TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 900
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.....P.(C) 5842/2024 Allowed, subject to all just exceptions. Applications stand disposed of. W.P.(C) 5840/2024 , W.P.(C) 5841/2024 & W.P.(C) 5842/2024 1. Notice. Since the respondents are represented by Mr. Hossain, let a reply be filed within a period of three weeks' from today. The petitioner may file a rejoinder on or before the next date fixed. 2. The instant writ petitions have been preferred by M/s Pathak HD & Associates ['PHD'], the Audit Firm, CA Parimal Kumar Jha, who was the Engagement Partner ['EP'] and CA Vishal D Shah, the Engagement Quality Control Review ['EQCR'] Partner, all of whom were concerned with the statutory audit of Reliance Capital Limited ['RCL'], for Financial Year ['FY'] 2018-19. 3. The Petitioners are aggrieved by the order dated 12 April 2024 whereby the National Financial Reporting Authority ['NFRA'] has debarred CA Parimal Kumar Jha and CA Vishal D Shah for 10 years and 5 years respectively 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. NFRA has also imposed penalty of INR 3 crores on PHD a....
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....to submit that no writ petition in respect of final orders have been entertained and in fact in one such matter, we had relegated parties to follow the appealed procedure before the National Company Law Tribunal ['NCLT'], we note from the facts recorded in W.P.(C) 3969/2024, that in the said matter the petitioners had already instituted appeals before the NCLT. It was in the aforesaid context that we had bifurcated the reliefs claimed and entertained the writ petitions only to the extent of the challenge to Section 132(4). However, that is not the position which obtains in these writ petitions. 8. Since we are already hearing a batch of matters which question the validity of Section 132(4), we entertain the instant writ petitions on our board. 9. Let these writ petitions be tagged with W.P.(C) 1065/2021 to be called on the date fixed i.e. 29.05.2024. CM APPL. 24157/2024 (Interim Direction) in W.P.(C) 5840/2024 CM APPL. 24159/2024 (Interim Direction) in W.P.(C) 5841/2024 CM APPL. 24161/2024 (Interim Direction) in W.P.(C) 5842/2024 1. Upon going through the final order passed by the NFRA, we take note of the following disclosures which appear:- "13. PHD and PW were appoint....
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....porting of fraud under section 143 (12) of the Act. Following this communication, PW and RCL exchanged various communications culminating in the report under 143 (12) by PW on 11.06.2019. PHD was copied in these communications. These Group Companies, reported by PW, had serious credit impairment. Many of these group companies used the money to invest in or lend to other group companies with similar credit impairment. The business rationale and recoverability of these loans were not explained. b. As per the requirements of paragraph 14 (c) of SA 299 (Revised) PHD was required to agree or disagree with the significant observations raised by PW when they were brought to their notice. However, the Auditors failed to show any evidence in the Audit File of performing any audit procedures to examine and conclude these matters while it was functioning as a joint auditor. c. PW's letters dated 24.04.2019 and 14.05.2019 regarding loans and investments were detailed and self-explanatory. The final observations of PW include unresolved issues regarding recoverability, end-use, valuation, unusual mode of transactions and internal control matters. As per the requirements of SA 299 (Revised....
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....reporting. xxxx xxxx xxxx 24. We now examine how the above material information included in the notes to the financial statements of the Company was prepared by the Auditors and subsequently became the subject matter of their audit opinion, amounting to self-review. xxxx xxxx xxxx d. Thus, the sequence of events as mentioned above confirms that the Audit Committee's conclusion was based solely on EP's presentation to the Committee in which EP concluded that the PW observations did not attract the provisions of section 143 (12) of the Act. The opinions of the two legal counsels did not examine the merits of the transactions. Nor did the PHD subject the points raised by PW to the rigours of audit examination commensurate with fraud risk to agree or disagree with them and arrive at its own conclusions before the "mandate" (discussed in more detail in Sections C1 and C.4). Ultimately the same conclusion appeared in the Board's Report with acknowledgement of its origin to PHD. It is also disclosed in the Financial Statements in the form of a material assertion. Finally, PHD audited the same disclosure, based on its own opinion, and provided its audit opinion, in the form of ....