The National Financial Reporting Authority (NFRA) initiated an investigation into Coffee Day Enterprises Ltd (CDEL) in 2022, following information from the market regulator, which revealed that MACEL, the promoter entity, had been utilized to divert funds from CDEL’s subsidiaries to the personal account of V G Siddhartha, the company’s then-chairman, as well as his relatives and entities under his control.
Last week, NFRA imposed penalties on auditors involved in the 2019-20 audit of Coffee Day Enterprises Limited (CDEL). The statutory auditor was fined INR 2 crore, while two chartered accountants received penalties of INR 15 lakh each.
NFRA also barred the chartered accountants from auditing or internal auditing for 10 and five years, respectively. During this period, they cannot be appointed as auditors or internal auditors, nor undertake audits of financial statements or internal audits of any company or body corporate.
“Despite having all material on record and having access to books of account and records of all subsidiaries of CDEL, the auditors did little in terms of audit procedures to alleviate the risk of material misstatement and fraud,” the NFRA order said.
NFRA criticized Venkatesh & Co. for neglecting essential audit procedures as CDEL statutory auditor since FY 2019-20. They began auditing prematurely, without obtaining the required no-objection certificate from previous auditor BSR & Associates. NFRA concluded that Venkatesh & Co. intentionally evaded reporting fraud and protecting public interest.
The SEBI prompted the NFRA to investiga CDEL after uncovering a significant fund diversion of INR 3,535 crores from seven CDEL subsidiaries to Mysore Amalgamated Coffee Estate Limited (MACEL).
Following the demise of V.G. Siddhartha (VGS) in FY19-20, a significant diversion of funds was uncovered. Consequently, the regulator took stringent action against the auditors involved. In August, the regulator imposed a substantial penalty of INR 10 crore on BSR & Associates LLP, the audit firm responsible for overseeing CDEL, which operates the popular Cafe Coffee Day chain. Additionally, two chartered accountants were barred from practicing for lapses in the audit and slapped with a penalty of INR 75 lakh.
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