NFRA Bans Auditors For 10 Years Over DHFL's FY18 Audit Lapses
The National Financial Reporting Authority (NFRA) has taken punitive action against two partners of Chaturvedi & Shah LLP (C&S), a Mumbai-based auditing firm, for alleged professional lapses in auditing the financial statements of Dewan Housing Finance Corporation Ltd (DHFL) for the financial year 2018.
The regulator has imposed severe penalties on the two partners, Jignesh Mehta and Amit Vinay Chaturvedi, and barred them from undertaking any audits for a specified period. Mehta, the engagement partner for the statutory audit of DHFL, has been banned for 10 years, while Chaturvedi, the engagement quality control review partner, has been banned for 5 years. The NFRA has also imposed a penalty of Rs 5 lakh on each of them. This action against the DHFL auditors is part of the NFRA crackdown on misconduct in the auditing profession.
In another move, the National Financial Reporting Authority (NFRA) has issued new directives against auditors Mukesh Chaturvedi and Shrenik Baid for alleged professional misconduct while auditing the accounts of IL&FS Financial Services (IFIN) for the financial year 2017-18. The directives have been issued under Section 132(4) of the Companies Act, 2013.
The NFRA has accused Chaturvedi and Baid of failing to meet relevant accounting standards and violating laws in several areas. They are charged with gross negligence and failure to apply due diligence and professional scepticism sufficiently while discharging their duties.
These fresh directives follow the NCLAT's ruling upholding the NFRA's orders against four partners of K Varghese & Co for their FY18 audits of DHFL. The NCLAT also confirmed that the NFRA has the power to investigate cases of professional misconduct that occurred before the watchdog's establishment in 2018.
In 2021, the Piramal Group acquired DHFL, which had been embroiled in a scandal, through a resolution plan under the Insolvency and Bankruptcy Code. The National Company Law Tribunal endorsed this plan.
After media reports on the alleged syphoning of public money of around Rs 31,000 crore and the Enforcement Directorate's reported action in April 2020 on an alleged banking fraud of about Rs 3,700 crore by the promoter/directors of DHFL, the NFRA conducted an audit quality review to investigate the role of the statutory auditors of DHFL for FY18.
In October 2023, the NFRA debarred 18 other auditors for up to a year and imposed penalties on them, citing professional misconduct in the audits of various branches of DHFL, which was already facing a crisis.
The NFRA found that 33 branch auditors had signed the "Independent Branch Auditors' Report" for almost 250 branches. However, none of these auditors had been approved at the company's annual general meeting. This was one of the many lapses that the NFRA had found.
