Hemant Kanoria moves NCLT for setting aside KPMG audit at SREI

Jan 19 application filed by Kanoria cited an issue of parallel auditing in the wake of CIRP (corporate insolvency resolution process) in SREI

Hemant Kanoria, founder of SREI, has moved the Kolkata Bench of the National Company Law Tribunal (NCLT) for setting aside a forensic audit by KPMG into the company.

Lenders had, in March-April 2021, appointed KPMG Assurance and Consulting Services LLP as an auditor for the corporate debtor (SREI Infrastructure Finance and its wholly owned subsidiary, SREI Equipment Finance).

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 application cited an issue of parallel auditing in the wake of the corporate insolvency resolution process (CIRP) in SREI. It 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.

From the minutes of meetings of the committee of creditors (CoC), according to the application, it was “evident” that BDO India had been appointed as the auditor of the debtor.

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mentioned that any further enquiry or forensic study of the corporate debtor would be "unfair" as the applicant and superseded board of directors would not have an opportunity to give any explanation. No report without any consultation with the superseded board of directors can be fair or independent and therefore, it will affect and prejudice the rights of the applicant and other directors, it said.

Another issue raised in the application was that the audit had exceeded its time period. The audit ought to have been completed by June 24, 2021.

According to the provisions of a Reserve Bank of India (RBI) circular, dated July 3, 2017, an auditor, once appointed, was required to complete the audit and give the report within a maximum period of three months from the date of the Joint Lenders Forum meeting authorising the same. Around March 23, 2021, KPMG was appointed as the auditor by the lenders.

However, till date, despite initiation of CIRP, KPMG has continued with the audit of the corporate debtor, which the application mentioned was in violation of the provisions of the IBC.

On October 4, the RBI had 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).

Thereafter, the administrator had moved the bench for consolidation of resolution processes of SIFL and SEFL.