Updated at 3.55pm on 24 January 2023 to clarify that PKF had submitted its final forensic audit report to the company
Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs55 lakh on three directors and three executives, including two chief financial officers (CFOs) of Securekloud Technologies Ltd for submitting false disclosures, making false representations and misrepresentation in financial statements.
In an order passed on 20 January 2023, Vijayant Kumar Verma, adjudicating officer (AO) of SEBI, says, "The violations as established in this case, have clearly defeated the purposes of the regulations, i.e. investor protection and ensuring market integrity. Considering the role and responsibility of the noticees in these regards and the obligations cast upon them under the regulations, in my view, the default is grave and the gravity of this matter cannot be ignored. Therefore, no lenient view should be taken in this matter and the case deserves imposition of monetary penalty proportionate to the default as found in this case."
SEBI has imposed a penalty of Rs10 lakh on S Ravi Chandran, whole time director and Rs20 lakh on Dinesh Raja Punniamurthy, who was an independent director and member of the audit committee of Securekloud Technologies. R Thyagrajan, the CFO, was levied a penalty of Rs10 lakh. At the same time, Babita Singaram, independent director and member of the audit committee, Swasti Bhowmick, former CFO and G Sri Vignesh, company secretary and compliance officer, are asked to pay a fine of Rs5 lakh each.
Citing various corporate governance issues, including fraud relating to irregularities and inconsistencies in financial statements and books of accounts, Deloitte Haskins and Sells (Deloitte) resigned as statutory auditor of the company. SEBI then initiated an investigation into the manner of alleged misstatement in the books of accounts of Securekloud Technologies for four financial years, FY16-17 to FY20-21.
For FY18-19, Deloitte, in its audit report, brought out various irregularities and inconsistencies in financial statements and books of accounts of the company and indicated that suspected offences, including fraud, have been committed in Securekloud Technologies.
Citing various irregularities and inconsistencies in the company's financial statements, on 13 September 2019, Deloitte filed a report with the ministry of corporate affairs (MCA) under Section 143(12) of the Companies Act. Subsequently, it resigned as statutory auditors of the company on 15 November 2019.
Securekloud Technologies then appointed PKF Sridhar & Santhanam LLP (PKF) to conduct a forensic review of the books and accounts of the company. SEBI asked the company to place observations of Deloitte before the new auditor. However, the company did not share the observations of Deloitte with PKF. It informed SEBI that since PKF could not complete the report within the stipulated time, it had disengaged its services in the meeting held on 6 November 2019. Securekloud Technologies, in a delayed response on 13 July 2020, informed the regulator that it had appointed KPSN & Associates LLP (KPSN) as its auditor.
KPSN in its report had disagreed with most of the issues reported by Deloitte and concluded that there was no impact on financial statements for FY18-19 in most of the instances, except about the issue of non-consolidation of the accounts of the two subsidiaries in Singapore and UK.
SEBI then decided to conduct a detailed examination of the books of accounts of Securekloud Technologies and on 25 March 2021, appointed Grant Thornton Bharat LLP to conduct a forensic audit of the books of accounts of the company. However, the company did not cooperate with GT, despite repeated emails 13 times.
Securekloud Technologies did not cooperate in the investigation and made false submissions before SEBI vide letters dated 29 February 2020, 13 July 2020 and 15 April 2021. Therefore, the regulator says that by making false submissions, the company its CFO, chief executive officer (CEO), managing director (MD), and compliance officer violated provisions of the SEBI Act.
After hearing, the AO of SEBI says, "I note that the violations against the noticees are inter-alia of non-disclosure, false disclosures, false representations and misrepresentation in financial statements, which are serious violations in the securities market. The disclosures in the securities market are necessary to bring about transparency and enable the investors to take an informed investment or disinvestment decision".
He then imposed a total penalty of Rs55 lakh on six, including three directors and three officials of Securekloud Technologies.
UPDATE:
During all this time, Securekloud Technologies kept telling SEBI that PKF had provided only a draft report. When SEBI asked the auditor firm, PKF provided copies of its email conversations with the company and a copy of the forensic audit report. PKF informed SEBI that it submitted its final forensic audit report on 9 January 2020 to Mr Punniamurthy, the chairman of the audit committee of Securekloud Technologies.
SEBI, in its order, states, "...the company had intentionally hidden the fact of submission of report by PKF because of adverse findings of PKF. In fact, at the time of disclosure of quarterly financial results, final reports from forensic auditors were available with the company, still company intentionally made false disclosure to shareholders in quarterly financial results."
(Adjudication Order No.ORDER/VV/PSS/2022-23/22968-22973 Date: 20 January 2023)
