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Watchdog to Probe Abrupt Exit of Audit Firms from GVK Group

The GVK Group promoters are currently being probed by the CBI and the ED for the alleged Rs 705 crore Mumbai international airport scam.
Watchdog to Probe Abrupt Exit of Audit Firms from GVK Group

Image Courtesy: Financial Times

Hyderabad: The National Financial Reporting Authority (NFRA) will be probing the abrupt resignation of Price Waterhouse Chartered Accountants LLP, Hyderabad, from GVK Power and Infrastructure Limited (GVKPIL), it has been reported. The resignation of the statutory auditors comes as GVK group and its promoters are being probed by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) in the Rs 705 crore Mumbai international airport (MIAL) scam.

NFRA is also probing several other auditing firms which have abruptly resigned mid-way in the last few months. Nine companies have seen midterm auditor cessations since January, as per data from corporate tracker primeinfobase.com

In its resignation proposal letter to GVKPIL dated August 13, the auditors, part of PwC network in India, cited that they did not receive information and explanations from the company  which was sought in six different communications starting from July 6 to August 12, without which they were not able to conclude the audit of the financial statements for the year ended March 31, 2020. 

“In view of various matters described in our communication, including the recent events in relation to company’s subsidiary, Mumbai International Airports Limited (MIAL) we have assessed the appropriateness of our continuance as statutory auditors of the company in terms of standards of Quality Control 1… and accordingly wish to communicate our intention to resign as statutory auditors of the company,” stated the letter signed by N.K. Varadarajan, partner of the auditing firm. 

Commenting with respect to the larger issue involved and not on the auditor per se, Sarvesh Mathur, senior financial professional, and former CFO of Tata Telecom Ltd and PricewaterhouseCoopers, says it is odd that the auditors flagged off concerns in GVKPIL more than 90 days after the end of financial year 2019-20 and the resignation timing which came only after the CBI and the ED began probing financial irregularities in the company.

NFRA had earlier questioned partnership firm of PwC network in India, in relation to its resignation from Reliance Capital and Reliance Home Finance in July 2019.

Mumbai International Airport Scam

In July,  in its first information report (FIR) based on an anonymous letter, the CBI accused the GVK group promoters G.V.K. Reddy and his son G.V. Sanjay Reddy, and unknown officials of Airport Authority of India (AAI) diverted funds meant for MIAL to the tune of Rs 705 crore. 

“MIAL entered into fake or bogus contracts with nine companies on the pretext of real estate development. A loss of Rs 310 crore was caused to the exchequer. These companies also availed bogus Input Tax Credit (ITC) by raising fake invoices,” stated the FIR. 

Subsequently, the ED filed a money laundering case against the GVK group promoters based on the CBI’s probe and conducted searches in the promoters houses and offices in Mumbai and Hyderabad. 

GVKPIL holds 50.5% stake in its group entity MIAL which is currently constructing Rs 16,000 crore new airport in Navi Mumbai. While the group has considered to sell 79.1% in its GVK Airport Holdings to three investors — National Investment and Infrastructure Fund (NIIF), PSP Investments of Canada, and the Abu Dhabi Investment Authority (ADIA), it was challenged in Delhi High Court by Bidvest, a South Africa based company which holds 13.5% state in MIAL.

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