Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs8 lakh on CHD Developers Ltd, Gaurav Mittal, promoter and managing director (MD) and Ravinder Kataria, company secretary, on a complaint filed by AMRG & Associates, the statutory auditor of the company for disclosing false information on the opinion of the audit firm.
In an order, Maninder Cheema, adjudicating officer (AO) of SEBI, says, "As the noticee1 (CHD Developers) failed to disclose its audited financial results as well as the statement of the impact of audit qualifications for audit report with the modified opinion within the stipulated period of 60 days from the end of the financial year, the company has violated Regulation 33 (3)(d) of Listing Obligation and Disclosure Requirements (LODR) Regulations. CHD Developers has also admitted that they failed to include a note to the financial results for fiscal year (FY) and quarter ending (QE) 31 March 2019 to BSE on how the modified opinion has been resolved and, if not resolved, the reasons thereof and steps which the company intends to take in the matter. Thus, CHD Developers has violated Regulation 33 (1) (e) read with Paras. A and C of Part A of Schedule IV of the LODR Regulations."
In its complaint, AMRG & Associates had said that for the year ended 31 March 2019, based on audit procedures performed and management explanations provided, it had submitted a qualified opinion in its report to the company's stand-alone and consolidated financial statements.
It also alleged that after the issuance of the auditor's report on 29 June 2019, it did not receive any explanation or evidence from the company concerning progress on the qualification made in the auditor's report. Instead, it says the auditor's report issued on 29 June 2019 had declared that the auditors had given an unmodified opinion.
It says, "No book of accounts or audit information has been provided to them by the company for limited review for the quarter ended 30 June 2019. The company had adjourned its board meeting scheduled on 14 August 2019. However, this was not intimated to AMRG."
As statutory auditor, AMRG says it received a cheque dated 22 May 2019 of Rs12.42 lakh, but it was dishonoured.
During 2019, CHD Developers witnessed several resignations by its employees. On 15th July, Naresh Kumar Sharma resigned as chief financial officer (CFO). Sonki Sharma was appointed as the new CFO, but within a fortnight, she also left.
On 26 February 2020, BSE sent an email to CHD Developers about not filing the auditor's report and asked for its reasons. In its reply, CHD Developers informed BSE that "(the) company had uploaded financial results for quarter and year ended 31 March 2019 disclosing unmodified opinion instead of modified opinion as provided by statutory auditors in their report. And therefore, the company is under process to rectify the same but could not rectify till date due to some uncontrolled internal circumstances of the company including the resignation of many of employees of the company from the accounts team also and at the same time, there was no auditor in the company."
Replying to the show-cause notice, CHD Developers contended that the auditor had blown the matters out of proportion to serve his self-interest. It says, "The auditor instituted the complaint to pressurise the company into paying them monies, and has wrongfully alleged violations by the company in a mala fide manner due to a personal conflict with the company, and not due to any actual violations."
CHD Developers further contended that the delay in disclosure of financial statements was due to shifting office premises, attrition of key employees, and systemic issues being faced by the real estate sector.
It said "I also note that the independent auditor has given a modified opinion on the CHD Developers' financial statements for the first time in June 2019 and had previously given unmodified opinion and limited review reports on the company's audited and unaudited financial statements during FY16-17 and FY17-18."
On 23 February 2020, BSE suspended trading of securities of CHD Developers on account of non-compliance with Regulation 33 of the LODR Regulations for two consecutive quarters, June 2019 and September 2019. Further, in FY19-20, a cumulative fine of Rs27.37 lakh was levied by BSE against CHD Developers for non-compliance with Regulation 33, 27(2), 17(1), 18(1), 19(1), 19(2) and 20(2) of the LODR Regulations.
“Considering the facts and circumstances of this matter and mitigating factors, I am of the view that a penalty of Rs5 lakh on CHD Developers, Rs2 lakh on Mr Mittal and Rs1 lakh on Mr Kataria will be commensurate with the violations committed by the respective Noticees," the AO from SEBI says in his order.