Mumbai: Reliance Capital Ltd's shares plunged 14% on Tuesday after an Economic Times report said the Anil Ambani-owned company is planning to appoint law firm Crawford Bayley and Co. to investigate allegations of fraud levelled by its former auditor PricewaterhouseCoopers (PwC).
The report said the law firm would conduct “end use review” of the funds transferred from one Reliance Group entity to another.
Last week, Reliance Capital informed exchanges that PwC has ceased to be the statutory auditor citing ‘certain observations’ during its ongoing assessment of FY'18-19 which, if not resolved, could be significant to the financial statements.
“The other duly appointed auditor, Pathak H.D and Associates, whose term is valid until conclusion of the AGM for the year ended 31 March 2021, has confirmed that it will continue as the sole statutory auditor,” Reliance Capital had said .
As the joint auditor, Pathak H.D and Associates is already reviewing the transactions in question. “Under joint audit, audit firms tend to divide the work and only have limited visibility of each other’s work. Pathak H.D and Associates will review the transactions under question and may qualify these in the upcoming audit reports,” the report quoted as one person close to the development as saying.
Meanwhile, according to another report, PwC has hired three law firms as it expects a legal tussle to erupt following its decision to resign as the auditor of Reliance Capital and Reliance Home Finance.
The report said PwC has engaged Shardul Amarchand Mangaldas, J Sagar and AZB, and asked them to prepare a defence against not just Reliance Group, but also regulators and probe agencies such as the National Financial Reporting Authority (NFRA) and the Serious Fraud and Investigation Office (SFIO).
The report added that PwC fears that the NFRA and SFIO, which are both part of the ministry of corporate affairs (MCA), may launch probes in the coming weeks after it raised suspicion of fraud in the two Reliance Group firms.
PwC had said last week that Reliance Capital disputed the observations highlighted by the audit firm and did not convene an audit committee meeting within the expected time. Moreover, it also accused Reliance Capital of threatening the audit firm of initiating legal proceedings against it.
“These actions by the company (Reliance Capital) have prevented it from performing its duties as statutory auditors and exercising independent judgment in making a report to the members of the company, and impaired its independence, and hence, it is no longer in a position to complete the audit and instead feels compelled to withdraw from the audit engagement and resign,” PwC had said.
Reliance Capital and Reliance Home Finance had, however, denied any wrongdoing and claimed they provided all the details.