Subhendu Bhattacharya Vs CA. Venugopal Chandrasekran Nair (ICAI Disciplinary Committee)
Conflicting NBFC Audit Reports and AS 18 Lapses: ICAI Removes CA’s Name for One Month
Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI), Bench-II, constituted under Section 21B of the Chartered Accountants Act, 1949, passed an order dated 3 October 2026 reprimanding CA. Venugopal Chandrasekran Nair (Membership No. 039445), associated with M/s V Nair & Associates, Mumbai, directing removal of his name from the Register of Members for one month and imposing a fine of ₹1,00,000. The disciplinary proceedings arose from a complaint initiated by Shri Subhendu Bhattacharya, Deputy General Manager, Reserve Bank of India, concerning the respondent’s statutory audit of M/s Participation Finance & Holding (India) Private Limited, Dehradun, for FY 2015-16. The punishment order followed the Committee’s findings pronounced on 29 August 2026, holding the respondent guilty of professional and other misconduct under Clause (2) of Part IV of the First Schedule and Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The misconduct involved three distinct issues: materially inconsistent sets of audited financial statements, contradictory reporting concerning NBFC registration and regulatory compliance, and inadequate disclosure of a subsidiary under Accounting Standard (AS) 18. The Committee emphasised that professional certification requires independent examination of the records and consistent reporting, particularly where an auditor’s reports are used by the RBI for regulatory supervision.
The proceedings originated from an RBI inspection of the company’s books of account with reference to its financial position as at 31 March 2016. During inspection, the company furnished a set of audited financial statements, including the Independent Auditor’s Report, Balance Sheet and Profit and Loss Account. The RBI compared these documents with certified copies obtained from the respondent’s office and identified significant discrepancies. The differences concerned the format and numbering of audit reports, inclusion or omission of Annexures A and B, computation of taxable income, reporting on fixed asset records and declarations concerning registration under Section 45-IA of the Reserve Bank of India Act, 1934. The RBI also questioned the disclosure of related party transactions. According to the complaint, the respondent had not provided a satisfactory explanation when the regulator sought clarification, including through a communication dated 13 September 2017. The matter was subsequently placed before ICAI’s disciplinary mechanism. The complaint was filed on 15 June 2018, the respondent submitted his written statement on 1 August 2018, and the complainant filed a rejoinder on 4 September 2018.
The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) has reprimanded CA. Venugopal Chandrasekran Nair, ordered removal of his name from the Register of Members for one month, and imposed a ₹1 lakh fine for professional and other misconduct concerning an NBFC audit.
The order dated October 3, 2026, follows findings dated August 29, 2026, in a complaint initiated by Shri Subhendu Bhattacharya, Deputy General Manager, Reserve Bank of India. The proceedings concerned inconsistent financial statements, conflicting regulatory reporting and inadequate related party disclosures.
Background of the Case
The respondent, associated with M/s V Nair & Associates, was statutory auditor of M/s Participation Finance & Holding (India) Private Limited for FY 2015-16.
During an inspection with reference to the company’s financial position as on March 31, 2016, the RBI obtained audited financial statements from the company. These materially differed from the certified documents subsequently received from the auditor’s office.
The differences concerned the format of reports, annexures, reporting on fixed asset records, the requirement of RBI registration and related party disclosures.
Material Differences Between Two Sets of Documents
The Committee examined discrepancies between the documents supplied during inspection and those furnished by the respondent.
One set contained Annexures A and B, while the other followed a different format. There were also contradictory statements concerning maintenance of proper fixed asset records.
A statement that the company was not required to be registered under Section 45-IA of the RBI Act appeared in one set but was absent from the other.
The respondent denied preparing inconsistent financial statements. He argued that company staff had mistakenly attached annexures belonging to another entity while supplying documents to the RBI inspection team.
He maintained that the correct statements had been furnished by him and filed on the MCA portal.
Explanation Regarding Another Company’s Annexures Rejected
During the findings proceedings, the respondent furnished documents of Emppel Fortitus Private Limited to support his explanation.
The Committee found that these annexures also differed materially from the documents supplied during the RBI inspection. Clauses concerning records, fixed assets, loans and the opinion paragraph did not match.
It noted that the disputed statements identified the subject company, bore the respondent’s signatures and reflected matching profit figures. The explanation that the discrepancy arose from another company’s annexures was therefore not substantiated.
At the punishment stage, the respondent further referred to documents of Land Vantage Private Limited and reiterated the erroneous-attachment explanation. The Committee maintained its findings after considering his submissions and supporting material.
Conflicting Reporting on NBFC Registration
The second charge concerned inconsistency between the statutory audit reporting and the report issued under the Non-Banking Financial Companies Auditor’s Report (Reserve Bank) Directions, 2008.
One report stated that the company was not required to obtain registration under Section 45-IA. Another stated that it was entitled to continue holding its Certificate of Registration based on its asset and income pattern.
The Committee also noted that the respondent’s certificate reported financial assets at 92.64% of total assets and financial income at 100% of gross income.
These figures indicated that financial activity was the company’s principal business and prima facie satisfied the principal business criteria generally applied to NBFC identification.
The Committee held that the auditor should have exercised heightened professional scepticism and due diligence when examining the company’s activities and regulatory compliance.
It emphasised that the report under the RBI Directions was distinct from the independent auditor’s report and required appropriate procedures supporting its conclusions.
Subsidiary Disclosure Omitted Under AS 18
The third charge concerned related party disclosures.
The financial statements identified certain key management personnel but did not disclose Strategic Credit Capital Private Limited as a subsidiary. The Committee noted that the subject company held 99.99% in that entity.
The respondent attributed non-disclosure to confidentiality requested by the parties. He also submitted that he had interpreted the reporting exceptions applicable to banking companies as extending to NBFCs because both were regulated by RBI.
Private Confidentiality Arrangement Insufficient
The Committee referred to AS 18—Related Party Disclosures, including its confidentiality exceptions.
It held that non-disclosure required a basis in statute, a regulator’s direction or a similar competent authority’s requirement.
The respondent produced no statutory or regulatory foundation supporting the claimed exemption. A confidentiality arrangement between parties did not establish entitlement to withhold the required information.
The Committee therefore rejected the defence and found a failure to exercise due diligence.
Finding and Punishment
The respondent was held guilty under Clause (2) of Part IV of the First Schedule and Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
Considering the seriousness of the established misconduct, the Committee imposed a reprimand, one-month removal from membership and ₹1,00,000 fine. The fine must be paid within 60 days from receipt of the order.
