RBI bans Srei Infra auditor Haribhakti & Co for two years

The Reserve Bank of India (RBI) on Tuesday banned one of the country’s top chartered accountant firms Haribhakti & Co LLP from undertaking any type of audit assignments for regulated entities for a period of two years starting April 1, 2022. The action has been taken against the firm for failure to comply with a specific direction issued by the RBI with respect to its statutory audit of a Systemically Important Non-Banking Financial Company (NBFC), the central bank said in a statement.

Haribhakti & Co LLP was the auditor of Srei Infrastructure Finance Limited (SIFL), whose board was superseded by the RBI and insolvency proceedings were initiated last week. The term of the firm expired with the conclusion of the 35th Annual General Meeting (AGM) held on September 19, 2020.

This is the first time that the RBI has taken such action against an auditor of any systemically important NBFC.

“The Reserve Bank of India (RBI) in exercise of the powers vested under section 45MAA of the Reserve Bank of India Act, 1934, has, by an order dated September 23, 2021, debarred M/s Haribhakti & Co LLP, Chartered Accountants (ICAI Firm Registration No 103523W / W100048), from undertaking any type of audit assignment/s in any of the entities regulated by RBI for a period of two years with effect from April 1, 2022,” it said.

The first debarment done under this provision of RBI Act.

This will not impact audit assignments of Haribhakti & Co LLP in RBI regulated entities for the financial year 2021-22, it added.

In 2019, the RBI had imposed a one-year ban on SR Batliboi & Co, an affiliate of global auditing firm EY, after it found several lapses in the audit report of a bank.

RBI had last week superseded the boards of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL) for their failure to repay debts.

The National Company Law Tribunal (NCLT) on Friday admitted the insolvency pleas moved by banking sector regulator RBI against the two Srei Group firms and appointed an administrator to run the companies.

It is alleged that the practice of evergreening was rampant and existing accounts were being closed by sanction of new loans, often to group entities of the borrower.

In some cases, loans were sanctioned to new loan accounts opened in changed names of existing NPA borrowers, which were then used through circuitous means to close the earlier NPA accounts.

In November 2019, the Reserve Bank had superseded the board of directors of DHFL owing to governance concerns and defaults by DHFL in meeting various payment obligations. It was the first finance company to be referred to NCLT by the RBI using special powers under Section 227 of the IBC. 

(with PTI inputs)

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