The Economic Offences Wing (EOW) of Mumbai Police on Friday arrested Shrawan Jalan and Amit Kabra, audit partners of SV Ghatalia & Co, the statutory auditors of National Spot Exchange Ltd (NSEL), for allegedly failing to flag lack of internal control mechanism in the exchange and “conspiring” with it to project a “healthy picture”, according to the remand application.

SV Ghatalia is an affiliate of global accounting major EY. In the past, the role of the statutory auditors have come under the scanner in the IL&FS probe.

According to EOW, SV Ghatalia, which audited NSEL’s accounts for FY10, FY11 and FY12, was allegedly responsible for verification, auditing, reporting and certifying that the financial statements revealed a true and fair view.

“Investigation revealed that the accused did not verify and report about accreditation of warehouses, control mechanism, use of settlement guarantee fund (SGF), position of commodities as on March 31 and physical movement of goods,” the EOW said in its remand application before a local court in Mumbai.

“The arrested auditors conspired with officials of NSEL by neglecting to check that there were adequate internal control mechanisms to ensure that there were sufficient underlying stock during the period from when the commodity was tendered by the seller towards the commodity pay-in till the payout to the buyer,” the remand application, a copy of which was seen by ET, said.

The EOW also said that as per the byelaws of NSEL, it was necessary to make provision of Rs 1 crore before commencement of trading. #casansaar (Source - ET, Economic Times)