Vikas Proppant & Granite: NFRA Slaps Rs7 Lakh Penalty on 2 CAs, Audit Firm, Bars CAs for 2 Years
Moneylife Digital Team 09 July 2024
The national financial reporting authority (NFRA) has imposed a Rs7 lakh penalty on two chartered accountants (CAs) and one audit firm while barring both the CAs and another audit firm for two years from taking any audit assignment due to gross negligence and lack of due diligence while conducting an audit of Vikas Proppant & Granite Ltd for FY18-19, FY19-20 and FY20-21. In January this year, market regulator Securities and Exchange Board of India (SEBI) imposed a penalty of Rs93 lakh on eight, including promoters, chairperson and managing director (CMD) and directors, while directing three of them to disgorge Rs22.80 crore, the unlawful gains earned by manipulating the share price of Vikas Proppant and Granite.
 
In two separate orders, the NFRA bench of Dr Ajay Bhushan Prasad Pandey (chairperson), Dr Praveen Kumar Tiwari and Smita Jhingran (full-time members) imposed a penalty of Rs2 lakh each on CA Yogesh Mahipal, CA Priyank Mittal and Rs3 lakh fine on Singh Ajay & Co. NFRA also barred both the CAs and audit firm Yogesh Mahipal & Associates for two years.
 
On 23 November 2022, SEBI informed NFRA regarding irregularities in the related party transactions (RPT), non-provision of expected credit loss (ECL) and non-charging of depreciation on leasehold land, plant and machinery during the statutory audit of Vikas Proppant & Granite during FY18-19, FY19-20 and FY20-21.
 
For the FY18-19 and FY19-20 audit of the company, CA Mahipal, the proprietor of Yogesh Mahipal & Associates, was the engagement partner (EP). For the audit for FY20-21, CA Mittal, a partner in Singh Ajay & Co, was the EP.
 
In its order, NFRA  says, "The financial statements of Vikas Proppant & Granite were materially misstated due to non-provisioning of ECL on trade receivables (Vikas had trade receivables of Rs175.54 crore for FY18-19, which exceeded three times the sales of Rs52.77 crore and the trade receivables for FY19-20 were Rs170.23 crore, which exceeded 24 times the sales of Rs6.96 crore) and not charging depreciation of leasehold land and plant and machinery."
 
The trade payables of 31 March 2019 to related parties (Rs130.53 crore) were almost 100% of the total trade payables of Rs130.57 crore, NFRA says. "The trade receivables on 31 March 2019 from the related parties were Rs112.08 crore, which is 63.84% of total trade receivables of Rs175.54 crore on that date. Loans payable to directors were Rs64.04 crore and Rs57.11 crore, respectively, for FY18-19 and FY19-20. However, there were no audit work papers in related to the evaluation of arm's length testing as required under Sections 177, 185 and 188 of the Companies Act."
 
"Further, on examination of the valuation certificate issued by CA Somprakash Agarwak, it is noted that the leasehold lands of Rs25 crore acquired from the managing director (MD) of Vikas Proppant & Granite during FY18-19 were not disclosed under the RPT and the EP failed to report it," it added.
 
NFRA says the EP (CA Mahipal) was required to ensure compliance with standards of auditing (SAs) to achieve necessary audit quality and lend credibility to the financial statements of a listed company. "As we have explained in this order, deficiency in the conduct of the audit, abdication of responsibility and inappropriate conclusions on the part of CA Yogesh Mahipal establish his professional misconduct."
 
While imposing a penalty of Rs2 lakh on CA Mahipal, NFRA barred him and his audit firm from taking any audit assignment for two years. 
 
Similarly, NFRA found CA Mittal and his firm Singh Ajay & Co failed to demonstrate sufficiency and appropriateness of audit work in several critical areas, including determining materiality, reporting Vikas Proppant & Granite's ability to continue as a going concern, and failing to assemble the audit file. 
 
CA Mittal and the audit firm also failed to conduct a proper audit of the RPTs of the company. During FY20-21, Vikas Proppant & Granite had trade receivables to related parties as high as over 93% of total trade payables and trade receivables from related parties were 68.38% of total trade receivables.
 
"We conclude that the charges of professional misconduct against the EP (CA Mittal) and Singh Ajay & Co enumerated in the show cause notice stand proved based on our analysis of the evidence in the audit file, the audit report issued and submissions by the auditors, the annual report of Vikas Proppant & Granite for FY20-21 and other material available on record," NFRA says in its order
 
It imposed a penalty of Rs3 lakh on Singh Ajay & Co and Rs2 lakh on CA Mittal. NFRA also barred CA Mittal from taking any audit assignments for two years.
 
Those penalised by SEBI in January 2024, include VPGL's CMD Bimla Devi Jindal, director Kamini Jindal and company secretary and compliance officer Praveen Bishnoi. VPGL is undergoing a corporate insolvency resolution process (CIRP) vide an order passed by national company law tribunal (NCLT) at Chandigarh on 26 August 2022.
 
SEBI investigation further observed that the company made misleading corporate announcements and reporting of incorrect financial results or misstatements by the company and its directors or promoters, accompanied by offloading of equity capital of the company by certain connected entities and persons of the company and its directors and promoters, thereby making a profit of Rs22.80 crore at the cost of innocent investors. (Read: Stock Manipulation: SEBI Imposes Rs93 Lakh Penalty on 8, Including CMD, Promoters, Directors and KMPs of Vikas Proppant and Granite )
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