MCA to seek clarification from PWC and Reliance Capital over resignation issue

Ministry of Corporate Affairs (MCA)  will  seek clarification from Price Waterhouse & Co and Reliance Capital as well as Reliance Home Finance on auditor's resignation issue. Ministry will seek clarification from both the sides to ascertain the facts and allegations labeled by both sides. MCA may also refer the matter to the National Financial Reporting Authority for further inquiry once it makes its own.  

Price Waterhouse & Co had resigned as statutory auditor of Reliance Capital and Reliance Home Finance on June 11. Price Waterhouse & Co said in its resignation letter addressed to board that, “We did not  receive satisfactory substantive/satisfactory responses to our queries in light of our observations”.  It also said that “ The Company has failed to call the audit committee meetings within the statutory period of 45 days from the date of our letter dated 24th April 2019”. The auditor has sent a letter on 24th under Section 143 (12) of the Companies Act 2013 read with rule 13(2)(a) of the Companies (Audit and Auditor) Rules 2014 to the management and Audit Committee of the Company.

Section 143(12) of the Companies Act deals with reporting of fraud by auditor. It says, “If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed”. 

Price Waterhouse & Co also wrote a second letter on May 14 raising the same issue.

Price Waterhouse & Co also alleged in its letter that Reliance Capital in a letter dated June 9, threatened with civil and criminal proceedings. So under the above circumstances it won’t be possible to discharge its duties as statutory auditor. The letter was signed by Price Waterhouse & Co partner Vivek Prasad.

Reliance Capital called Price Waterhouse & Co observations completely baseless and unjustified. It said PwC has acted prematurely without even discussing with the Audit Committee. It further said that “The Company expected Price Waterouse & Co to have participated in the meeting of the Audit Committee and not resigned on the eve thereof”.  It also clarified on legal proceedings, that the same would be initiated only if so legally advised, that too if required to protect the interests of all stakeholders, and it is hard to see how PWC has taken exception to this approach.

Shares of Reliance Capital closed at Rs 84.45 down 4.14% and Reliance Home Finance shares closed down at Rs14.85 down 13.16% on NSE.  

Auditors are under the spotlight these days. MCA has even sought a 5 year ban on Deloitte Haskins and Sells and BSR& Associates, a KMPG affiliate, for alleged role in IL&FS scam. RBI has banned SRBC an EY affiliate for lapses in audit of a bank, Price Waterhouse & Co is facing ban from SEBI for lapses in Satyam Case. The matter is in SAT and decision is expected anytime. 

@BrajeshkmZee