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TMI Blog2024 (5) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... or disagree with them and arrive at its own conclusions before the mandate . Ultimately the same conclusion appeared in the Board s Report with acknowledgement of its origin to PHD. It is also disclosed in the Financial Statements in the form of a material assertion. Finally, PHD audited the same disclosure, based on its own opinion, and provided its audit opinion, in the form of an EoM-16, that there was no matter attracting section 143 (12) in the PW observations. The draft note containing the above disclosure was included in the draft financial statements by the management only one day before the signing of the audit report. Thus, it is evident that the disclosure note emanated from information originally prepared by EP. The total balance sheet size of RISL for the FY 2017-18 was only ₹20.7 crore, without the above-said transaction. This is only 3.5% of the loan amount of ₹581 crore. Thus, the balance sheet size is negligible as compared to the loan amount. During the oral hearing, EP submitted that RISL had created a charge on the assets in favour of RCL. Neither the liability towards RCL nor the assets represented by the loan to Reliance Communications appear in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved by the order dated 12 April 2024 whereby the National Financial Reporting Authority [ NFRA ] has debarred CA Parimal Kumar Jha and CA Vishal D Shah for 10 years and 5 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. NFRA has also imposed penalty of INR 3 crores on PHD and penalties of INR 1 crore and INR 50 lakhs on CA Parimal Kumar Jha and CA Vishal D Shah respectively. The Petitioners also assail the constitutional validity to Section 132 (4) of the Companies Act, 2013 and Rules 10, 11 and 12(4) of the NFRA Rules, 2018. 4. We take note of the following facts which emerge from the record. RCL was jointly audited by M/s Price Waterhouse Co LLP [ PW ] and PHD for FY 2018-19. PW resigned from the audit, without issuing an audit report. Subsequently on 11 June 2019, PW filed a report to the Ministry of Corporate Affairs, alleging suspected fraud in RCL. However, on examination of the matter, it was noted that the audit report issued by PHD on 14 August 2019 reported no irregularities. 5. Undisputedly, befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Let these writ petitions be tagged with W.P.(C) 1065/2021 to be called on the date fixed i.e. 29.05.2024. CM APPL. 24157/2024 (Interim Direction) in W.P.(C) 5840/2024 CM APPL. 24159/2024 (Interim Direction) in W.P.(C) 5841/2024 CM APPL. 24161/2024 (Interim Direction) in W.P.(C) 5842/2024 1. Upon going through the final order passed by the NFRA, we take note of the following disclosures which appear:- 13. PHD and PW were appointed as joint statutory auditors of RCL for a term of 5 consecutive years at the Annual General Meeting of the Company held on 27.09.2017 and 26.09.2017. As per the agreement between the joint auditors, made as per SA 299(Revised), there was no division of audit work among the joint auditors. Hence both the joint auditors were jointly and severally responsible for the entire audit work. While PHD was functioning as a joint auditor, PW brought some significant matters to PHD s notice through various communications starting from the letter dated 24.04.2019. These matters included potentially irrecoverable loans and investments amounting to approximately ₹12,571 crore made to group companies, which were portrayed as recoverable. Despite these communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f performing any audit procedures to examine and conclude these matters while it was functioning as a joint auditor. c. PW s letters dated 24.04.2019 and 14.05.2019 regarding loans and investments were detailed and self-explanatory. The final observations of PW include unresolved issues regarding recoverability, end-use, valuation, unusual mode of transactions and internal control matters. As per the requirements of SA 299 (Revised), EP was required to perform audit procedures and come to an independent conclusion regarding the significant matters. EP examined the issues only after the audit committee specifically asked PHD on 12.06.2019 to examine the issues, i.e. one day after PW filed form ADT-4 and resigned from the Company. From 24.04.2019, when the issue was first raised by PW, till 12.06.2019 EP did not perform any audit procedures on these matters as is evident from the Audit File. There is no evidence in the Audit File that the Auditors disagreed with these observations, as mandated by SA 299 (Revised). 15. We also observe that the written communications between PW and the Company, starting from 25.04.2019, were copied to PHD. On an examination of these communications, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at its own conclusions before the mandate (discussed in more detail in Sections C1 and C.4). Ultimately the same conclusion appeared in the Board s Report with acknowledgement of its origin to PHD. It is also disclosed in the Financial Statements in the form of a material assertion. Finally, PHD audited the same disclosure, based on its own opinion, and provided its audit opinion, in the form of an EoM-16, that there was no matter attracting section 143 (12) in the PW observations. The draft note containing the above disclosure was included in the draft financial statements by the management only one day before the signing of the audit report. Thus, it is evident that the disclosure note emanated from information originally prepared by EP. xxxx xxxx xxxx 25. Thus, in this case, PHD ruled out fraud reported by another joint auditor (PW). Also, they did so on being asked by the Audit Committee. It may be noted that the Audit Committee had not even responded to the points raised by PW within the 45 days statutory limit. The management used PHD s said work (done without adequate rigor) as a disclosure in the financial statements. These financial statements were then audited and an Eo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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