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The National Financial Reporting Authority (NFRA) has imposed a ban as well as penalties totalling Rs 1.10 crore on three entities, including two auditors, for alleged professional misconduct in connection with the audit of Giri Vidhyuth (India) Ltd for 2019-20.
Giri Vidhyuth (India) Ltd (GVIL) is a subsidiary of Coffee Day Enterprises Ltd (CDEL).
The case pertains to diversion of funds worth Rs 3,535 crore from seven subsidiary companies of CDEL to Mysore Amalgamated Coffee Estate Ltd (MACEL), an entity owned and controlled by the promoters of CDEL.
After markets watchdog Sebi shared its investigation report in April 2022, the audit regulator started probing the professional misconduct of the auditors of GVIL.
Separately, NFRA imposed a fine of Rs 1 crore on Sundaresha & Associates and slapped a two-year ban on the audit firm.
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This debarment period of Sundaresha will start after the completion of two years of debarment period imposed by NFRA through its order in April in the case of Tanglin Developments Ltd, a CDEL subsidiary, for the audit of FY 2018-19.
Also, the audit regulator levied a penalty of Rs 5 lakh each on -- C Ramesh and Chaitanya G Deshpande -- and barred them from taking up auditing work for a period of five years.
All of them have been prohibited from undertaking any audit in respect of financial statements or internal audit of any company or body corporate during the ban period, NFRA said.
The regulator's investigation revealed that the auditors (Sundaresha, C Ramesh and Deshpande) of GVIL for FY 2019-20, failed to report the misstatement of Rs 325 crore in a statement of cash flow and the total misstatements in the financial statements of GVIL were of Rs 1,776.16 crore, NFRA said in the order passed on Tuesday.
As per the order, the auditors did not exercise professional judgement and scepticism during audit of Rs 581.16 crore borrowed from subsidiary companies of CDEL, loans of Rs 370 crore and Rs 105 crore were fraudulently given to MACEL and a related party SICAL Logistics Ltd.
It also found that the auditors failed to perform sufficient appropriate audit procedures while auditing related party balances, thus failing to detect and report understatement of related party loans by Rs 350 crore, the regulator noted.
Further, the auditors failed to comprehend that GVIL was a shell company used by promoters for financial manoeuvres, NFRA said.
Through such acts, they violated Standards on Auditing and provisions of the Companies Act, it added.
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