Vishal Dhiren Shah Vs Union of India (Delhi High Court)
The Delhi High Court recently adjudicated on a case involving the National Financial Reporting Authority’s (NFRA) penalties against CA Parimal Kumar Jha, CA Vishal D Shah, and the audit firm M/s Pathak HD & Associates (PHD) regarding the audit of Reliance Capital Limited (RCL) for the FY 2018-19.
The NFRA debarred CA Parimal Kumar Jha and CA Vishal D Shah for 10 years and 5 years, respectively, and imposed hefty penalties on them and PHD. The case stemmed from alleged lapses in the audit of RCL, particularly concerning loans disbursed, investments made, and disposal of Compulsory Convertible Debentures (CCDs) of group companies.
The audit by PHD and PW, the joint auditors of RCL, raised concerns about potentially irrecoverable loans and investments amounting to approximately INR 12,571 crore. Despite communications from PW highlighting these issues, the engagement partner (EP) and the audit firm allegedly failed to take appropriate action mandated by auditing standards.
NFRA’s scrutiny revealed significant lapses in the audit process. EP purportedly neglected to perform independent procedures on critical matters, as required by auditing standards, and failed to address concerns raised by PW. The EP’s conclusion that PW’s observations did not warrant reporting under Section 143(12) of the Companies Act, 2013, was deemed inadequate.
