PwC resigned as Reliance auditor suspecting fraud and threat of legal action: firm tells MCA

PWC said it noted certain transactions if not resolved satisfactorily could be significant in the financial statements.

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RCap also said that legal proceedings would only be initiated against PWC if legally advised and to protect the interests of all stakeholders.
Mumbai: Price Waterhouse and Co (PwC) that resigned as auditor of Reliance Capital and Reliance Home Finance in a letter to Ministry of Corporate Affairs (MCA) has said that it suspected fraud in the companies.

“We did not receive substantive/satisfactory response to our queries in light of our observations. Accordingly we sent letter dated 24 April 2019 under the provisions of section 143 (12) of Companies Act read with Rule 13 (2) (a)..” PwC said in the letter to MCA.

Section 143 (12) deals with resignation of an auditor in cases where it suspects a fraud. "if auditor of a company in course of the performance of his duties as an auditor has a reason to believe that an offence or fraud involving such amounts .. is being committed in the company by its officers or employees the auditor shall report the matter to central government,” the section reads.


Legal experts point out that this however doesn’t conclude that there is a fraud in the company.

According to the people in the know PwC had come across some transactions and irregularities during the course of auditing. The irregularities, which involved alleged diversion of funds and transactions between the two firms and other group companies, came to light while it was auditing the books of the two companies for the first quarter ending June 2019, two people close to the development said.

In the letter to MCA, PwC has also said that during the course of auditing Reliance threatened the firm with legal action impairing its ability to perform the audit.

“vide its letter dated June 9, 2019 (company) threatened us with legal proceedings including civil and criminal proceedings in the event we proceed to discharge our duty as prescribed under law,” PwC statement to MCA reads.
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Such actions create an intimidation threat for us and prevent us from performing our duties as statutory auditor, said PwC.

Reliance in a statement had said that it doesn’t agree with PwC. The Company has duly responded to the various queries and letters of PWC and has also duly and validly convened a meeting of the Audit Committee on June 12, 2019 to further respond to the letter dated May 14, 2019 from PWC.

The Company expected PWC to have participated in the meeting of the Audit Committee and not resigned on the eve thereof. The Company has also duly furnished all requisite and satisfactory details as required by PWC, especially including certification and confirmations of the transactions in question on multiple occasions by PWC themselves.

As regards legal proceedings, the Company had clearly stated that the same would be initiated only if so legally advised, that too if required to protect the interests of all stakeholders, and it is hard to see how PWC has taken exception to this approach.”

Reliance also stated that it might initiate appropriate legal proceedings against the firm.
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