In yet another order related to Coffee Day, the National Financial Reporting Authority (NFRA) has debarred the auditor of Mysore Amalgamated Coffee Estates (MACEL) for a period of 10 years and imposed a fine of Rs 10 lakh for professional misconduct and several lapses in 2019-20.
MACEL is an entity owned and controlled by the promoters of Coffee Day Enterprises (CDEL), which runs Café Coffee Day.
“Based on investigation and proceedings under Section 132 (4) of the Companies Act and after giving her opportunity to present her case, NFRA has found the engagement partner — CA Lavitha Shetty, guilty of professional misconduct and imposes through this order the following monetary penalties and sanctions that will take effect after a period of 30 days from issuance of this order,” said the NFRA in a recent order.
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Earlier on April 13, the NFRA had imposed a penalty of Rs 5 lakh on Shetty as the auditor of MACEL and debarred her for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit.
The accounting regulator said the first five years, out of the 10 years debarment ordered, would run concurrently with the period of debarment pronounced in its earlier order.
NFRA’s investigations revealed that the MACEL’s auditor for the FY 2019-20 failed to meet the relevant requirements of the Standards on Auditing in several significant aspects and demonstrated a serious lack of competence. “Despite material and pervasive misstatement of Rs 10,724.38 crore in the Financial Statements of MACEL, the engagement partner (EP) did not report these misstatements,” the NFRA order said.
The EP also did not report that Internal Financial Control over Financial Reporting was absent, despite pre-signed blank cheques being used by VG Siddhartha, the chairman of CDEL, who was neither a shareholder nor a director nor an employee of MACEL, for diversion of funds to other group entities. Besides, the EP violated several Standards on Auditing and Accounting Standards.
“The EP contended that she became aware of the possible financial mismanagement only after learning about the death of VG Siddhartha (in July 2019) and the contents of the letter he left behind,” the order further said. It was found that the EP had failed in her statutory duty and had tried to hide behind one disclaimer of opinion, which itself was incomplete as she did not cover all aspects of infraction of the Laws and the Standards, it said.
NFRA launched a probe into the professional conduct of the auditors after a SEBI investigation revealed diversion of funds worth Rs 3,535 crore from seven subsidiary companies of CDEL to MACEL.