Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-news/forensic-audit-more-a-witch-hunt-now-srei/article65185192.ece
Says transaction audit has already been initiated by the insolvency administrator
The forensic audit on two Srei group of companies — Srei Infrastructure Finance and Srei Equipment Finance — is seen more as a ‘witch hunt’ by the company.
According to a senior professional at Srei, the forensic audit conducted by KPMG, is more of a “witch-hunting” now that a transaction audit has already been initiated by the administrator.
Talking to BusinessLine , the professional said the KPMG audit should have technically stopped as soon as the company went into insolvency and was taken over by an administrator. The Srei group companies have undergone as many as six audits in about a years’ time and the seventh one has been initiated by the administrator who has appointed BDO India LLP as the transaction auditor under the Insolvency and Bankruptcy Code (IBC).
RBI special audit
The Reserve Bank of India had in December 2020 and January 2021 conducted a special audit which had revealed ever-greening of loans, negative capital-to-risk (weighted) assets ratio (CRAR) and default in payments of over Rs. 10,000 crore to lenders, prompting it to supersede the boards of Srei Infrastructure Finance and Srei Equipment Finance.
“The draft report was given in September and then in three months they changed the whole report and submitted it without any discussion with the management or without taking their input. You cannot have a report without taking input and discussion. This was done in three months’ time while the management was not there. And when they submitted the report in December, they themselves said that their report is inconclusive. So it looks like there is some vested interest,” the professional said.
According to Mamta Binani, past President, ICSI, conducting a transaction audit is the usual practice once a company enters the insolvency process.
“When there are some preferential transactions found out, then a transaction audit is done which is to be mandatorily initiated, if at all, by the RP (resolution professional) — the administrator in this case. The forensic audit, which may have been done by lenders when the company has not entered the frame of insolvency, is generally not referred to. In most cases, a transaction audit is done as per the requirements of the IBC,” she said.
‘Damning’ evidence
However, in one of the recent submissions made before the Kolkata bench of NCLT, the counsel appearing on behalf of the consortium of lenders claimed that there were several “damning parts” in the forensic audit report by KPMG in the Srei group companies. The KPMG report mentions certain “connected party” lending by Srei companies.
According to the counsel, there is nothing that can stop banks from conducting an investigation as they are duty-bound and legally obliged to file a complaint if the situation warrants it.
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