RBI Bars Haribhakti & Co from Auditing Regulated Companies for 2 Years
Moneylife Digital Team 12 October 2021
Updated to include clarification from Mr Shailesh Haribhakti
The Reserve Bank of India (RBI) has barred Haribhakti & Co LLP from auditing companies regulated by RBI for two years starting from April next year. This is for the first time that RBI has taken action against an auditor since it put in place a framework to act for lapses during audits in 2018. However, in August this year, market regulator Securities and Exchange Board of India (SEBI) empanelled 16 auditing firms, including Haribhakti & Co, to conduct forensic audits of listed companies' financial statements as part of its efforts to curb frauds. So, on the one hand, SEBI is empanelling Haribhakti & Co; on the other, RBI has barred the auditing firm from auditing regulated entities. This also highlights the lack of communication between the two regulators.
In a brief statement, RBI says, "...debarred Haribhakti & Co (chartered accountants-CAs), from undertaking any type of audit assignments in any of the entities regulated by RBI for a period of two years with effect from 1 April 2022. This action has been taken on account of the failure on the part of the audit firm to comply with a specific direction issued by RBI with respect to its statutory audit of a systemically important non-banking financial company (NBFCs)."
Haribhakti & Co was the auditor for Srei Infrastructure Finance Ltd and Srei Equipment Leasing Ltd between FY15-16 and FY19-20. Recently, the central bank had superseded these two companies' boards due to governance concerns and defaults in meeting payment obligations.
Further, RBI clarified that its order would not impact audit assignments of Haribhakti & Co, the flagship auditing firm of DH Consultants Pvt Ltd, in RBI regulated entities for the financial year 2021-22. Shailesh Haribhakti, who is on the board of several listed entities, was the group chairman of DH Consultants, an entity created by merging Haribhakti & Co and DB Desai & Co.
He, however, says he is no longer associated either with Haribhakti & Co LLP or DH Consultants. “I cease to be a partner of Haribhakti & Co LLP from 31 March 2018. I am not responsible for any activities or actions, whatsoever, by the same company. Any references to me in connection with Haribhakti & Co or Haribhakti & Co LLP, as these names are used interchangeably, may be inappropriate,” he says.
RBI says it invoked powers under Section 45MAA of the RBI Act to take action against Haribhakti & Co. Section 45MAA states, "Where any auditor fails to comply with any direction given or order made by the (Reserve) Bank under section 45MA, the (Reserve) Bank, may, if satisfied, remove or debar the auditor from exercising the duties as auditor of any of the bank regulated entities for a maximum period of three years, at a time…."
The auditing firm is also the auditor for Axis Bank, RBL Bank and IndusInd Bank. In 2006, RBI had barred it for two years for the sub-standard special audit report of Bank of Punjab Ltd, which was assigned to the firm by the central bank.
In August this year, SEBI empanelled 16 firms, including BDO India, E&Y, Deloitte Touche Tohmatsu India, Chaturvedi & Co, Chokshi & Chokshi LLP, Grant Thornton Bharat LLP, Haribhakti & Co. LLP, KPMG Assurance And Consulting Services LLP, Mukund M Chitale & Co and Protiviti India Member Pvt Ltd, among others.
In May 2021, the market regulator had invited applications from eligible CA (chartered accountancy) firms to get empanelled for conducting a forensic audit of financial statements of listed companies.
2 years ago
Again the classic unanswered question, "Who will regulate the regulators?"
2 years ago
The Authors of the Article should be logical. SEBI empaneled this firm in Aug 21. RBI has barred the firm now. If SEBI had empaneled the firm after the action of RBI, the comment of lack of communication between the Regulators would be correct.
2 years ago
Free Helpline
Legal Credit