PwC cites Section 143 in exit letter, Reliance Capital refutes

Photo: Reuters
The resignation letter of Price Waterhouse & Co (PwC) as auditors of Reliance Capital (RCap) and Reliance Home Finance (RHFL) shows that the firm had doubts over appropriateness of certain transactions of the two Anil Ambani group firms- Reliance Capital and Reliance Home Finance.

The firm's resignation letter cited section 143 (12) of Companies Act, which requires an auditing firm to report matter to relevant authorities if it has reason to believe that an offense or fraud is being committed.  

In disclosure to exchanges on Thursday, Reliance Capital denied there were any irregularities and refuted PwC's observations. "There is no question of ‘diversion’; zero loans and / or liquidity have been provided by any lender in the PWC audit period  Reliance Capital is by law required to fund only group entities, being a Core Investment Company (CIC)," the company's spokesperson said.

PwC in its resignation letter from RCap's auditing duties stated that the company had alleged, "that if we were to file the ADT-4 form pursuant to sector 143 (12) of  the Companies Act, 2013, it would amount to a serious misdemeanour and misuse of our position as the statutory auditor of the company." As per Companies (Audit and Auditors) Rules, 2014, the ADT-4 form is to be used by the auditor  if it suspects fraud. The auditor is required to send this report to Ministry of Corporate Affairs within a period of sixty days after obtaining knowledge of the issue.

PwC in its letter also pointed out it was threatened by the two companies with legal action. "... vide its letter dated June 9, 2019, (the companies) threatened us with legal proceedings including civil and criminal proceedings, in the event we proceed to discharge our duties as prescribed by law... such actions create an intimidation threat for us and prevent us from performing our duties as statutory auditors of the company..."

On their part, both RCap and RHFL on Wednesday said, "The company had clearly stated that the same (legal proceedings) would be initiated only if so legally advised, that too if required to protect the interests of all stakeholders, and it is hard to see how PwC has taken exception to this approach."

The spokesperson for RCap said, "PWC observations are completely baseless and unjustified. The firm was driven by fear psychosis after debarment by the Securities and Exchange Board of India (Sebi) and IL&FS aftermath. PWC acted prematurely without even statutory discussion with Audit Committee."

The spokesperson added the "continuing auditor (Pathak HD & Associates) will submit independent report on PwC observations within 15 days.. all resources have been utilised purely to support group debt servicing of Rs 35,000 crore in past 14 months."

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