2024 (5) TMI 333 - NFRA - Companies Law

Professional misconduct by CA - Liability of the Engagement partner with audit firm - Failure to submit requisite information and non-cooperation with NFRA - Penalties and sanctions - HELD THAT - It is established that M/s PCN Associates, and CA Gopala Krishna Kandula committed professional misconduct by not submitting the requisite information to NFRA; not attending personal hearing; and submitting false affidavit. We conclude that the following failures on their part, as contained under the Articles of Charges in the SCN, stand established a) 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. b) Failure to supply the information called for, and non-compliance with the requests of NFRA, as defined in clause 2 of Part-II of First Schedule of The Chartered Accountants Act, 1949. Considering the professional misconduct by the Firm and the EP; and considering the nature of the violation, in exercise of powers under section 132(4)(c) of the Companies Act, 2013, it is ordered as follows a) Imposition of a monetary penalty of Rupees Fifty Lakhs upon. M/s PCN Associates (FRN 0160168), the Audit Firm and Rupees Thirty Lakhs upon CA Gopala Krishna Kandula (ICAI Membership No. 203605), the Engagement Partner. b) In addition, M/s PCN Associates and CA Gopala Krishna Kandula are debarred for a period of Two years and Ten years respectively 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.

Summary

Issues Involved:
1. Non-cooperation with NFRA.
2. Professional misconduct.
3. Penalty and sanctions.

Summary:

Non-cooperation with NFRA:
The National Financial Reporting Authority (NFRA) initiated an investigation into the professional conduct of the statutory auditors of Brightcom Group Limited (BGL) for the FYs 2014-15 to 2021-22 u/s 132(4) of the Companies Act, 2013, based on information from SEBI regarding financial irregularities. Despite repeated requests and extensions, M/s PCN & Associates and CA Gopala Krishna Kandula failed to submit crucial information for FY 2019-20 to 2021-22, except for the Audit Files. The Hon'ble High Court of Telangana stayed proceedings for FY 2017-18 and 2018-19, but no stay was granted for FY 2019-20 to 2021-22. The EP continued to perform professional work during the periods he sought extensions on medical grounds and submitted a false affidavit to avoid attending personal hearings.

Professional Misconduct:
The Auditors were charged with failure to exercise due diligence, being grossly negligent in the conduct of professional duties, and failure to supply the information called for, which constitutes professional misconduct u/s 132(4) of the Companies Act, 2013. The Auditors' failure to provide required documents and information impeded NFRA's ability to determine if the audit work was performed in accordance with laws and standards. This non-cooperation was compared to similar cases where severe penalties were imposed for non-compliance with regulatory investigations.

Penalty and Sanctions:
Given the proven professional misconduct, NFRA imposed a monetary penalty of Rupees Fifty Lakhs on M/s PCN & Associates and Rupees Thirty Lakhs on CA Gopala Krishna Kandula. Additionally, M/s PCN & Associates and CA Gopala Krishna Kandula are debarred for a period of Two years and Ten years respectively 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 its issue.