2024 TaxPub(CL) 136 (NFRA)
COMPANIES ACT, 2013
Sections
132 & 141
Statutory auditor issued audit report during holding or controlling shares
of company, which was in violation of section 141(3)(d)(i), accounting
standards were not also complied with by the auditor, therefore, penalty of
Five Lakh Rupees as well as debarment for five year was imposed upon the
auditor.
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Constitution of National Financial Reporting
Authority - Audit report issued by auditor during holding or controlling
shares of company in violation of section 141(3)(d)(i) - Non-compliance of
Accounting Standards - Imposition of penalty
NFRA found that audit report was issued by
statutory auditor during holding or controlling shares of the company. Further,
accounting standards were also not complied with by the auditor. Therefore,
NFRA issued show cause notice to auditor in respect of professional misconduct
of 'not exercising due diligence in the conduct of his professional duties'. Held:
The auditor should not only perform his audit with independent mind but he
should also be seen to be independent and free from any potential conflict of
interest. The auditor in this case issued the audit report at the same time
when he himself was owning and/or controlling shares of the company, which
impaired or had the potential to impact his independence as statutory auditor
of the company. Therefore, there was violation of section 141(3)(d)(i).
Further, accounting standards were not also complied with by the auditor.
Charge of professional misconduct of 'not exercising due diligence in the
conduct of his professional duties' was proved against the auditor. Therefore,
penalty of Five Lakh Rupees as well as debarment for five 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 was imposed upon the auditor.
REFERRED :
FAVOUR : Against the noticee
A.Y. :
IN THE NATIONAL FINANCIAL
REPORTING AUTHORITY
AJAY BHUSHAN PRASAD PANDEY
CHAIRPERSON, PRAVEEN KUMAR TIWARI & SMITA JHINGRAN, FULL TIME MEMBERS
S. Kumars Nationwide
Ltd., In re
Order No. 65/2023
20 December, 2023
In the matter of M/s. SMMP &
Company and CA Shyam Malpani under section 132(4)(c) of the Companies Act,
2013.
1. This order disposes of the Show Cause Notice ('SCN'
hereafter) dated 23-5-2023 and Addendum, dated 25-8-2023 to the
said SCN issued to M/s. SMMP & Company, Chartered Accountants, Finn No:
120438W ('Firm' hereafter), an audit firm registered with the Institute of
Chartered Accountants of lndia ('ICAI' hereafter), and CA Shyam Malpani ICAI
Membership No. 034171 ('CA' or 'EP' hereafter), who is member of ICAI and who
has signed the Independent Auditor's Reports and the Financial Statements of S.
Kumars Nationwide Limited ('SKNL' hereafter) for the period April 2013 to
September 2014 ('Financial Year 2013-14' hereinafter). (The EP and the Firm are
collectively called 'Auditors' hereafter).
2. This Order is divided into the following sections :--
A. Executive
Summary
B.
Introduction & Background
C. Issue of
jurisdiction and procedures
D. Major
lapses in the Audit and Charges in the SCN
E. Finding on
the Articles of Charges of Professional Misconduct by CA Shyam Malpani
F. Penalty
& Sanctions
A. Executive Summary
3. Central Economic Intelligence Bureau ('CEIB' hereafter), Ministry of
Finance, Government of India vide Letter, dated 9-9-2022 shared
information about irregularities committed by the SKNL and its Auditors. After
preliminary examination, NFRA suo motu initiated investigations into the
professional conduct of the statutory auditors of SKNL under section 132(4) of
the Companies Act, 2013 ('CA 2013' hereafter). SKNL was a listed company during
relevant period hence comes under NFRA domain. A Show Cause Notice was issued
to M/s. SMMP & Company and CA Shyam Malpani.
4. NFRA's investigations inter alia disclosed that CA Shyam
Malpani - the SKNL's Auditor for the F.Y. 2013-14 failed to meet the relevant
requirements of the Standards on Auditing ('SA' hereafter); provisions of the
Companies Act, 2013 and the Companies Act 1956. He also demonstrated serious
lapses and absence of due diligence. One of the lapses was that he accepted the
Audit Engagement of SKNL for F.Y. 2013-14 despite owning the shares of SKNL
through a company which was wholly owned by him and his family members and
thereby violated applicable Laws and Standards relating to conflict of interest
and independence. Further, he had issued Qualified Audit Opinions on Standalone
Financial Statements ('SFS' hereafter) and Consolidated Financial Statements
('CFS' hereafter) with eleven (SFS) and fifteen (CFS) qualifications
respectively de spite the fact that the nature and effect of qualifications in
the Independent Auditor's Reports were material and pervasive to the financial
statements. As per the Standard on Auditing (SA) 705, if effects of
qualifications in the Independent Auditor's Reports are material and pervasive,
the Auditor is required to give either Adverse Opinion or Disclaimer of
Opinion. Mere qualified opinion would not suffice in such cases. Thus, the
Qualified Opinions issued by the Auditor were in non-conformity with SA 705.
5. Based on the proceedings under section 132(4) of the Companies Act,
2013 and after giving the Auditors opportunity to present their case, NFRA has
found CA Shyam Malpani, the Engagement Partner, guilty of professional
misconduct. In light of the judgment of the Hon'ble National Company Law
Appellate Tribunal (NCLAT) dated 1-12-2023, we have limited the monetary
penalty to Rs. 5 Lakh only since the violations relate to the period April 2013
to September 2014. Therefore, we impose through this Order a monetary penalty
of Rupees Five Lakh on CA Shyam Malpani and also debar him for 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. These sanctions will take effect
after a period of 30 days from issuance of this Order.
B. Introduction &
background
6. National Financial Reporting Authority ('NFRA' hereafter) is a
statutory authority set up under section 132 of the Companies Act, 2013 ('CA
2013' hereafter) to monitor implementation and enforce compliance of the
auditing and accounting standards and to oversee the quality of service of the
professions associated with ensuring compliance with such standards. NFRA is
empowered under section 132(4) of the Companies Act, 2013 to investigate for
the prescribed classes of companies [As defined in Rule 3 of the NFRA Rules,
2018], the professional or other misconduct and impose penalty for proven
professional or other misconduct of the individual Chartered Accountants or
firms of Chartered Accountants.
7. The Statutory Auditor, whether an individual Chartered Accountants
or a firm of Chartered Accountants, is appointed by the members of companies as
per the provision of section 139 of the CA 2013. The Statutory Auditors,
including the Engagement Partners ('EPs' hereafter) and the Engagement Team
that conduct the Audit are bound by the duties and responsibilities prescribed
in the CA 2013, the rules made thereunder, the Standards on Auditing ('SA'
hereafter), including the Standards on Quality Control ('SQC' hereafter) and
the Code of Ethics. Violation of these constitutes professional or other
misconduct, and is punishable with penalty prescribed under section 132(4)(c)
of the CA, 2013.
8. NFRA suo motu started action under section 132(4) of the
Companies Act, 2013, after examining the information received from CEIB vide
their Letter, dated 9-9-2022. This information and other information
subsequently collected from IDBI Bank show the following major lapses and
irregularities in the financial statements of SK.NL for the F.Y. 2013-14 to
2017-18 :--
(a) Financial
interest of the Auditor in SKNL;
(b) Writing
off of receivables worth Rs. 1044 crores [Amounts have been rounded off to
nearest Rs. in crores in this Order.];
(c)
Revaluation of Stock at a loss of Rs. 678 crores;
(d) Sale of
Stock returned at a loss of Rs. 1619 crores to the same non-operating parties;
(e) Potential
linkage of non-operating parties with real estate business of promoters
relatives;
(f) Adjustment
of Advance for capital assets of Rs. 546 crores against trade payables;
(g) Impairment
of investment of Rs. 515 crores mostly in overseas companies;
(h) Repayment
of loan of Rs. 14 crores to potentially connected parties; and
(i)
Non-routing of sale proceeds of Rs. 25 crores through SKNL's bank account.
9. SK.NL being a listed company comes under the jurisdiction of NFRA in
terms of Rule 3 of NFRA Rules, 2018. It was engaged in textile business during
relevant period.
10. Mis Shyam Malpani & Associates was the Statutory Auditor of
SK.NL for Financial Year 2013-14 (April 2013 to September 2014). CA Shyam
Malpani was the proprietor of this firm and signed the Independent Auditor's
Reports and Financials Statements. Subsequently, 'from May 2016, the practice
and business of this firm was taken over by Mis SMMP & Company', [As per
reply submitted by CA Shyam Malpani] a partnership firm in which CA Shyam
Malpani is a partner.
11. NFRA, vide its Letter, dated 3-11-2022 called upon the
auditor (CA Shyam Malpani and M/s. SMMP & Company) to submit the Audit
files from F.Y. 2013-14 to 2017-18. They did not submit the audit files despite
several reminders and instead sought extension of time on multiple occasions
citing one reason or the other such as they were travelling out of Mumbai, they
were preoccupied due to domestic & medical related issues; matter being
more than 7 years old, and they had not conducted an audit of SK.NL after the
year 2013-14 etc. On 6-12-2022, they raised legal & procedural issues and
requested NFRA to drop the proceedings against them. On 3-1-2023, NFRA again
asked them to submit the Audit File within 15 days. On 17-1-2023, the Auditors
again sought 15 days' time citing fairness of justice. On 18-1-2023, Advocate
of the Auditors intimated that they had filed a WP in the Hon'ble High Court,
Mumbai, hence no action be taken in this matter. On 3-2-2023, NFRA again asked
the Auditors to submit Audit File for F.Y. 2013-14, as there was no stay from
Mumbai High Court on NFRA's proceedings. Yet the auditors did not submit the
audit file. In these circumstances, based on examination of the materials on
record including annual financial statement of the company, NFRA issued a Show
Cause Notice ('SCN' hereafter) on 23-5-2023 under section 132(4) of the Act, to
the Auditors charging them for the following professional misconduct :--
(a) Expression
of opinion on financial statements of a business or enterprise in which the
auditor has a substantial interest. This charge of misconduct was against CA
Shyam Malpani.
(b) Failure to
exercise due diligence and being grossly negligent in the conduct of
professional duties. This charge of misconduct was against Mis SMMP &
Company & CA Shyam Malpani - Proprietor of Mis Shyam Malpani &
Associates.
(c) Failure to
supply the information called for, and non-compliance with the information
requisition of NFRA. This charge of misconduct was against Mis SMMP &
Company and CA Shyam Malpani.
12. The Hon'ble High Court of Bombay disposed of the above Writ Petition
(WP No. 1399 of 2023 filed by the Auditors) on 13-6-2023 and directed
NFRA to hear the petitioners and decide whether it has jurisdiction to act in
respect of matters that preceded its establishment and allowed NFRA to pass a
combined order on jurisdiction and merits, in case it holds that it has
jurisdiction in the matter. Accordingly, NFRA extended the time period for
submission of reply to SCN till 26-7-2023. On the issue of jurisdiction, as
directed by the Hon'ble High Court, NFRA heard the Auditors and their counsel
on 11-7-2023. They also gave their written submissions. During personal hearing
and in the written submission, besides arguing on the jurisdiction issue, the
Auditors also contended that as they were not required to maintain audit file
after seven years' mandatory period and they did not submit the Audit File.
12.1 After going through the Auditor's arguments/submission on
jurisdiction issue, the Executive Body of NFRA came to the conclusion that it
had jurisdiction in the matter and therefore decided to continue the
proceedings and asked the Auditors to submit the Audit File within 10 days. The
Auditors were also asked vide Letter, dated 25-7-2023 to provide inter
alia following information relating to their appointment as statutory
auditor of SKNL as NFRA noticed some discrepancies :--
-- A copy of
the appointment letter issued by SKNL to the Auditors after AGM dated
13-7-2015.
-- A copy of
acceptance letter issued by the Auditors to SKNL to accept appointment as
statutory auditor of SKNL.
These two documents were
expected to be available with the Auditors.
12.2 Instead of providing these two documents to us, the Auditors on
1-8-2023, in turn sought these documents from NFRA :--
(a) Copy of
appointment letter issued by SKNL to the Auditors;
(b) Copy of
appointment acceptance letter issued by the Auditors to SKNL;
(c) Annual
report of SKNL for relevant period; and
(d) Audit
Report including CARO Report issued by the Auditors to the members of SKNL;
This request of the Auditors was
unusual as the e documents are expected to be available with them being
statutory auditors. Yet we went ahead and provided to the Auditor the Annual
Report of SKNL containing Audit Report and CARO report.
12.3 So far as the Audit File was concerned, the Auditors did not submit
it. It was not very clear from their reply whether they had the audit file.
Therefore, on 4-8-2023, we asked them to provide an affidavit about
availability of the Audit File and in case it had been destroyed, then the date
of destruction of the file was to be provided. On 16-8-2023, the Auditors
submitted a consolidated reply to SCN, dated 23-5-2023 along with an
affidavit by CA Shyam Malpani stating that he neither had the Audit File nor
had the exact date of destruction of the Audit File.
12.4 Since the Auditors did not submit the Audit File, we analysed the
Audit Reports and Financial Statements available with us and observed that CA
Shyam Malpani had given qualified audit report with eleven (11) qualifications
on Standalone Financial Statements (SFS) and fifteen (15) qualifications on
Consolidated Financial Statements (CFS), and the effect of these qualifications
was material and pervasive as it covered substantial proportion of sales,
purchases, trade receivables, trade payables, inventories, provisions, interest
on loans, share capital etc. Therefore, the appropriate Audit Opinions in such
a case would either be an Adverse Opinion or the Disclaimer of Opinion.
Therefore, on 25.08.2023, one more charge was added to the SCN regarding non compliance
with SA 705 as Audit Opinions expressed by the Auditors were found to be not
appropriate.
12.5 For natural justice, an opportunity of personal hearing was also
accorded to the Auditors on 15-9-2023. On 31-8-2023, the Auditors requested for
rescheduling the personal hearing either on 21-9-2023 or 22-9-2023, which was
acceded to and the personal hearing was rescheduled for 21-9-2023. The personal
hearing was attended by CA Shyam Malpani along with his legal counsels during
which they reiterated their written submission and sought time to file an
additional reply, which was allowed up to 30-9-2023. The Auditors submitted
additional reply on 30-9-2023.
12.6 Accordingly, this Order is based on the examination of the records,
charges in the SCN, and submissions of the Auditors.
C. Issues of Jurisdiction and
Procedures
13. The Hon'ble High Court, Mumbai vide para no. 2 to 4 and 10 of Order,
dated 13-6-2023 in WP No. 1399 of 2023 asked NFRA to first decide
its jurisdiction and observed as under :--
'2. Before us
are presented in some of the Petitions the argument that the NFRA has no
'jurisdiction' to act in respect of matters that preceded its establishment.
One of the Petitions says as its principal prayer that NFRA should be directed
to decide the jurisdictional challenge as a preliminary issue and should allow
the Petitioners before us legal representation because jurisdiction is a
technical legal argument.
3. On
instructions, Mr. Singh, learned ASG states that there is no difficulty in
allowing legal representation. He states that the Authority will decide all
issues, including jurisdiction.
4. It appears
to us logical that the issue of jurisdiction will be decided first because if
the NFRA ultimately holds that it does not have jurisdiction, then obviously
further decisions will be neither permissible nor necessary. If the NFRA on the
other hand holds that it has jurisdiction, then it cannot be expected to stop
at that. It must then proceed to decide all other issues and return final
findings.
10. We clarify
that we do not expect the order on jurisdiction to be passed first unless the
Authority finds in favour of the present Petitioners in which case it will be
the only order to be passed.'
It may be mentioned here that
SLPs were filed against the above order of the Hon'ble High Court Bombay by
other petitioners in the tagged cases, which were dismissed by Hon'ble Supreme
Court vide its Order, dated 10-7-2023.
14. The Auditors in their submissions contended that they had accepted
the appointment as Joint Statutory Auditor of SKNL on 6-8-2013 whereas NFRA was
constituted on 1-10-2018 and section 132(4) of the Companies Act, 2013 came
into effect on 24-10-2018. Therefore, NFRA does not have any retrospective
powers to investigate this case.
15. We have carefully gone through the replies submitted by the
Auditors. At the outset it is stated that the Statutory Audit of a company
under the Companies Act, 2013 must be conducted in accordance with that law.
The Accounting Standards and Standards on Auditing have been de fined in the
Companies Act, 2013. Accounting Standards are prescribed by the Central
Government under section 133 of the Companies Act, 2013. Section 143(9) of the
Act mandates an auditor to comply with the auditing standards. Auditing
Standards are those prescribed by the Central Government under section 143(10)
of the Companies Act, 2013. The Proviso to section 143(10) states that until
the Auditing Standards are prescribed by the Central Government, the Auditing
Standards issued by the ICAI will be deemed to be the Auditing Standards under
this sub-section.
16. Section 132 of the Companies Act, 2013 that establishes the National
Financial Reporting Authority (NFRA) defines its functions and powers. Section
132(4) vests NFRA with the power to investigate into the Professional or Other
Misconduct committed by any member or firm of Chartered Accountants, registered
under the Chartered Accountants Act, 1949.
17. The Explanation to section 132(4) further states that for the
purposes of this sub-section 'professional or other misconduct' shall have the
same meaning as assigned under section 22 of the Chartered Accountants Act,
1949, according to which the expression 'professional or other misconduct'
shall be deemed to include any act or omission provided in any of the
Schedules. A combined reading of this Section and the First and Second Schedule
thereof implies that noncompliance with Auditing Standards by a Chartered
Accountant or a Film of Chartered Account ants would constitute professional or
other misconduct. Further, the Standards on Auditing (SAs) or Auditing
Standards have been in existence and compliance with those by the Auditors was
mandatory as per the prevailing laws even prior to NFRA's establishment.
18. The notification of establishment of NFRA does not in any way alter
the liability of the Statutory Auditor to fully comply with the law and/or
standards expected of a professional. NFRA's authority to monitor and enforce
compliance with the accounting and auditing standards is only with reference to
such standards as were established by law prevailing at the relevant time and
were fully binding on statutory auditors. All the Standards on Auditing are a
part of the law and are required to be mandatorily complied with from the date
of their respective applicability, while conducting statutory audits. Hence, no
new obligation is created on the EP by creation of NFRA as these standards were
required to be mandatorily followed by the EP even prior to NFRA's
establishment. Section 132(4) designates NFRA as the forum for determination of
professional misconduct. The setting up of a new forum i.e. NFRA does not
impose any new duties or obligations on Auditors. NFRA only evaluates their
professional work in accordance with the Standards on Auditing and statutory
requirements prevailing at the time of the audit. Therefore, there is no bar on
NFRA's jurisdiction over the cases of professional or other misconduct
committed prior to establishment of NFRA.
19. Section 132(4) of the Companies Act gives exclusive jurisdiction to
NFRA in matters of professional or other misconduct. Hence, all cases that fall
within the jurisdiction of NFRA will be excluded from the jurisdiction of other
bodies. Additionally, Rule 10(3) of the NFRA Rules, 2018, states that on the
commencement of the said rules, the action in respect of cases of professional
or other misconduct against auditors of companies referred to in Rule 3 shall
be initiated by Authority and no other institute or body shall initiate any
such proceedings against such auditors. Thus, NFRA has exclusive jurisdiction
in matters of professional or other misconduct. It could not have been the
intent of the legislature to leave a regulatory gap in respect of professional
or other misconduct committed prior to the establishment of NFRA. Any
subsequent law which enables an authority to investigate into the acts which
fell into the category of professional and other misconduct as per the law
prevailing at the time when the act was committed cannot be said to be
retrospective. Therefore, NFRA has jurisdiction of investigation into
misconduct committed in the past as well. Thus, the challenge to the
jurisdiction of NFRA with respect to misconduct committed prior to 2018 does
not stand.
20. It is also a well settled law that retrospective applicability can
either be expressly provided for or can be inferred by necessary implication
from the language employed. The Hon'ble Supreme Court in the case of Zille
Singh v. State of Haryana, (2004) 8 SCC 1 at Para 15, held, 'It is not
necessary that an express provision be made to make a statute retrospective and
the presumption against retrospectivity may be rebutted by necessary
implication especially in a case where the new law is made to cure an
acknowledged evil for the benefit of the community as a whole (ibid., p. 440).
This can be achieved by express enactment or by necessary implication from the
language employed. If it is a necessary implication from the language employed
that the legislature in tended a particular section to have a retrospective
operation, the courts will give it such an operation. In the absence of a
retrospective operation having been expressly given, the courts may be called
upon to construe the provisions and answer the question whether the legislature
had sufficiently expressed that intention giving the statute retrospectivity.
Four factors are suggested as relevant: (i) general scope and purview of the
statute; (ii) the remedy sought to be applied; (iii) the former state of the
law, and (iv) what it was the legislature contemplated. (p. 388).'
21. A plain reading of the relevant provisions would show that section
132(4)(a) confers upon the NFRA the power to investigate into the matters of
professional or other misconduct committed by any member or firm of Chartered
Accountants registered under the Chartered Accountants Act, 1949 in such manner
as may be prescribed. The proviso to section 132(4)(a) creates a bar on any
other institute to initiate or continue any proceedings where the NFRA has
initiated an investigation under this section. This clearly implies that even
for matters of professional or other misconduct committed prior to the coming
into force of section 132(4), NFRA can initiate an investigation, which would
disentitle any other institute such as the ICAI from continuing their proceedings
in such matters of misconduct. The expression 'such matters of misconduct'
would clearly mean misconduct which has been committed prior to 24-10-2018 i.e.
the date of coming into force of section 132(4) and qua which
proceedings were already underway by the ICAI and with effect from 24-10-2018,
the said proceeding would be in the exclusive domain of NFRA.
22. Further, section 132(4)(a) itself speaks of 'matters of professional
or other misconduct committed by any member or firm of chartered accountants,
registered under the Chartered Accountants Act, 1949' (Emphasis supplied). So
obviously, the Authority has jurisdiction over misconduct committed in the
past.
23. Further, any presumption against retrospective applicability would
arise when a vested right is sought to be impaired. The explanation to section
132(4) would clearly reveal that the subject matter of investigation and
penalty under this provision is 'professional or other misconduct' having the
same meaning assigned under section 22 of the Chartered Accountants Act, 1949.
No Chartered Accountant can claim to have a vested right to commit professional
or other misconduct, which was already prohibited and subject to disciplinary
action albeit under a different regulatory statute, namely, the Chartered
Accountants Act, 1949. In view of the above, we are of the considered view that
NFRA has jurisdiction in this matter.
24. The Hon'ble National Company Law Appellate Tribunal (NCLAT) vide Order,
dated 1-12-2023 [Order in the matter of Comp. App. (AT) No. 68, 87, 90
& 91 of 2023, Judgment, dated 1-12-2023], has also decided that NFRA
has retrospective jurisdiction and concluded that :--
'Thus, after
taking into consideration the background for forming NFRA, the judgment of the
Apex Court, proven scams, need to restore shaken confidence of public and
investors at large and prevent any adverse impact on Indian economy, we hold
that NFRA has clear and required retrospective jurisdiction over the alleged
offences by delinquent Chartered Accountants for period prior to formation of
NFRA or prior to coming into effect relevant portion of section 132 of
Companies Act, 2013.'
25. The Auditor has contended that the action under section 132(4) is
time barred. The Auditors relied on para A23 of SA 230 and para 83 of SQC 1, to
state that they are under no legal or statutory obligation to retain the Audit
File relating to the audit of SKNL beyond seven years from the date of the
Audit Report. The Auditors cited the case of Wholesale Trading Services (P.)
Ltd. v. The Institute of Chartered Accountants & Ors. (2020) 158 SCL 144
(Del) : 2019 TaxPub(CL) 0990 (Del-HC).
26. We have carefully considered the above submissions of the Auditors.
We note that there is no legal provision prescribing a certain time period,
within which NFRA is required to initiate action against an erring auditor. The
case of Wholesale Trading Services (P.) Ltd. v. The Institute of Chartered
Accountants & Ors. cited by the Auditor is not relevant to the present
case due to following reasons :--
-- The above
case pertains to Rule 12 of Chartered Accountants (Procedure of Investigations
of Professional and Other Misconduct and Conduct of Cases) Rules 2007, which
empowers Director ICAI to refuse to entertain a complaint made after more than
seven years from the date of alleged misconduct, if Director ICAI is satisfied
that there would be difficulty in securing evidence. We note that there is no
blanket provision in the above rules that no complaint shall be entertained
after seven years; and there is also no such provision in the case of
proceeding before NFRA under the CA, 2013. Moreover, in the present case, the
evidence is otherwise available to support charges against the Auditors.
Therefore, the case of Wholesale Trading is not applicable.
-- Moreover,
in the case of Wholesale Trading the High Court had held that the complainant,
being a private individual, had no cause of action, whereas in the present case
public interest is involved.
27. Regarding the issue of procedure raised by the auditors, the
required process under section 132 of the Act has been followed, as the SCN has
been issued after recording reasons and suo motu recognition of the
apparent misconduct by the Auditor. Multiple opportunities for hearing and for
submissions have been afforded to the Auditors in compliance with the
principles of natural justice. The Auditors have fully availed these
opportunities by presenting their submissions in writing as well as making oral
submissions by themselves along with their legal counsel.
28. The EP averred through an affidavit dated 16-8-2023 that he does not
have the audit file in respect of audit of SKNL for F.Y. 2013-14 and mandatory
period of seven years for retention of the audit file has already lapsed. We
find that the period of 7 years lapsed on 15-10-2022. The NFRA letter calling
for the Audit File was sent 19 days after a lapse of 7 years. Therefore, we
would not like to pursue the issue of non-submission of the audit file any
further.
D. Major Lapses in the Audit
and Charges in the SCN
Replies of the auditor to the
charges in the SCN are examined and discussed in the following paragraphs.
I. Acting as statutory auditor
of SKNL while holding or controlling shares of SKNL in violation of section 141
of the Companies Act, 2013 & section 226(3)(e) of the Companies Act, 1956
resulting in failure to maintain independence of auditor (This charge is
against CA Shyam Malpani only)
29. CA Shyam Malpani was charged with violation of section 141(3) of
the Companies Act, 2013; violation of section 226(3)(e) of the Companies Act,
1956; and violation of the principle of independence as required under
Standards on Quality Control 1 (SQC 1) [SQC 1 - 'Quality Control for Firms that
Perform Audits and Reviews of Historical Financial Information, and Other
Assurance and Related Services Engagements' (SQC 1) and SA 220 -'Quality
Control for an Audit of Financial Statements'] and SA 220. Mis Shyam Malpani
& Associates was the Statutory Auditor of SK.NL from 1-4-2013 to 30-9-2014
and CA Shyam Malpani was the Proprietor of this firm. An entity named Nabeela
Finvest Private Ltd. ('NFPL' hereafter) was holding 4,76,474 equity shares of
SK.NL as on 31-3-2013 and CA Shyam Malpani and his wife were directors of NFPL.
The entire equity capital of NFPL worth Rs. One lakh was owned by the EP, his
wife and his two sons. As per the Ministry of Corporate Affairs' master data
[Downloaded on 20-9-2023], the postal address and email address of NFPL are the
same as that of the EP. This indicates that the EP has a financial interest in
SKNL through NFPL. As such, he was not eligible for appointment as statutory
auditor of SKNL.
30. The EP's replies are summarized hereunder :--
(a) He
accepted the appointment of statutory auditor of SKNL on 6-8-2013 and started
the audit activity after getting a no-objection certificate dated 11-8-2015
from previous auditor.
(b) His
appointment as auditor of SKNL is covered under section 226 of the Companies
Act, 1956 (CA, 1956) and he did not violate Companies Act, 1956 as he did not
have voting rights in SKNL.
(c) The
grounds for ineligibility of appointment as an Auditor were substantially and
significantly widened in the Companies Act, 2013 (CA 2013), which came into
effect from 1-4-2014.
(d) His
appointment as auditor of SKNL was governed by Companies Act, 1956 and not by
Companies Act, 2013, and the provisions of section 141(3)(d) of the Companies
Act, 2013 have not been violated as he himself did not have any
shares/securities/interest in SKNL.
(e) His
qualified report stands as an unequivocal affirmation of the auditor's
independence.
(f) In a
similar case of CA Narayan Balkrishan Toshniwal, ICAI vide Order, dated
7-12-2022, held that it has been explicitly specified in the Code of Ethics
published by ICAI that substantial interest would be deemed to exist only if a
member has a stake in the equity in business entity exceeding 20% and
exonerated the auditor from the charge of professional misconduct falling
within the meaning of Item (4) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949.
(g) The EP and
his relatives hold shares in NFPL, which in turn holds only 0.16% of total
share holding of SKNL, which is not substantial being less than 20% of total
shareholding of SKNL.
31. First of all, we do not agree with the contention of the EP that he
was governed by Companies Act, 1956 and not the Companies Act, 2013. The
following are the facts related to his appointment as an EP :--
(i) His
appointment was approved in the AGM of SKNL held on 13-7-2015;
(ii) He
obtained no-objection certificate from the previous auditor on 11-8-2015; and
(iii) The EP
started the said audit activity after 11-8-2015.
32. In view of the above, the EP's appointment as the Statutory Auditor
of SKNL for the period April 2013 to September 2014 comes under the ambit of
the Companies Act, 2013, which became effective from 1-4-2014. The period of
audit also covers April 2014 to September 2014, when the Companies Act, 2013
was in force. Therefore we are of the view that the Companies Act, 2013 will be
applicable. Now let us look at the relevant section of the Companies Act, 2013.
Section 141(3)(d)(i) of the Companies Act, 2013 says :--
'The following
persons shall not be eligible for appointment as an auditor of a company,
namely :--
(a)
..........................................;
(b)
..........................................;
(c)
..........................................;
(d) a person
who, or his relative or partner
(i) is holding
any security of or interest in the company or its subsidiary, or of its holding
or associate company or a subsidiary of such holding company:
Provided that the relative may hold security or interest in the company of
face value not exceeding one thousand rupees or such sum as may be prescribed;
(ii)
..........................................; or
(iii)
..........................................;
(e)
..........................................;
(f)
..........................................;
(g)
..........................................;
(h)
..........................................;
(i)
..........................................'.
In this case, the EP and his
relatives were having interest in the company by holding 476474 equity shares
of SKNL through their family owned company NFPL, which had same address as that
of the EP. In NFPL, the EP, his wife and two sons have equal shareholding i.e.,
25% each. The EP performed audit of SKNL while having interest in the company
and therefore violated section 141(3)(d)(i) of the Companies Act, 2013.
33. Further, for the sake of argument, even if we accept the contention
of EP that he is governed by Companies Act, 1956, the relevant section
226(3)(e) of the Companies Act, 1956 too disqualifies a person from being
appointed as an auditor of a company if he holds security of the company.
Security has further been defined as an instrument with voting rights. The EP
and his family had voting rights by virtue of holding 476, 474 equity shares of
SKNL through NFPL. Since there is nothing in wording of the Section 226(3)(e)
of the Companies Act, 1956 which restricts itself to only direct holding of
securities, the only inescapable conclusion that can be drawn is that he owned
the securities of the auditee company through NFPL and thereby ran afoul of the
section 226(3)(e) of the Companies Act, 1956 as well.
34. Further, by holding equity shares of the auditee company-SKNL, CA
Shyam Malpani has compromised his independence. It is fundamental for an
auditor to maintain his independence as has been provided in SQC 1, SAs and the
Code of Ethics mentioned below :--
Para 18 of SQC
1 states, 'The firm should establish policies and procedures designed to
provide it with reasonable assurance that the firm, its personnel and, where
applicable, others subject to independence requirements (including experts
contracted by the firm and network firm personnel), maintain independence where
required by the Code'. (Emphasis supplied)
Para 11 of SA
220 states, 'The engagement partner shall form a conclusion on compliance with
independence requirements that apply to the audit engagement......'. (Emphasis
supplied)
Para 290.8 of
the Code of Ethics,[The Code of Ethics is issued by ICAI] defines Independence
of mind as 'The state of mind that permits the expression of a conclusion
without being affected by influences that compromise professional judgment,
allowing an individual to act with integrity, and exercise objectivity and
professional skepticism'.
Para 290.8 of
the Code of Ethics defines Independence of appearance as 'The avoidance of
facts and circumstances that are so significant that a reasonable and informed
third party, having knowledge of all relevant information, including safeguards
applied, would reasonably conclude a firm 's, or a member of the assurance team
's, integrity, objectivity or professional skepticism had been compromised'.
35. Further, the para 290.105 of the Code of Ethics states that 'If a
member of the assurance team, or his relative has a direct financial interest,
or a material indirect financial interest, in the assurance client, the
self-interest threat created would be so significant the only safeguards
available to eliminate the threat or reduce it to an acceptable level would be
to :--
(a) Dispose of
the direct financial interest prior to the individual becoming a member of the
assurance team;
(b) Dispose of
the indirect financial interest in total or dispose of a sufficient amount of
it so that the remaining interest is no longer material prior to the individual
becoming a member of the assurance team; or
(c) Remove the
member of the assurance team from the assurance engagement
The clause (n) of the
Definitions in the Code of Ethics defines Financial Interest as 'An interest in
an equity or other security, debenture, loan or other debt instrument of an
entity, including rights and obligations to acquire such an interest and derivatives
directly related to such interest'.
The clause (n) of the
Definitions in the Code of Ethics defines Direct Financial Interest as 'Owned
directly by and under the control of an individual or entity (including those
managed on a discretionary basis by others)'.
Para 290.104 of the Code of
Ethics states inter alia that 'In evaluating the significance of any
threat to independence, it is important to consider the degree of control or
influence that can be exercised over the intermediary, the financial interest
held, or its investment strategy. When control exists, the financial interest
should be considered direct. '
In the instant case, CA Shyam
Malpani was holding equity shares of the auditee company (SK.NL) through a
family owned private company, thus he had the control over the ownership of
equity shares of SKNL; and in turn had direct financial interest in the Auditee
company - SKNL. Therefore, in terms of para 290.105 of the Code of Ethics
quoted above, he was required to either dispose of direct financial interest in
SK.NL or to resign as auditor of SK.NL. The EP did not take any of the above
actions as neither shares of SKNL held by NFPL were disposed of, nor did he
resign as the statutory auditor of SKNL.
36. An Auditor's Independence from the auditee safeguards the Auditor's
ability to form an audit opinion without being affected by influences that
might compromise that opinion. Independence enhances the Auditor's ability to
act with integrity, to be objective and to maintain an attitude of professional
skepticism. The auditor should not only perform his audit with independent mind
but he should also be seen to be independent and free from any potential
conflict of interest. Independence with no conflict of interest is necessary
for ensuring transparency, trust, and credibility of the audit process. The EP
in this case issued the Audit Report to the members of SKNL and at the same
time he himself was owning and/or controlling shares of SK.NL through his family
owned company NFPL, which impaired or had the potential to impact his
independence as statutory auditor of SKNL. Therefore we find that the EP has
violated SQC 1, SA 220 and the Code of Ethics.
37. In his reply dated 16-8-2023, the EP has relied on the case of CA
Narayan Balkrishan Toshniwal, before ICAI, wherein a plea was taken by the
Respondent that his personal holding was merely 0.12% of the total shareholding
of the company and his holding through his family was 0.64% of the total
shareholding of the company, therefore, he was not in position to influence the
management. However, this contention was not accepted by the Disciplinary
Committee of ICAI which held that the CA did not meet the mandatory requirement
of Independence and reprimanded the CA and imposed a fine. Therefore, the case
cited does not support EP's contention.
38. In view of the above, the charge of professional misconduct of 'not
exercising due diligence in the conduct of his professional duties' on this
account is proved.
II. Non-compliance with para 7
to 9 of Standard on Auditing (SA) 705 'Modifications to the Opinion in the
Independent Auditor's Report' while expressing opinion in Independent Auditor's
Report dated 6-10-2015 - Standalone Financial Statements (SFS) and Independent
Auditor's Report dated 15-10-2015 - Consolidated Financial Statements (CFS)
39. After the EP filed an affidavit to the effect that he does not have
the Audit File, the Financial Statements and Independent Auditor's Reports is
were analysed by NFRA to assess the appropriateness of the Audit Opinions
expressed by the EP in the Independent Auditor's Reports. It was prime facie
observed that CA Shyam Malpani did not comply with SA 705 as he had given
qualified audit reports with eleven qualifications on SFS and fifteen
qualifications on CFS. The qualification can be given only if the effect of
such qualification is material but not pervasive. However, a perusal of the
qualifications in the Audit Reports and the information available in the
Financial Statements of SK.NL for relevant period indicates that the effect of
qualifications in the Audit Reports was material and pervasive as it covered
substantial portion of sales, purchases, trade receivables, trade payables,
inventories, provisions, interest on loans, share capital etc. Therefore, the
appropriate Audit Opinions in such a case would either be Adverse Opinions or
the Disclaimer of Opinions. The Qualified Audit Opinions were not appropriate
in this case. Therefore, vide Letter, dated 25-8-2023, the EP was
charged for noncompliance with SA 705.
40. In response to the Letter, dated 25-8-2023, the main
contentions of the EP are as follows :--
(a) He does
not have any documents relating to the audit of SK.NL for F.Y. 2013-14,
therefore he is unable to offer a response to this charge.
(b) The
evaluation of financial statements and annual report of SK.NL at a later date,
when more information is available, is hindsight bias. He referred the Judicial
Pronouncement of Bombay High Court in case of Tri-Sure India Ltd. v. A.F.
Ferguson & Co. & Ors., dated 24-10-1985.
(c) 'Besides,
under the paragraph Al of SA-705, the criteria determined which effects the
type of opinions expressed is his own judgment and, again, it is reiterated
that judgment is very subjective and can differ from person to person and it is
based on the Respondent's own judgment that the type of opinion was expressed
at the relevant time.' (sic)
(d) Utilizing
comprehensive professional judgment, and meticulously weighing the materiality
of these qualifications, the EP arrived at the decision to offer qualified
opinions rather than entirely disclaiming the financial statements.
41. We have considered the reply of the EP. For better appreciation of
the matter, it is important to evaluate the nature, materiality and
pervasiveness of the qualifications in the Audit Reports. Out of 11 (SFS) and
15 (CFS) qualifications, Qualification no. 1 and 4 (both SFS & CFS) are
discussed below :--
(A) The first
qualification pertains to (i) non-availability of adequate supporting
documentation and internal control system to substantiate transactions of
'Fabric Sales' of Rs. 5133 crores, 'Sales Return' of Rs. 1411 crores and
'Pw-chase' of Rs. 4180 crores (all in SFS) and 'Sales' of Rs. 6867 crores,
'Sales Returns' of Rs. 2355 crores, 'Purchases' of Rs. 6384 crores, &
'Purchases Returns' of Rs. 206 crores (all in CFS); and (ii) for SFS and CFS
both, its impact on the Statement of Profit and Loss, Cash Flow Statement,
Trade Receivable, Trade Payable and Inventories.
The fourth
qualification (both in SFS & CFS) pertains to understatement of loss of
SKNL and other current liability due to non-accounting of interest of Rs. 721
crores (SFS) and Rs. 981 crores (CFS) on loans classified by lenders as
Non-Performing Assets.
(B) In order
to bring home the materiality and pervasiveness of these items mentioned in the
above-mentioned qualifications, the qualified amounts and their relative
percentage are mentioned in the Table 1 below :--
Table-1
|
|
Rs.
in crores
|
S.
No.
|
Particulars
|
Amount
in qualified opinion and its relative percentage
|
|
|
Standalone
Financial Statements
|
Consolidated
Financial Statements
|
1
|
Sales
|
5133
|
6867
|
|
Less: Sales Return
|
1411
|
2355
|
|
Net sales
|
3722
|
4512
|
|
Percentage of sales amount
qualified to total sales of Rs. 3727 crores (SFS) & Rs. 5014 crores (CFS)
|
99.87%
|
89.98%
|
2
|
Purchase
|
4180
|
6384
|
|
Less: Purchase Return
|
No
qualification
|
206
|
|
Net Purchase
|
4180
|
6179
|
|
Percentage of purchases amount
qualified to total purchases of Rs. 4225 crores (SFS) & Rs. 6357 crores
(CFS)
|
98.91%
|
97.19%
|
3
|
Trade Receivable
|
1831
|
2883
|
|
Percentage of Trade receivable
to balance sheet size of Rs. 3344 crores (SFS) & Rs. 5549 crores (CFS)
|
54.76%
|
51.95%
|
4
|
Inventories
|
552
|
1371
|
|
Percentage of Inventories to
balance sheet size of Rs. 3344 crores (SFS) & Rs. 5549 crores (CFS)
|
16.51%
|
24.71%
|
5
|
Trade Payable
|
166
|
571
|
|
Percentage of Trade Payable to
balance sheet size of Rs. 3344 crores (SFS) & Rs. 5549 crores (CFS)
|
4.95%
|
10.29%
|
6
|
Non provision of interest on
NPA loans
|
721
|
981
|
6A
|
Percentage of Non provision of
interest on NPA loans to balance sheet size of Rs. 3344 crores (SFS) &
Rs. 5549 crores (CFS). (for liability)
|
21.57
|
17.68%
|
6B
|
Percentage of Non provision of
interest on NPA loans to loss of Rs.1858 crores (SFS) & Rs.3653 crores
(CFS). (for expenses)
|
38.82%
|
26.85%
|
(C) It can be
observed from Table-I above that the collective effect of the six items
included in the first and fourth qualifications was material and pervasive as
it not only represents substantial proportion of the Financial Statements but
also affects other major components of the financial statements (SFS and CFS
both). In addition to this, it is observed from the Standalone Financial
Statements of SKNL that its net worth of Rs. 1171.29 crores on 31-3-2013 was
eroded during the period under audit and became Negative Rs. (784.23 crores) as
on 30-9-2014. Similarly, in Consolidated Financial Statements, its net worth of
Rs. 2507.55 crores on 31-3-2013 was eroded during the period under audit and
became Negative Rs. (756.06 crores) as on 30-9-2014. This in itself was also an
important parameter to evaluate the Going Concern assumption of SKNL.
(D) In
addition, the auditor provided a qualification pertaining to going concern. The
EP has only made reference to the following facts: (i) SKNL's default in
payment of dues to banks, financial institutions, debenture holders, body
corporates and trade payables; (ii) legal cases filed by some of the lenders,
suppliers and service providers; (iii) ongoing discussion with consortium of
lenders for scheme of restructuring of loans and criticality of approval of
this scheme on the going concern of SKNL. The EP has not examined the effects
of these facts on SKNL's going-concern assumption.
(E) In
addition to above, the EP had given qualified opinion on following matters :--
(i)
Non-inclusion of financial statements of 14 out of 20 overseas subsidiaries in
the CFS, in view of liquidation of these subsidiaries and consequential
inability of auditor to as certain its financial impact on the loss, assets and
liabilities of CFS.
(ii) Inclusion
of unaudited financial statements of seven subsidiaries as approved by the
Board of Directors of respective companies, out of which two subsidiaries'
financial statements were for the period ending 30-6-2014 and five
subsidiaries' financial statements were for the period ending 31-3-2014. These
financial statements reflected total assets of Rs. 349 crores, total revenue of
Rs. 246 crores and cash inflow of Rs. 15 crores.
The information
with respect to disclosures to be made in the Notes to Financial Statements as
required under various statues/Accounting Standards in relation to these
subsidiaries were not available (CFS).
(iii) Inability
to verify and comment on the existence, valuation and recoverability of assets,
accurate quantification and reporting of liabilities, accuracy and correctness
of income and expenditures of Rs. 32 crores, Rs. 166 crores, Rs. 1 crore and Rs.
17 crores in respect of Assets, Liabilities, Income and Expenditures
respectively (CFS).
(iv) Sale of
pledged shares of promoters worth Rs. 127.59 crores (both SFS & CFS) by
lender Banks.
(v)
Non-provision in respect of long-term investment of Rs. 178.88 crores in
foreign step down subsidiary (both SFS & CFS) and Goodwill of Rs. 119.29
crores (CFS), which went into financial reconstruction and consequential impact
on investment and loss of SKNL.
(vi) Non
confirmation of balances of banks/financial institutions of Rs. 2316.82 crores
in SFS and Rs. 3961.21 crores in CFS; and Rs. 0.28 crore current account
balances in CFS.
(vii)
Adjustment of outstanding balances of trade payables with trade receivables
(both SFS & CFS).
(viii) Write
down of inventories and impairment of fixed assets was not done and its impact
is not quantifiable as physical verification of inventories lying with third
parties and some of the fixed assets was not conducted; and valuation of fixed
assets was not done (both SFS & CFS).
(ix) Non
recognition of liability arising out of sale of pledged shares of promoters and
other shareholders by the banks for recovery of their dues (both SFS &
CFS).
(x) Non
redemption of preference shares of Rs. 3.72 lacs on due date (both SFS &
CFS).
(xi) Inclusion
of journal entries on the Cash Flow Statement (both SFS & CFS).
(xii)
Understatement of loss of the group and Trade Payable by Rs. 0.73 crore due to
non provision of Royalty expenses and Technical fees (CFS).
42. From our discussions in para 41 above, it is clear that impact of
the qualifications in the Audit Reports were all material and pervasive and
thereby affected other major components of the financial statements (SFS and
CFS both). The facts of the case detailed above clearly indicate that the
qualified audit opinions on SFS and CFS were not appropriate and thus, the EP
violated SA 705, thus proving the charge of EP's gross negligence and lack of
exercise of due diligence in the conduct of his professional duties.
E. Findings on articles of
charges of professional misconduct by CA Shyam Malpani
43. As discussed in section -D above, it is clear that CA Shyam Malpani
had violated the Companies Act, 1956, the Companies Act, 2013, SQC1, SA 220 and
SA 705 by performing this audit despite having serious conflict of interest and
in not giving appropriate audit opinions. We therefore conclude that CA Shyam
Malpani has committed Professional Misconduct as defined under section 132(4)
of the Companies Act, 2013 in terms of section 22 of the Chartered Accountants
Act, 1949 (CA Act). As per the clause 7 of Part I of the Second Schedule of the
CA Act, an EP is guilty of professional misconduct if he 'did not exercise due
diligence and was grossly negligent in the conduct of his professional duties'.
It has been established that CA Shyam Malpani accepted the appointment as
auditor of SKNL despite having ownership interest in the shares of the auditee
company, i.e., SKNL and failed to form audit opinions in accordance with the SA
705, as explained in section - D above. Since the EP compromised his
independence and failed to recognize and report the pervasiveness of the
deficiencies of the financial statements, his conduct undoubtedly falls into
the category of lack of due diligence and gross negligence. Therefore, we hold
that the charge of professional misconduct on the part of the EP on this
account is proved.
44. Internationally also, similar cases of Auditor's conflict of
interest with the auditee company has been viewed seriously. The US Audit
regulator-Public Company Accounting Oversight Board (PCAOB) in the matter of
Wanen Averett, LLC [PCAOB Release No. 105-2023-022, dt. 29-8-2023] has
observed that' Rule 2-01 (b) of the Com mission's Regulation S-X provides that
an accountant is not independent of an audit client if, at any point during the
audit and professional engagement period, 'the accountant is not, or a
reasonable investor with knowledge of all relevant facts and circumstances
would conclude that the accountant is not, capable of exercising objective and
impartial judgment on all issues encompassed within the accountant's
engagement'. In applying this standard, it is appropriate to 'look in the first
instance to whether a relationship or the provision of a service: creates a
mutual or conflicting interest between the accountant and the audit client.' In
this case, PCAOB imposed a penalty of $ 2,00,000 on the Auditor besides
advising the Auditor to review independence policies.
F. Penalty & Sanctions
45. Section 132(4)(c) of the Companies Act, 2013 provides that National
Financial Reporting Authority shall, where professional or other misconduct is
proved, have the power to make order for --
(A) imposing
penalty of -- (I) not less than one lakh rupees, but which may extend to five
times of the fees received, in case of individuals; and (II) not less than ten
lakh rupees, but which may extend to ten times of the fees received, in case of
firms;
(B) debarring
the member or the firm from - (I) 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; or (II)
performing any valuation as provided under section 247, for a minimum period of
six months or such higher period not exceeding ten years as may be determined
by the National Financial Reporting Authority.
46. CA Shyam Malpani was asked on 3-11-2022 to provide information
about details of fees received from SKNL and its related parties; total revenue
earned by his firm and by him; details of related parties of SKNL etc. He
replied that he does not have any records relating to the audit of SKNL for
F.Y. 2013-14. He has chosen not to give any details of fees received by him
during the year. However, we note from the Standalone Financial Statements of
SKNL for F.Y. 2013-14 that the audit fees of SK.NL for F.Y. 2013-14 was Rs.
47.88 lakhs only.
47. In this case the audit done by the EP related to SKNL which was a
large public listed company and involved interest of large number of
shareholders and other stake holders such as banks, creditors etc. It is
critical that the auditor and the EP performed their job with due diligence to
give assurance to the investors and stakeholders on true and fairness of the
financial statements and thereby protect public interest. Any default on this
account impacts and jeopardizes the larger public interest which needs to be
considered while determining the quantum of punishment.
48. The professional misconduct has been detailed and proven on various
counts in the body of this Order. Considering the nature and seriousness of
violations and principles of proportionality, we, in the exercise of powers
under section 132(4)(c) of the Companies Act, 2013, order the sanctions
detailed below. In light of the judgment of the Hon'ble National Company Law
Appellate Tribunal (NCLAT) dated 1-12-2023, [Order in the matter of Comp.
App. (AT) Nos. 68, 87, 90 & 91 of 2023, Judgment dated 1-12-2023, page
92], that states regarding retrospective jurisdiction of NFRA, that 'We also
take into consideration the fact that neither any new misconduct has been
created in law, which NFRA can investigate and levy penalty, if required nor
NFRA can levy penalty greater than the quantum of penalty envisaged under the
Chartered Accountants Act, 1949] we have limited the monetary penalty to (5
Lakh only since the violations relate to the period April, 2013 to September,
2014. We impose of a monetary penalty of Rupees Five Lakh upon CA Shyam
Malpani. In addition, CA Shyam Malpani 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.
49. This Order will be effective after 30 days from the date of its
issue.