Financial fraud: Ministry of corporate affairs to crack down on firms

By: |
New Delhi | August 30, 2018 4:57 AM

In a bid to check companies from doing financial frauds, the ministry of corporate affairs will crack down on firms committing such wrongs.

The move comes in the wake of a series of resignations of auditors from listed companies. Auditors in over 200 listed companies have resigned so far since the start of the year. In the Mumbai region alone, the number is around 60.

In a bid to check companies from doing financial frauds, the ministry of corporate affairs will crack down on firms committing such wrongs. This could include arrests of directors of the company, approaching the National Company Law Tribunal to take over the company or even appointing government nominated directors in the company, a senior government official said.

The move comes in the wake of a series of resignations of auditors from listed companies. Auditors in over 200 listed companies have resigned so far since the start of the year. In the Mumbai region alone, the number is around 60.

“In general, if the auditors resign from a company, it means that the company is rogue,” the official said.

The ministry of corporate affairs had sent queries to the auditors under Section 143 (12) of the Companies Act, 2013, on these resignations, the official said.

Officials said that fear of stringent action from authorities has led to resignation of auditors from their respective companies, without serving their full term. The main reasons for resignation is suggested to be corporate governance and lack of sufficient information regarding the business of the company. They also said that there could be more resignations in the near future, as the auditors fear being caught by the regulators for breach of companies laws.

The Securities Exchange Board of India (Sebi) ban on Price Waterhouse entities, barring its network entities from issuing audit certificates to any listed company in India for two years, has already sent shudders through the bigger firms.

“Some of them (auditors) replied that the companies were not willing to share relevant information,” another official said, adding that ideally, if the auditors have any doubts that fraud might have been committed by the company or its employees, they should report the matter immediately to the central government.

The government will now take up the matter with the company and would look into the financials of the company thoroughly. “We will now examine the companies for alleged breach of the companies law, then we will take action against them,” the official said.

Recently, the auditor of Manpasand Beverages, Deloitte Haskins and Sells, resigned saying that the company did not provide significant information sought by it. Before that, Price Waterhouse & Co had quit as auditor of Vakrangee due to lack of information about its business and from Atlanta, citing non-disclosures about significant observations by tax authorities. It also resigned from Edelweiss Financial Services on mutual terms.

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