Holding Deloitte Haskins & Sells LLP and CJ Goswami & Associates, the secretarial auditor of Sun Pharmaceutical Industries Ltd (Sun Pharma), responsible for not reporting related-party transactions of Sun Pharma with its sole distributor and promoter entity Aditya Medisales Ltd, the registrar of companies (RoC) in Gujarat has slapped a penalty of Rs1.50 lakh each on the audit firm and secretarial auditor of the company.
Pointing out that Deloitte was the statutory auditor of Sun Pharma from FY05-06 to FY16-17, the RoC says, "..the statement of the auditor that they are not aware about the fact and showing the different excuses in the shadow of different provisions of the act and stating that the forensic auditor and statutory auditor is different, is not considerable."
It then imposed a penalty of Rs50,000 each for three years from FY14-15 to FY16-17 on the auditing firm.
In a separate order, RC Mishra, the RoC and adjudicating officer (AO) for Gujarat stated, "(I) have reasonable cause to believe that the secretarial auditor (CJ Goswami & Associates) of the company (Sun Pharma) has failed to discharge its duty as per the provisions of Section 143(14) read with Sections 188 and 204 of the companies act, read with guidance note issued by the ICSI."
CJ Goswami & Associates was also fined Rs50,000 each for three years from FY14-15 to FY16-17.
Earlier, the ministry of corporate affairs (MCA) had ordered an inquiry under Section 206(4) of the Companies Act into the affairs of Sun Pharma for FY14-15 to FY17-18. The probe revealed that the statutory auditor had not reported Aditya Medisales as a related party of Sun Pharma, as per India accounting standards (Ind AS) 24/AS-18 in the financial statement. After that, show-cause notices (SCNs) were issued to Deloitte Haskins & Sells and CJ Goswami & Associates.
During the hearing before the RoC, Deloitte submitted that the board of directors of Sun Pharma is responsible for the matters stated under Section 134(5) (directors' responsibility statement) of the Companies Act about the preparation of the financial statements that give a true and fair view of the company's affairs, in accordance with the Ind AS and other accounting principles generally accepted in India. It contended that the auditor's responsibility is to conduct the audit in accordance with AS specified under Section 143(10), for forming and expressing opinions on the financial statements that the management has prepared with oversight of those charged with governance.
On the other hand, Neelambuj, assistant RoC and the presenting officer, stated that although the shareholders of Aditya Medisales are body corporates, the main control person of all these body corporates is the managing director (MD) of Sun Pharma. Sun Pharma's related-party transactions with Aditya Medisales exceeded Rs100 crore, which formed material and significant transactions, and it is the statutory auditor's duty to check significant transactions.
In light of the facts and submissions, the RoC stated that it has reasonable cause to believe that the statutory and secretarial auditors failed to discharge their duty. It then imposed a Rs1.50 lakh penalty each on Deloitte Haskins & Sells and CJ Goswami & Associates.
Earlier in February 2021, Sun Pharma and its eight top officials were allowed to file a settlement in the investigation and forensic audit conducted by the Securities and Exchange Board of India (SEBI) based on two whistle-blower letters received by it.
The top brass that settled the matter with SEBI includes Mr Shanghvi, Mr Valia, the company's two whole-time directors Kalyanasundaram Subramanian and Sailesh T Desai, as well as its chief financial officer (CFO) Uday Baldota and two compliance officers Ashok I Bhuta and Sunil Ajmera.
Mr Shanghvi, the MD of Sun Pharma, was asked to pay Rs62.35 lakh, while Mr Valia paid Rs37.41 lakh to settle the case. Mr Subramanian and Mr Desai, the two whole-time directors, were asked to pay a settlement amount of Rs36.97 lakh and Rs37.41 lakh, respectively. Sun Pharma's CFO Mr Baldota was asked to pay Rs24.65 lakh, while Mr Ajmera and Mr Bhuta were directed to pay Rs18.70 lakh and Rs18.48 lakh to settle the case with SEBI, as per the orders issued by the AO of SEBI.
Coming back to the exposure by Moneylife, the whistle-blower had filed a first complaint in September 2018. In a sensational 150-page document, the whistle-blower had alleged numerous irregularities by Sun Pharma, its main promoter Mr Shanghvi and his brother-in-law Mr Valia, as well as Mr Valia's independent financial operations, Fortune Financial and Investment Trust of India and Dharmesh Doshi, an associate of Ketan Parekh who has been convicted of wrongdoing in the stock market scam of 2001.
In just over three years, between 2014 and 2017, Aditya Medisales had over Rs5,800 crore of transactions with Suraksha Realty, controlled by Sun Pharma's co-promoter, Mr Valia, the 172-page complaint (with documents) sent by the whistle-blower had alleged.
Over this period, AML has paid Rs2,897 crore to Sun Pharma and received Rs2,977 crore of payments from Suraksha Realty, says the document, providing detailed information of such payments.
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