NFRA’s investigations inter alia revealed that the TDL’s Auditors for the FY 2018-19, had failed to meet the relevant requirements of the Standards on Auditing (‘SA’ hereafter) in a number of significant aspects and demonstrated a serious lack of competence. They failed to evaluate their potential conflict of interest and failed to maintain their independence from TDL 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 tampering with the Audit File.
The Auditors also failed to exercise Professional Judgement & Skepticism and perform risk assessment procedures to identify, assess and respond to the Risk of Material Misstatements due to fraud in respect of (a) loan transactions of Rs 2614.35 crores with MACEL (b) land advance of Rs 275 crores given to Mrs Vasanthi Hegde (mother of the then chairman of CDEL), (c) land advance of Rs 200 crores given to another individual for lands inter alia owned by Mrs Vasanthi Hegde (which was reportedly repaid) and (d) land advance of Rs 140 crores given to another related party; failed to evaluate understatement of loan by Rs 474 crores fraudulently given to MACEL and evergreening of loans through structured circulation of funds among group companies; failed to evaluate loan of Rs 507.05 crores fraudulently given to Giri Vidhyuth (India) Limited (a subsidiary company); and failed to evaluate loan transactions of Rs 1743.42 crores fraudulently entered into with Tanglin Retail Reality Developments Private Limited (another subsidiary company).
The Auditors failed to perform sufficient appropriate audit procedures in respect of recognition of interest income of Rs 75.58 crores from MACEL, without any contract/agreement with MACEL, which did not recognize this interest expense in its Financial Statements. Thus, the total material and pervasive misstatements amounted to Rs 1471.63 crores, despite which the Auditors falsely reported that the Financial Statements of TDL for the FY 2018-19 gave a true and fair view. They also falsely reported that TDL had effective Internal Financial Control over Financial Reporting despite the complete absence of the same. Based on investigation and proceedings under section 132 (4) of the Companies Act and after giving them opportunity to present their case, NFRA found the Audit Firm and Engagement Partner, guilty of professional misconduct and imposes through this Order the following monetary penalties and sanctions with effect from a period of 30 days from issuance of this Order:
i. Imposition of a monetary penalty of Rs One crore upon M/s Sundaresha & Associates. In addition, M/s Sundaresha & Associates. is debarred for a period of two 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 any company or body corporate;
ii. Imposition of a monetary penalty of Rs Five Lakhs upon CA C. Ramesh. In addition, CA C. Ramesh is 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 any company or body corporate.
Order in the matter of TDL against M/s Sundaresha & Associates and CA C. Ramesh for FY 2018-19