company law

NFRA Penalty Against CA Neeraj Bansal: Key Findings and Implications

Overview of NFRA Order Against CA Neeraj Bansal

The National Financial Reporting Authority (NFRA) has issued Order No. 01/2025, dated January 30, 2025, concerning findings against CA Neeraj Bansal, a member of the Institute of Chartered Accountants of India (ICAI). This order originated from an investigation into his conduct as the Engagement Partner (EP) for the statutory audit of Religare Finvest Limited (RFL) for the fiscal year 2017-18, as mandated under Section 132(4) of the Companies Act, 2013. The investigation unveiled significant lapses in compliance with applicable auditing standards and legal requirements.

Key Findings of the NFRA Investigation

The NFRA's investigation highlighted several critical deficiencies in CA Neeraj Bansal's audit practices:

  • Delayed Fraud Reporting: Notably, there was a failure to timely report a fraud amounting to ₹2,036 crores in RFL’s Corporate Loan Book (CLB) to the Central Government as required under Section 143(12) of the Companies Act, 2013.
  • Inadequate Fraud Risk Assessment: Despite warnings from the Reserve Bank of India (RBI) regarding RFL’s loan portfolio, the EP did not adequately assess the potential risks of fraud.
  • Insufficient Documentation: There were serious concerns regarding the documentation of audit procedures, further questioning the audit’s credibility.

Other notable lapses included:

  • Inadequate evaluation of Deferred Tax Assets (DTA) worth ₹495.63 crores.
  • Lack of scrutiny over investments totaling ₹200 crores in non-convertible debentures of OSPL Infradel Private Limited, a company with minimal net worth, with insufficient questioning of the rationale for these investments.
  • Lack of sufficient evidence regarding consolidation adjustments related to RFL’s subsidiary, Religare Housing Development Finance Corporation.

Conclusion of the NFRA

The NFRA concluded that CA Neeraj Bansal engaged in professional misconduct by not complying with the Companies Act, 2013, alongside relevant auditing standards. Consequently, a monetary penalty of ₹5,00,000 and a five-year ban on conducting audits were imposed. This penalty emphasizes the importance of accountability and adherence to ethical standards in auditing practices.

Detailed Breakdown of the NFRA Order

Order Structure

The NFRA's order is divided into several key sections:

  • Executive Summary
  • Introduction and Background
  • Lapses in the Audit
  • Charges of Professional Misconduct
  • Penalty and Sanctions

Executive Summary

The NFRA initiated proceedings under Section 132(4) of the Companies Act, 2013, resulting in a Show Cause Notice issued to CA Neeraj Bansal on May 15, 2024. The investigation validated several violations that displayed gross negligence and a lack of due diligence in the audit of RFL for the fiscal year ended 2017-18. Key failures include:

  1. Noncompliance with Audit Rules
  2. Inadequate Risk Assessment
  3. Insufficient Documentation of Audit Procedures
  4. Failure to Verify DTA Certainty
  5. Lack of Scrutiny on Significant Investments
  6. Inappropriate Audit Opinions

The findings demonstrated substantial deficiencies, affirming the HW's professional misconduct.

Introduction and Background

NFRA, as a statutory entity under Section 132 of the Companies Act, is responsible for ensuring the integrity of auditing and accounting practices. The authority protects public interests, including those of investors and creditors, by monitoring compliance and quality within the auditing profession. Under Section 132(4), NFRA possesses civil court powers to investigate specified companies and impose penalties for professional misconduct.

Audit Lapses Identified

Delay in Reporting Fraud (Section 143(12))

The EP faced charges for the delayed filing of the ADT-4, essential for reporting fraud when the estimated amount exceeds One crore rupees. The RBI’s prior correspondence pertaining to irregularities in loans indicated substantial risk, yet the EP delayed reporting suspected fraud for several months.

Risk Assessment Deficiencies

Charges include insufficient risk assessment, failing to acknowledge prior concerns raised by RBI regarding the likelihood of fraud and manipulative practices, notably relating to the Corporate Loan Book.

Insufficient Evidence for DTA and Investment Validity

The EP did not adequately validate the certainty of future taxable income for the recognized DTA and neglected to apply proper scrutiny concerning significant investments made by RFL.

Articles of Professional Misconduct Charges

The analysis concluded that CA Neeraj Bansal had engaged in professional misconduct defined by Section 132(4) of the Companies Act and Section 22 of the Chartered Accountants Act, 1949. The negligence and lack of diligence in auditing processes resulted in material misstatements and breaches of auditing standards.

Penalty and Sanctions

The imposition of a monetary penalty of ₹5,00,000 reflects the seriousness of the misconduct. CA Neeraj Bansal is also debarred from audit responsibilities for five years, emphasizing the NFRA’s commitment to maintaining professional integrity and accountability within the auditing profession.

In conclusion, this NFRA order serves as a critical reminder of the need for rigorous compliance with auditing standards to safeguard investor and public interests against professional negligence.