professional misconduct in the statutory audit
Companies Act 2013, dealing with M/s Dhiraj & Dheeraj, CA Piyush Patni, and CA Pawan Kumar Gupta for their professional misconduct in the statutory audit of Reliance Home Finance Limited (RHFL) for FY 2018-19.

The National Financial Reporting Authority (NFRA) has issued Order No. 012/2024, dated 26.04.2024, under Section 132(4) of the Companies Act 2013, dealing with M/s Dhiraj & Dheeraj, CA Piyush Patni, and CA Pawan Kumar Gupta for their professional misconduct in the statutory audit of Reliance Home Finance Limited (RHFL) for FY 2018-19. This order imposes monetary penalties and sanctions on the involved parties.

A. EXECUTIVE SUMMARY

  1. Reliance Home Finance Limited (RHFL) is a Non-Banking Finance Company (NBFC) listed on both the Bombay Stock Exchange and the National Stock Exchange. M/s Price Waterhouse & Co Chartered Accountants LLP (PW) was initially appointed as the auditor of RHFL for FY 2018-19. Subsequently, M/s Dhiraj & Dheeraj were appointed as statutory auditors of RHFL due to PW’s resignation. The Auditor failed to conduct the audit as per standards, resulting in material misstatements in the financial statements.
  2. The Auditor did not discharge their professional duties under the Act and the Standards on Auditing, leading to the issuance of a Show Cause Notice (SCN). After examination, it was found that the Auditor had not met the relevant requirements of the SAs and violated the Act and the Code of Ethics in various significant areas of audit.
  3. RHFL’s financial statements revealed significant inadequacies, and despite the Auditor’s negligence, the misstatements in the financial statement assertions remain unreported.

6) Based on the investigation and proceedings u/s 134(4) of the Companies Act, the Audit Firm, the EP and the EQCR Partner were found guilty of professional misconduct. The following penalties and sanctions have been imposed:

a) Imposition of a monetary penalty of Rupees One crore on the Audit Firm M/s Dhiraj & Dheeraj.
b) Imposition of monetary penalties of Rs. 50,00,000/- (Rupees Fifty Lakh) and Rs. 10,00,000/-(Rupees Ten Lakh) respectively on CA Piyush Patni (EP) and CA Pawan Kumar Gupta (EQCR).
c) Debarment of the EP and EQCR partners from being appointed as an auditor or undertaking any audit for a specified duration.

B. INTRODUCTION AND BACKGROUND

  1. NFRA is a statutory authority set up under Section 132 of the Act to monitor the implementation of auditing and accounting standards. RHFL was required to prepare its Financial Statements for FY 2018-19 under applicable provisions of the Act and Indian Accounting Standards.

8-10) RHFL’s lending practices and financial transactions were found to be deviating from standards, leading to an examination of the Audit File. The examination revealed a prima facie case of professional misconduct on the part of the Auditor.

11-12) A Show Cause Notice was issued, and the involved parties submitted their responses, which were examined in detail before issuing this Order.

C. MAJOR LAPSES AND VIOLATIONS

13-14) The major basis for charges included client acceptance without complying with requirements of the law, failure to examine significant matters reported by the previous auditor, and several other violations.

This summary provides an overview of the order issued by NFRA concerning the professional misconduct in the statutory audit of Reliance Home Finance Limited for FY 2018-19.