Imposition of a monetary penalty of Rupees Ten Lakhs on CA A.B. Jani and imposition of a monetary penalty of Rupees Five Lakhs on CA Rakesh Sharma
FinTech BizNews Service
Mumbai, 24 December, 2024: National Financial Reporting Authority (NFRA) has imposed a penalty of Rs2 Cr on audit firm M/s Deloitte Haskins & Sells.
An operative part of the NFRA’s order, dated 23.12.2024, reads as follows:
Based on the proceedings u/s 132(4) of the Companies Act, and after allowing them to present their case, we find that the Audit Firm, the EP, and the EQCR Partner are guilty of professional misconduct and impose, through this Order, the following monetary penalties and sanctions:
a. Imposition of a monetary penalty of Rupees Two Crore on the Audit Firm M/s Deloitte Haskins & Sells LLP.
b. Imposition of a monetary penalty of Rupees Ten Lakhs on CA A.B. Jani. In addition, EP CA A.B. Jani is debarred for 5 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.
c. Imposition of a monetary penalty of Rupees Five Lakhs on CA Rakesh Sharma. In addition, EQCR Partner CA Rakesh Sharma is debarred for 3 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.
EXECUTIVE SUMMARY of the NFRA’s order is as follows:
1) ZEEL (Zee Entertainment Enterprises Limited) is a media and entertainment company listed on the Bombay Stock Exchange and the National Stock Exchange. M/s Deloitte Haskins & Sells LLP was the auditor of ZEEL for FY 2018-19 and 2019-20 appointed under Section 139 of the Act.
2) As per the consolidated financial statements for 2019-20, ZEEL had Revenue from Operations of Rs8,129.9 crore, Total Current Assets of Rs10,097.3 crore and a Profit After Tax of Rs524.6 crore.
3) We suo motu examined the Audit File for the statutory audit of Zee Entertainment Enterprises Limited (ZEEL) for FY 2019-20 and FY 2018-19 to assess whether the auditor committed any professional misconduct as defined under Section 132 (4) of the Companies Act, 2013 ('the Act' hereafter).
4) Based on the examination of the Audit Files, and responses of the Audit Finn to our queries and other records, we were of the prima facie view that the Auditors had not discharged their· professional duties under the Act as well as the Standards on Auditing (SA). Consequently, an SCN was issued to the Auditors asking them to show cause why action under Section 132(4) of the Act should not be initiated against them for professional misconduct.
5) After examining the detailed submissions, including written and oral, this Order concludes that the Auditors failed to meet the relevant requirements of the SAs and violated the Act in respect of certain significant related party transactions. In September 2018, the Chairman of ZEEL, who is also the promoter of Essel Group of Companies, issued a letter to Yes Bank, committing Rs200 crore fixed deposit of ZEEL as a guarantee for the loans given by Yes Bank to a promoter group company Essel Green Mobility Ltd. The Bank appropriated the Fixed Deposit (FD) in July 2019, towards settlement of loan amounts due from seven promoter group companies. Neither the creation and maintenance of FD nor its reappropriation by the Bank was with the approval of the Board or Shareholders of the Company. The statutory auditors failed to identify and report this misrepresentation.
Our examination showed that the Auditors were grossly negligent, failed to apply professional skepticism and due diligence, did not adequately challenge the management's assertions, and failed to evaluate reporting of suspected fraud as required under Section 143(12) of the Act, which was evident from unauthorised guarantees/securities, premature closure of the FD by the Bank and unauthorised use of ZEEL' s funds for settling the loan of the promoter group companies, with the knowledge of the Chairman of the group and management of ZEEL.
This Order disposes of the Show Cause Notice ('SCN' hereafter) dated 27.08.2024, issued to Mis Deloitte Haskins & Sells LLP (Finn Registration No. 117366W/W100018), the Audit Finn, CA A.B. Jani (ICAI Membership No. 46488), Engagement Partner (EP) and CA Rakesh Shanna (ICAI Membership No. 102042), Engagement Quality Control Review (EQCR) Partner, for the Audit of Zee Entertainment Enterprises Limited for the FY 2018-19 and 2019- 20.
