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nfra: Coffee Day Global case: NFRA slaps Rs 2.15 cr fine, imposes ban on 2 auditors, 1 audit firm


The National Financial Reporting Authority (NFRA) on Friday slapped penalties of Rs 2.15 crore on three entities, including two auditors, besides barring them for varying periods for lapses in the audit of Coffee Day Global Ltd for 2019-20. The case pertains to the diversion of funds worth Rs 3,535 crore from seven subsidiary companies of CDEL to Mysore Amalgamated Coffee Estate Ltd (MACEL).

Coffee Day Global Ltd (CDGL) and MACEL are subsidiaries of the listed entity Coffee Day Enterprises Ltd (CDEL).

After, markets watchdog Sebi shared its investigation report in April 2022, NFRA initiated investigations into the professional conduct of the statutory auditors of CDGL.

In its order, NFRA imposed a penalty of Rs 2 crore on the audit firm ASRMP & Co and Rs 10 lakh on A S Sundaresha. Further, they have been barred for a period of four years and 10 years, respectively.

The first two years of the restraint period of ASRMP & Co and the first five years of the prohibition period of Sundaresha would run concurrently with the debarment period imposed by NFRA through its order in April in the case of CDGL for FY2018-19.

In addition, the regulator also levied a fine of Rs 5 lakh on Madhusudan U A and restrained him for a period of 5 years. All of them have been barred from undertaking any audit in respect of financial statements or internal audit of any company or body corporate during the debarment period, according to the order. In its probe, NFRA found that the auditors (ASRMP & Co, Sundaresha and Madhusudan) failed to exercise professional judgement and scepticism during the audit of CDGL where there was fraudulent diversion of funds to MACEL worth Rs 1,105.10 crore and evergreening of loans through structured circulation of funds among other group companies.

The regulator noted that the auditors also failed to obtain sufficient appropriate audit evidence during audit of deferred tax assets involving misstatement of Rs 244 crore and misstatement of Rs 26.19 crore in related party disclosure relating to purchase of coffee beans from MACEL.

The total material and pervasive misstatements amounted to Rs 1,615.04 crore of CDGL, which the auditors did not identify and report in their independent auditor’s report.

The auditors failed to report that Internal Financial Control over financial reporting was completely absent in CDGL.

Therefore, CDGL’s auditors for the FY2019-20 had failed to meet the relevant requirements of the Standards on Auditing (SA) and provisions of the Companies Act, 2013 and also demonstrated a serious lack of competence and due diligence on their part.

Earlier, the auditors had given a Disclaimer of Opinion in the independent auditor’s report based on their inability to obtain sufficient appropriate audit evidence regarding recoverability of Rs 1,105.10 crore from MACEL.


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