PwC Informs MCA About Alleged Irregularities In The Books Of Reliance Capital, Even As Reliance Denies PwC’s Allegations

The Anil Ambani-helmed Reliance Capital has informed stock exchanges that its auditor Price Waterhouse & Company (PwC) has resigned as its auditor, even as it has refuted PwC’s claim of not having received “satisfactory response” about certain transactions.

Reliance Capital stated that it does not agree with the reasons given by PwC for its resignation. The company statement released by Reliance Capital stated that it had “duly furnished all requisite and satisfactory details as required by PwC, especially including certification and confirmations of transactions in question, on multiple occasions by PwC themselves”.

Earlier, PwC had informed the Ministry of Corporate Affairs (MCA) about certain alleged irregularities in the books of accounts of Reliance Capital (RCap) and Reliance Home Finance.

Allegedly, these irregularities involved diversion of funds and transactions between Reliance Capital and Reliance Home Finance as well as other group companies. PwC claimed that these alleged irregularities came to light when it audited the books of the two companies for the first quarter ending June 2019.

Later, PwC quit as auditor and PwC partner Vivek Prasad informed the MCA about the reasons on June 11.

It has been claimed that PwC had raised these issues with Reliance Capital a few months ago and discussions had taken place. It was also claimed that there appears to have been an issue with certain related-party transactions and the RCap management was willing to give a management letter, which is a written assurance given by the management to auditors whenever disputes arise about issues.

However, PwC was insistent that they would like better visibility on certain transactions between group companies, it has been claimed.

According to PwC’s resignation which has been submitted to the MCA, Section 143(12) of the Companies Act has been cited in support of its resignation. The section deals with a situation where the auditor seeks some information, but does not receive it from the company.

“If auditor of a company in course of the performance of his duties as an auditor has a reason to believe that an offence or fraud involving such amounts... is being committed in the company by its officers or employees the auditor shall report the matter to central government,” the PwC resignation letter read.

It may be recalled that PwC was the auditor of Satyam Computer Services when the scandal involving cooking of books by founder Ramalinga Raju occurred, after which the Securities and Exchange Board of India banned PwC for two years.

Incidentally, the big four auditors, namely Deloitte, PwC, EY and KPMG are under tremendous pressure due to the investigations into Infrastructure Leasing and Financing Services (IL&FS) as well as two of its subsidiaries.

The Serious Fraud Investigation Office had alleged negligence as well as connivance between auditors and management in its charge sheet filed in the IL&FS Financial Services Ltd case.