The case pertains to the diversion of funds worth Rs 3,535 crore from seven subsidiary companies of Coffee Day Enterprises Ltd (CDEL), a listed company, to Mysore Amalgamated Coffee Estate Ltd (MACEL).
NFRA has found lapses in auditing of the books of TDL for 2019-20.
The regulator said it has taken a stern action against the three entities for professional misconduct and failure to report irregularities in the company’s books in 2019-20, despite having access to the details of an investigation that was ordered following the death of the company’s chairman VG Sidhartha in July 2019.
MACEL is an entity owned and controlled by the promoters of CDEL while TDL is a subsidiary of CDEL. In its 36-page order passed on Friday, NFRA slapped a penalty of Rs 1 crore on Sundaresha & Associates and Rs 5 lakh each on C Ramesh and Chaitanya G Deshpande. NFRA started a probe into the professional conduct of TDL’s statutory auditors after capital market regulator Sebi shared its investigation report in April 2022 While the audit firm has been barred for a period of four years, the individual auditors have been restrained for a period of five years each.
The prohibition period of Sundaresha & Associates and C Ramesh will run concurrently along with debarment imposed by the regulator through its two orders passed in April and May in the case of TDL for 2018-19 and in case of GVIL for 2019-20.
In addition, the restrain period of Deshpande will run concurrently along with debarment ordered by NFRA through its order in May in the case of GVIL for FY 2019-20, as per NFRA.
According to the regulator, all of them were restrained from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate during the debarment period.
In the latest order, NFRA said the auditors failed to exercise professional judgement and scepticism during audit of TDL where borrowings of Rs 2,027.46 crore was used in fraudulent diversion of funds to MACEL worth Rs 2,073.23 crore through its group entities. The money was given without any business rationale or agreement and the money ultimately moved to promoters entity MACEL, it noted.
Further, the regulator said the total material and pervasive misstatements amounted to Rs 4,475.69 crore, which the auditors did not identify and report in their independent auditor’s report.
As per NFRA, the auditors failed to report that internal financial control over financial reporting was completely absent in TDL despite large scale evergreening of loans through structured circulation of funds and group companies and use of pre-signed blank cheques for diversion and circulation of funds.
The auditors also made an attempt to mislead NFRA by adding more documents to as well as altering the documents in their audit file which amounted to tampering with the audit file, the order said.
Therefore, TDL’s auditors failed to meet the relevant requirements of the standards on auditing and provisions of the companies act 2013, and also demonstrated a serious lapse and absence of due diligence on the part of the auditors, it added.