Three audit firms — Mukesh Shah & Co, S V Ghatalia & Associates and Deloitte, Haskins & Sells — are facing criminal action for alleged lapses at the now-defunct National Spot Exchange Ltd (NSEL) and its parent Financial Technologies (India) Ltd. 

 

Mukesh Shah & Co and S V Ghatalia & Associates were auditors of NSEL and have been accused of "false disclosures in the auditors' reports on annual financial statements without verifying books and accounts of the company", sources involved with the exercise told TOI. They further said that show cause notices have been issued for action under section 628 of the Companies Act, which carries a maximum punishment of up to two years and a fine. 

"We have called for an explanation as to why action should not be taken against them," said a ministry of corporate affairs official. The notices, the official said, were served last Tuesday. "Once we receive their response then we will examine the next course of action," the official said. 

NSEL, which was set up for spot trading of commodities, was hit by a Rs 5,500 crore payment settlement crisis last summer as it was operating in unregulated segments of the market and allowed trades without physical assets. 

In case of FTIL auditor, Delloitte, Haskins & Sells, a show cause notice is ready. "The notice has been sent to the registrar of companies (RoC) in Chennai and is likely to be delivered to them within a few days," the official said, adding that the firm is also facing action under section 628 of the Companies Act. 

"The auditor (Delloite, Haskins and Sells) in their report showed observations, which were in the nature of the 'qualifications' (i.e. adverse findings) as if they were not qualifications," according to an RoC report reviewed by TOI. 

A spokesperson for S V Ghatalia and Associates said that it is yet to receive any notice. "Our audit of NSEL's financial statements as of and for each of the years ended March 31, 2010, March 31, 2011 and March 31, 2012 was conducted in accordance with the auditing standards generally accepted in India. We assure our full cooperation to the ministry," the spokesperson said in response to a questionnaire. 

When contacted over the phone a few days ago, Mukesh Shah too said he had not received a notice but refused to comment any further, citing ICAI rules. 

Deloitte Haskins & Sells did not respond to a questionnaire mailed to its spokesperson. 

The actions follow a detailed investigation ordered by the ministry of corporate affairs, which has initiated action against NSEL as well as FTIL, following the payment crisis at the exchange. (Times of India)