2024 (1) TMI 461 - NFRA - Companies Law

Professional Misconduct - Failure to maintain Audit Files and to co-operate with NFRA - sanctions and penalties - HELD THAT - It is established that CA Anil Chauhan committed professional misconduct by not submitting the Audit Files and related documentation to NFRA and by not responding to the SCN issued by NFRA under Section 132 (4) of the Act - It is concluded that the following failures on the part of CA Anil Chauhan as contained under the Articles of Charges in the SCN stand established i. Failure to exercise due diligence and being grossly negligent in the conduct of professional duties as defined by clause 7 of Part I of the Second Schedule of the Chartered Accountants Act 1949 because of the lapses and omissions. ii. Failure to supply the information called for, and non-compliance with the requests of NFRA, as defined in clause 2 of Part-III of First Schedule of The Chartered Accountants Act, 1949 because the EP did not co-operate with NFRA. Considering the aforementioned proved professional misconduct by the EP and considering the nature of the violations, in exercise of powers under section 132(4)(c) of the Companies Act, 2013, it is ordered that i. Imposition of a monetary penalty of Rs Twenty Lakhs on the EP, CA Anil Chauhan, proprietor of M/s Anil Chauhan Associates. ii. Debarment of CA Anil Chauhan and the audit firm M/s Anil Chauhan Associates (FRN 0140786W), 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. This order will become effective after 30 days from the date of issue of this Order.

Summary

Issues Involved:
1. Failure to maintain audit files and cooperate with NFRA.
2. Professional misconduct by CA Anil Chauhan.
3. Penalty and sanctions imposed.

Summary:

1. Failure to Maintain Audit Files and Cooperate with NFRA:
The National Financial Reporting Authority (NFRA) initiated an investigation into the professional conduct of CA Anil Chauhan, the statutory auditor of Seya Industries Limited (SIL) for FYs 2018-19 and 2019-20, following information from SEBI about non-compliance with accounting standards and misreporting in financial statements. Despite repeated requests, the Engagement Partner (EP) failed to submit the required audit files and other information to NFRA, leading to the conclusion that the EP either did not have the documents or was unwilling to cooperate. This failure was deemed a professional misconduct under Section 132(4) of the Companies Act, 2013.

2. Professional Misconduct by CA Anil Chauhan:
The EP was charged with gross negligence and failure to exercise due diligence in conducting the statutory audit of SIL, as well as non-compliance with NFRA's requests for information. The EP's actions were found to be in violation of SA 230 (Audit Documentation) and the Code of Ethics. The persistent failure to maintain and submit audit files and to respond to NFRA's communications was seen as a violation of professional standards and regulatory requirements, constituting professional misconduct.

3. Penalty and Sanctions Imposed:
Given the established professional misconduct, NFRA imposed a monetary penalty of Rs Twenty Lakhs on CA Anil Chauhan and debarred him and his firm, M/s Anil Chauhan & Associates, for ten years from being appointed as auditors or internal auditors, or from undertaking any audit of financial statements or internal audit of any company or body corporate. The order will take effect after 30 days from the date of issuance.