Regulator Sebi today barred Parekh Aluminex Ltd (PAL) from securities market and issued show-cause notices to its statutory auditor and a former executive director for alleged accounting fraud, diversion of funds and understatement of loans by over Rs 1,000 crore.
The Sebi order follows a complaint from state-run lender SBI, which has also filed a complaint with the CBI alleging PAL and its directors of defrauding and cheating a consortium of banks to the tune of hundreds of crores of rupees.
In its show-cause notice to the company's statutory auditor C V Pabari and Co, Sebi has asked to explain why action should not be taken against them to bar them from issuing any certificate to listed companies, market intermediaries and for IPOs.
Besides, PAL's former Executive Director Rajendra Gothi has been asked to show-cause why he should not be barred from securities markets and from holding any directorial or key managerial position of any listed company.
In case of Parekh Aluminex Ltd, it will remain restrained from accessing the securities market till further orders but can square off any existing open position in derivatives.
The regulator said manipulation of the books of accounts and mis-statements of the financial statements perpetrated by PAL and its executive director with the aid and assistance of the statutory auditor (who certified the false and misleading financial statements) violate various provisions of the Sebi Act, the PFUTP Regulations.
Besides, the failure of the company and its executive director to make genuine and accurate disclosures regarding the true financial status of the company is prima facie in violation of the Sebi listing regulations.
As per Sebi order, the financial statements of PAL for 2010-2011 and 2011-2012 were audited by its statutory auditors, Chetan Pabari, Proprietor of C V Pabari and Co.
After the death of the company's Chairman and MD Amitabh Parekh in January 2013, Chaturvedi and Shah audited the statements for the period of 9 months starting April 2012.
Chaturvedi and Shah resigned in June 2014 stating that they could not obtain audit evidence to their satisfaction for nearly all of the assets of the company, hence they could not form an audit opinion on the financial statements.
After this, financial statements for 18 months starting from April 2012 were audited by Paresh Rakesh and Associates.
They also resigned on November 29, 2016 they were not able to get proper representation/records from the company.
Sebi said various irregularities concerning PAL's financial performance, assets and liabilities were observed on account of misstatement of accounts, adoption of dubious and inconsistent practices in drawing up accounts.
"Such irregularities prima facie appear to have been made with the intention of manipulating/defrauding genuine investors in the securities market," Sebi said.
The regulator said Parekh and Gothi were primarily responsible for the falsification of PAL's annual reports and balance sheet, while its statutory auditor certified the misstated accounts of the company and failed to maintain professional standards in audit.
"The statutory auditor therefore, aided and abetted PAL and its directors to perpetrate manipulation/fraud on genuine investors in the securities market," it noted.
"Negligence, continued laxity, complicity and failure on the part of the auditors only embolden the company to defraud investors with impunity by misstating their financials. In this case, the auditor has totally failed in their duty as far as certifying the accounts of the company is concerned," Sebi said.
It further said PAL has diverted funds and the amount of loans and advances given by PAL has been understated by more than Rs 1,000 crore and the amount of professional diligence that is expected from an auditor has been totally absent in this case and due to their casual and callous attitude, the company was able to falsify its books of account.
Referring to an audit done by Deloitte on behalf of the company's lenders, Sebi said loans amounting to Rs 1,314.78 crore were granted by PAL to various companies without any documentation specifying the terms and conditions.
"These loans were disbursed without any security. Out of the total value of these loans given by PAL as on December 31, 2012 (Rs 1,314.78 crore), loans outstanding to the extent of Rs 869.25 crore were advanced to several entities including its related entities as interest free loans," it said.
PAL, incorporated in September 1994, is engaged in manufacture of aluminum foil containers, aluminum foil rolls and other related products. It came out with a public issue in January 1997, but its equity shares are currently suspended for trading at BSE and NSE due to non-compliance with the Listing Agreement. The last trading in the shares of the company took place on March 30, 2015.