National Company Law Appellate Tribunal
Pranaav G Ambekar vs National Financial Reporting ... on 12 March, 2024
1
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI
Comp. App. (AT) No. 89 of 2023
IN THE MATTER OF:
CA Pranaav G. Ambekar ...Appellant
Versus
National Financial Reporting Authority (NFRA) &
Ors. ...Respondents
Present:
For Appellants : Mr. Avtaar Singh, Advocate.
For Respondent : Mr. Ravi Prakash, CGSC. Ms. Astu Khandelwal &
Mr. Ayushmann Kishore, for NFRA.
JUDGMENT
Per: Justice Rakesh Kumar Jain:
This appeal is directed against the order dated 12.04.2023 passed by the National Financial Reporting Authority (in short 'NFRA') by which the Appellant who is a CA, having ICAI Membership No. 240379, member of the Engagement Team for the statutory audit of Coffee Day Global Limited (in short 'Company') for the Financial Year 2018-19 has been held guilty of professional mis-conduct under Section 132(4) of the Companies Act, 2013 (in short 'Act') r/w Section 22 and clauses 5,6,7,8 & 9 of Part 1 of the second schedule of the Institute of Chartered Accountants of India Act (in short 'CA Act') and has been saddled with the penalty of Rs. 5 Lac and further debarred for a period of five 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 the Company or body corporate.
Comp. App. (AT) No. 89 of 2023 2
2. In brief, NFRA initiated investigations into the professional conduct of the statutory auditors under Section 132(4) of the Act, after receiving the report of investigation by the Securities and Exchange Board of India ('SEBI'), shared in April, 2022 regarding diversion of funds worth Rs. 3,535 Crores from seven subsidiary companies of Coffee Day Enterprises Limited ('CDEL'), a listed company, to Mysore Amalgamated Coffee Estate Limited ('MACEL'), an entity owned and controlled by the promoters of CDEL.
3. The Statutory Auditors, individuals and firm of Chartered Accountants, are appointed by the members of companies as per provisions of Section 139 of the Act. The Statutory Auditors, including the Engagement Partners (EP) and the Engagement Team which conduct the audit are bound by the duties and responsibilities prescribed in the Act, Rules, the Standards on Auditing ('SA') including the Standards on Quality Control ('SQC') and the Code of Ethics, the violation of which constitutes professional or other mis-conduct and is punishable with penalty prescribed under Section 132(4) (c) of the Act.
4. The NFRA is a Statutory Authority set up under Section 132 of the Act to monitor implementation and enforce compliance of the auditing and accounting standards and to watch the quality of service of the professional and ensure compliance with such standards.
5. The Investigation of NFRA, inter alia, revealed that the Company Auditors for the financial year 2018-19 failed to meet the relevant requirements of the standards on auditing (SA) and provisions of the Act and also demonstrated a serious lack of competence, failed to evaluate their Comp. App. (AT) No. 89 of 2023 3 potential conflict of interest and failed to maintain their independence from the Company by having audit and non-audit relationships with a large number of Coffee Day Group Companies and the promoters' family members, made an attempt to deceive NFRA by adding more documents to as well as altering the documents in their audit file which amounted to tempering with the audit file, failed to exercise professional judgment & skepticism during audit of the transactions of Rs. 6,958.91 Cr. entered fraudulently with MACEL which were also not disclosed in the related party disclosers in their entirety, failed to report understatement of loan by Rs. 222.50 Cr. fraudulently given to MACEL and ever greening of loans through structured circulation of funds among group companies, failed to report fraudulent diversion of Rs. 130.55 Cr. to a related party M/s Classic Coffee Curing Works, performed audit in a perfunctory manner resulting in non- reporting of misstatement of Rs. 132.37 Cr. in the consolidated financial statements, failed to perform appropriate audit procedure to indentify misstatement of Rs. 69.77 Cr. in related party disclosure relating to purchase of coffee beans from MACEL and thus total material and pervasive misstatements amounted to Rs. 7514.10 Cr. and in spite of that falsely reported that the financial statements of Company for the financial year 2018-19 gave a true and fair view. It has also been found that it falsely reported that the Company had an effective internal financial control over financial reporting despite the complete absence of the same in the Company.
6. The Appellant has challenged the impugned order only on the ground of non-compliance/violation of principle of natural justice by the NFRA. Comp. App. (AT) No. 89 of 2023 4 Counsel for the Appellant has vehemently argued that the show cause notice number NF-23/14/2022 was served on the Appellant without documents. It is submitted that it has been mentioned in the show cause notice that "the show cause notice alongwith Annexure A containing list of documents is attached herewith". He has then referred to Annexure A to contend that it contained the list of documents by which the charges of professional misconduct are proposed to be sustained but the said documents were not enclosed with the show cause notice. In order to substantiate his plea that the relevant documents were not given with the show cause notice, he has referred to email dated 24.04.2023 purported to have been sent by the Appellant to the Secretary, NFRA. It is pertinent to mention that this email was sent after the impugned order was passed on 12.04.2023. In this email, the Appellant has mentioned that he has received the order dated 12.04.2023 and requested for providing copy of the entire audit file including audit plan, working papers, documents and other reports submitted by the firm (M/s ASRMP and Co.) on 05.08.2022 to enable him to file the appeal before the Appellate Authority. It is submitted that in response to email dated 24.04.2023, the NFRA sent a letter dated 25.04.2023 in which it is mentioned that "a DVD containing the complete audit file as well as all additional documents relied upon as per Annexure A alongwith show cause notice dated 15.11.2022 was sent to you, however, the same was returned on 30.11.2022. Therefore, we are once again enclosing the same DVD and show cause notice for your reference"
7. Counsel for the Appellant has submitted that it has been admitted by the NFRA that the documents mentioned in Annexure A in the show cause Comp. App. (AT) No. 89 of 2023 5 notice were sent separately to him but it was not delivered to him, therefore, the Appellant could not prepare his reply to the show cause notice and hence, there is a violation of principle of natural justice.
8. In reply, the Respondent No. 1 has submitted that M/s ASRMP & Co. (firm) was the statutory auditor of the Company and the Appellant was one of the Engagement Partners (as per the audit file submitted to NFRA) for the statutory audit of the Company for the financial year 2018-19. It is alleged that notice dated 22.06.2022 was sent by the NFRA to the Firm via speed post and email but it was returned by postal department with remarks 'no such firm on the address' and the firm did not respond to the email.
Thereafter, their email ID and postal address were obtained from ICAI, which intimated the same email ID and postal address except the change of floor number. It is further alleged that on 19.07.2022, the Firm was again advised to submit the audit file. In response to which, the Firm on 21.07.2022 stated that they have shifted their office from 3rd floor to 1st floor in the same building and that the email dated 22.06.2022 had gone into the spam folder. The Firm provided some information and sought 30-day time for submission of the Audit File till 18.07.2022. The NFRA considering their request, allowed time upto 05.08.2022 and the firm submitted the audit file. After examining the audit file and material available on record, the NFRA had all reasons to believe that a case of professional misconduct is made out on the part of the Appellant and accordingly, issued a show cause notice under Rule 11 of the NFRA Rules (Rules) to the Appellant on 15.11.2022 giving him time to respond by 15.12.2022. It is further alleged that the Appellant sought extension of time of 45 days for submitting response to the Comp. App. (AT) No. 89 of 2023 6 show cause notice vide their letter dated 14.12.2022 which was granted on 03.01.2023 till 29.01.2023 by the NFRA. It is further alleged that on 24.01.2023 the firm filed written submissions in response to the show cause notice and firm and all three partners did not avail the opportunity of personal hearing whereas the Appellant vide letter dated 30.01.2023 responded that he had read the contents of the reply given by the firm dated 24.01.2023 and the same shall be considered as his reply to the show cause notice issued by NFRA. Thus, it is submitted that the Appellant being a CA has relied upon the reply of Firm and through his letter dated 30.01.2023 submitted before the NFRA that the reply by the Firm may be considered as a reply filed by him, therefore, now it does not lie in his mouth to contend that there is a violation of principle of natural justice. In this regard, it may be relevant to refer to the letter dated 30.01.2023 sent by the Appellant to the NFRA on the subject of reply to the show cause notice which is reproduced as under:-
"From Mon, Jan 30, 2023 at 6:10 PM
Pranaav G Ambekar
Bangalore
The Secretary,
National Financial Reporting Authority,
7th Floor, Hindustan Times House,
Kasturba Gandhi Marg,
New Delhi-110 001
Dear Sir,
Sub: Reply to Show Cause Notice ("SCN") in the matter of M/s Coffee Day Global Ltd("CDGL") Financial Year 2018-19 Ref: Your Show Cause Notice ("SCN") vide letter No. NF- 23/14/202 dated 15th November 2022 Comp. App. (AT) No. 89 of 2023 7 I am in receipt of your above referred Show Cause Notice in connection with audit of M/s Coffee Day Global Limited, for the financial 2018-19, which was primarily issued to the Auditor of the company, M/s ASRMP & Co along with me to submit my response to the show cause notice by 15.12.2022 As per the SCN, the replies should be sent within 30days from the date of SCN or such extended period.
As such the extended period for reply of SCN is 30.01.2022 The Auditor (Firm) has submitted detailed reply dated 24.01.2023 to the SCN issued on the Firm. I have read the content of the reply given by Auditor (Firm) in response to SCN dated 15.12.2022 and hereby confirm the said reply letter and request Hon'ble NFRA to adjudicate the same against SCN issued and the reply given by said Auditor (firm), shall also be considered as my reply to SCN.
Hence, I have not separately sent my comments/objections to the said SCN.
Further, please note that I had joined the firm M/s. ASRMP and co. on 1 April 2018 and resigned on 30 September 2019 In view of reply submitted, I request you to drop the proceedings and issue no action order, as contemplated under sub-rule 6 of rule 11 of the National Financial Reporting Authority Rules, 2018 and oblige.
Thanking you, Yours sincerely,"
9. We have heard Counsel for the parties and perused the record with their able assistance.
10. The only issue raised by the Appellant in this case is the violation of principle of natural justice alleging that show cause notice was not accompanied with documents relied upon against the Appellant and only a reference to the documents has been made in Annexure A appended with the show cause notice.
Comp. App. (AT) No. 89 of 2023 8
11. The argument of the Appellant may appear to be attractive but the fact remains that the Appellant has relied upon the reply filed by the Firm to the SCN which is pari materia the same in which he was working as engagement partner and shall knock the bottom of his case as now he cannot be allowed to take a different stand. The Appellant was required to file the reply to the show cause notice dated 15.11.2022 within a period of 30 days up to 15.12.2022. No such reply was filed within this period, rather, the Appellant sought extension of time of 45 days to submit his response vide his letter dated 14.12.2022. The NFRA considered the request made by the Appellant and on 03.01.2023 the period was extended till 29.01.2023. The Appellant during this period did not ask for any documents from the Respondent and rather relied upon the reply filed by the Firm which is apparent from the letter dated 30.01.2023, referred to hereinabove, in which the Appellant has categorically stated that "the Auditor (firm) has submitted detailed reply dated 24.01.2023 to the SCN issued on the Firm. I have read the content of the reply given by the Auditor (firm) in response to SCN dated 15.12.2022 and hereby confirm the said reply letter and request the Hon'ble NFRA to adjudicate the same against SCN issued and the reply given by said Auditor (firm) shall also be considered as my reply to SCN. Hence, I have not separately sent my comments/objections to the said SCN."
The purpose of providing the documents is to enable the Appellant to evaluate the stand taken by the NFRA against him. However, since, the Appellant himself has relied upon the reply filed by the Firm to whom all the documents had already been served and has made a statement that the reply filed by the Firm shall be considered as his reply to the show cause Comp. App. (AT) No. 89 of 2023 9 notice then the nothing remains in this case to raise hue and cry for the alleged violation of principle of natural justice especially when the Appellant also did not ask for a personal hearing as well. No other point has been argued.
12. In view of the aforesaid discussion, we do not find any merit in the submission made by the Appellant and hence the appeal fails and the same is hereby dismissed though without any order as to costs.
[Justice Rakesh Kumar Jain] Member (Judicial) [Mr. Naresh Salecha] Member (Technical) New Delhi 12th March, 2024.
Sheetal Comp. App. (AT) No. 89 of 2023