Ushdev International Bank Fraud: NFRA Imposes Rs. 5 Lakh Penalty on UIL Auditor in Mumbai for Professional Misconduct [Read Order]

The CBI had registered an FIR back in 2022 alleging large-scale bank fraud involving UIL, based on a complaint from the State Bank of India
Ushdev International Bank - CA professional misconduct - Ushdev International audit misconduct - Ushdev bank fraud - taxscan

The National Financial Reporting Authority ( NFRA ) has imposed a penalty of ₹5 lakh on a Mumbai Chartered Accountant ( CA ), the statutory auditor of Ushdev International Limited (UIL), for professional misconduct in relation to the company’s audit for the financial year 2017-18. Despite raising the defence that he had issued a disclaimer of opinion, the NFRA held that this did not absolve him of his statutory duties.

The NFRA order, dated October 21, 2024, found that the CA displayed gross negligence in discharging his responsibilities and failed to adhere to several key audit standards, including his obligations to report potential fraud as per Section 143(12) of the Companies Act, 2013.

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The audit in question pertains to UIL, which defaulted on significant loans, leading to the company being placed under insolvency proceedings by the National Company Law Tribunal (NCLT) in May 2018. Subsequently, the Central Bureau of Investigation (CBI) registered an FIR in 2022 alleging large-scale bank fraud involving UIL, based on a complaint from the State Bank of India. The company, which had borrowed ₹2,630 crore from a consortium of 15 banks, was found to have submitted forged and manipulated financial statements to obtain these credit facilities.

The NFRA investigation highlighted several critical lapses in audit, including his failure to obtain adequate audit evidence regarding the valuation of investments of UIL in subsidiaries and his lack of professional scepticism regarding significant credit provisions. Despite the existence of clear indicators of fraud, such as UIL’s mounting unpaid debts and fresh credit sales to defaulting entities, the auditor failed to assess these transactions from a fraud risk perspective. The NFRA found that the auditor had issued a disclaimer of opinion but did not exercise the required diligence in assessing fraud risks or verifying key financial data.

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The order pointed out that his responsibility to report the non-compliance of Ind AS 16, which mandates disclosures of property and equipment pledged as security for liabilities, a significant omission considering UIL’s financial instability was also neglected.

Furthermore, the NFRA noted deficiencies in the audit documentation, including the absence of proper authentication and dating of working papers, which raised concerns about the integrity of the audit process.

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It was observed by the NFRA coram comprising of Chairperson Dr Ajay Bhushan Prasad Pandey, Full-Time Member Dr Praveen Kumar Tiwari and Full-Time Member Smita Jhingran that, “The EP in the present case was required to ensure compliance with SAs and requirements of the Act to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate its users. As detailed in this Order, in spite of issuing a Disclaimer of Opinion, deficiencies in the audit on the part of CA [name redacted] establishes his professional misconduct. Despite being a qualified professional, CA [name redacted] has not adhered to the Standards and requirements of the Act and has thus not discharged the duty cast upon him.”

The regulator found him guilty of professional misconduct under the Companies Act, 2013, and imposed the ₹5 lakh penalty as a deterrent against future lapses in audit quality.

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