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RBI bars Srei auditor from undertaking any assignments

The central bank took this action under Section 45MAA of the Reserve Bank of India Act, 1934
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Our Special Correspondent   |   Mumbai   |   Published 13.10.21, 01:06 AM

The Reserve Bank of India (RBI) on Tuesday barred the chartered accountant firm Haribhakti & Co LLP from undertaking any type of audit assignments for entities regulated by it for a period of two years beginning April 1, 2022.

The central bank took this action under Section 45MAA of the Reserve Bank of India Act, 1934. This is the first time that it has acted against an auditor using this provision of the RBI Act.


Back in June 2019, the RBI had barred SR Batliboi & Co from carrying out audit assignments in commercial banks for an year, citing lapses identified in a statutory audit assignment carried out by the firm of a bank.

Haribhakti & Co LLP was the auditor of Srei Infrastructure Finance Limited (SIFL), whose board was superseded by the RBI and insolvency proceedings were initiated last week.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.

The banking sector regulator said in a statement that it has taken this action 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),

Section 45MA of the RBI Act deals with powers and duties of auditors. ``Where any auditor fails to comply with any direction given or order made by the Bank (RBI) under section 45MA, the Bank (RBI), may, if satisfied, remove or debar the auditor from exercising the duties as auditor of any of the bank regulated entities for a maximum period of three years, at a time,’’ says Section 45MAA. The RBI added that its action will not impact the audit assignments of Haribhakti & Co LLP in regulated entities by it for the financial year 2021-22.

On October 4, the RBI had superseded the boards of Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL) citing governance concerns and defaults by the  companies in meeting their various payment obligations.

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

This came a day after the Bombay high court rejected a writ petition filed by the Srei group against the banking regulator’s move to supersede the boards of the two NBFCs. The company’s total liabilities reportedly amount to around Rs 18,000 crore of bank loans and another Rs 10,000 crore through external commercial borrowings and bonds.

Earlier, the RBI had constituted a three-member advisory committee to assist Rajneesh Sharma, administrator of SIFL and SEFL in discharge of his duties. The members of the panel include R. Subramaniakumar, former MD & CEO, Indian Overseas Bank, T.T. Srinivasaraghavan, former managing director, Sundaram Finance Ltd, Farokh N Subedar, former chief operating officer and Company Secretary, Tata Sons Ltd.

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. Recently, the Piramal group had completed the acquisition of the housing finance firm.

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