Final KPMG forensic audit report on SREI had gaps: Hemant Kanoria in NCLT

In an application moved on Jan 19, he sought setting aside appointment of KPMG by Axis Bank and UCO Bank (lead banks in consortium of lenders) as auditor for SREI

KPMG, which conducted a forensic audit on SREI, submitted three reports and the final one had gaps, counsel representing Hemant Kanoria said before the Kolkata Bench of the National Company Law Tribunal (NCLT) on Monday.

Findings by a forensic auditor after three reports – preliminary, draft and final that too with gaps, calls into serious question as to the procedure and process followed in that proceeding as well, said Ratnanko Banerji, senior advocate representing Hemant Kanoria.

In an application moved on January 19, Kanoria sought setting aside the appointment of KPMG by Axis Bank and UCO Bank (the lead banks in the consortium of lenders) as the auditor for SREI, and restraining the banks from conducting or proceeding with the process of audit through the auditing and advisory firm. The matter is being heard in NCLT.

The preliminary report by KPMG was submitted in October, the draft, early December and the final report was circulated on December 28, 2021.

Banerji said before the tribunal that even in the final report, KPMG said that it needed more. It had mentioned, Banerji said, that given limited access to data, information and records, the results of this work are subject to changes based on additional information being made available. Therefore, comments in this report may not be considered as a definitive pronouncement on any individuals or companies and full investigation procedures are required for such conclusion.

This shows that now there will be two parallel proceedings, said Banerji.

In his application, Kanoria had cited an issue of parallel auditing in the wake of CIRP (corporate insolvency resolution process) in SREI.

On October 4, it may be mentioned, the RBI superseded the boards of the two SREI companies, owing to governance concerns and defaults by the firms in meeting various payment obligations. Then, on October 8, CIRP was initiated on an application filed by the central bank against SREI Infrastructure Finance (SIFL) and SREI Equipment Finance (SEFL).

Banerji said that the question being posed was whether two authorities should examine the affairs relating to the corporate debtor and liability of people who are connected with it. The promoter, ex-directors are only involved because of their connection with the corporate debtor, he argued.

The senior advocate also questioned whether two proceedings which more or less cover the same area should be conducted or not.

Kanoria’s application mentioned that according to the Insolvency and Bankruptcy Code (IBC) process, the resolution professional (RP) of SREI had appointed BDO India LLP as the transaction auditor of SREI Infrastructure Finance.

The application also said that the “nature, scope and functions” of the audit conducted by BDO India and KPMG were overlapping, due to which there was likelihood of “concurrent, contradictory and divergent” conclusions emerging between the two auditors.

Also, the application mentioned that any further enquiry or forensic study of the corporate debtor would be "unfair" as the applicant and superseded board of directors would not have an opportunity to give any explanation

Banerji said before the tribunal that in a statutory framework, there were certain checks and balances and the applicant was willing to subject himself to these checks and balances and not to the arbitrary actions of banks who are already prejudiced against him.