansal.

  (ii) CA Sachin Kansal is debarred for one year from being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

  ---

1 ....171819202122232425........ 755