New Delhi (Agency): A Mumbai-based firm, Chaturvedi & Shah, repeatedly caught in corporate fraud investigations, has emerged as a focal point following the July 19 Enforcement Directorate (ED) searches on various locations of the defunct Jet Airways. This audit firm, fighting challenges from the Securities and Exchange Board of India (SEBI), has been found lacking in several recent high-profile corporate fraud cases.
Between 2016 and 2019, Chaturvedi & Shah served as the statutory auditor for the scandal-ridden Non-Banking Financial Company (NBFC) DHFL. The National Financial Reporting Authority (NFRA) identified discrepancies in the DHFL audit process and had worked for 15 months on a draft audit quality review. However, this draft was challenged in the Bombay High Court.
Further complicating matters, in June this year, the Bombay High Court directed NFRA to consider the case of Chaturvedi & Shah LLP, DHFL’s statutory auditor for 2017-18. The firm contested NFRA’s jurisdiction over periods preceding its establishment after the financial institution’s audit quality review was conducted by the audit regulator.
Following the Bombay High Court’s instruction, NFRA is preparing to determine its jurisdiction. Last Monday, the Supreme Court dismissed a special leave petition filed by the audit firm that contested the Bombay High Court’s order, according to public court records.
Earlier this year, NFRA had issued separate orders for individual auditors and firms responsible for DHFL’s branch audits across different states in FY18, alleging deficiencies.
Adding to the confusion, in April this year, the market regulator penalized two former auditors of CG Power and Industrial Solutions Ltd for breaking rules, as per an order released on the regulator’s website.
SEBI imposed a fine of Rs 500,000 each on the auditors Chaturvedi & Shah and K. K. Mankeshwar & Co. In its order, the market regulator emphasized that “the disclosure of true and fair information is crucial for investor protection and to maintain and restore their confidence in the securities market.” It also pointed out that the false and misleading disclosures in the audit report significantly harm the interests of investors and jeopardize the integrity of the securities markets.
SEBI stated that the auditors “facilitated the scheme of cleaning up the books of accounts of CG Power” instead of working in the shareholders’ interest. The auditors, despite being aware of the irregularities and misstatements in CG Power’s financial statements, “certified the books as true and fair.”
In December 2021, the Audit regulator ICAI approached the CBI and State Bank of India (SBI) for information on the signing partners of three statutory auditors for CG Power & Industrial Solutions between FY2014-15 and FY 2018-19.
The claim was that these three audit firms — Sharp & Tannan, Chaturvedi & Shah (joint auditor for FY 16 to FY 18), and K.K. Mankeshwar & Co (joint auditor for FY18 and FY19) — approved the audited balance sheets for these years without shedding light on fraudulent transactions in CG Power of over Rs 5000 crore.
At that time, Nihar Jambusaria, President of the Institute of Chartered Accountants of India, stated, “We have today written to the CBI and SBI seeking specific information on the CG Power matter. Based on their response, we will decide whether ICAI will initiate disciplinary proceedings against the signing partners of these audit firms.”
