Claiming that there were several “damning parts” in the forensic audit report by KPMG on the Srei group companies, the counsel appearing on behalf of the consortium of lenders, on Thursday said while dealing with cases of fraud and embezzlement, banks should not merely look at the expeditious recovery of the amount involved, but also be motivated by public interest.
In a recent application, founder and erstwhile director of Srei, Hemant Kanoria, sought the setting aside of KPMG’s audit into the company, citing the issue of possible parallel auditing as it is currently undergoing a corporate insolvency resolution process (CIRP). It should be mentioned that the resolution professional (RP) for Srei has appointed BDO India LLP as the transaction auditor under the Insolvency and Bankruptcy Code (IBC).
Soumendra Nath Mookherjee, the counsel appearing on behalf of the erstwhile director, in his submission before the bench comprising Rajasekhar V K and Balraj Joshi, had said, while an audit was being conducted under a statutorily institutionalised process under IBC, there cannot be a non-institutionalised, one-sided not independent audit being conducted on the other side, and steps being taken on that basis.
However, arguing for the need to go ahead with the forensic audit undertaken by KPMG at the behest of lenders, the counsel appearing on behalf of the lenders to Srei, Abhinav Vasisht, on Thursday said, “We are at a stage where we have the investigation report, I have already done my internal process, now the decision has to be taken whether we do it or not.....if we do, we have to do it immediately because the reason is I have to declare it as fraud.”
According to him, there is nothing that can stop banks from conducting an investigation as they are duty bound, legally obliged and in public interest they should file a complaint (if the situation warrants).
“Nearly Rs 40,000 crore worth of money is involved in the matter and I do not know how much of it is where ... we want to know where it is, what has happened and we have a damning report. Now we have been asked, ‘please do not let investigation continue by police authority because that is the next logical thing,” he said.
On the issue of appointment of a transactional auditor by the RP, he said, the report of such an audit may or may not be accepted, as he exercises his own independent determination after the audit report is received. It is not going to bind the committee of creditors, nor is approval required from the CoC and if they grant such an approval, it does not preclude other investigations or actions on their part under other law.
In cases of fraud, banks should not be motivated by the necessity of recovering expeditiously the amount involved, but should also be motivated by public interest and the need to assure that the guilty person does not go unpunished, he said.
Drawing attention to the Reserve Bank of India circular on fraud classification and reporting, he said, ideally, there should not be any delay in filing of complaints with the law enforcement agencies, since delays may result in the loss of relevant ‘relied upon’ documents, non-availability of witnesses, absconding of borrowers and also the money trail getting cold, in addition to asset stripping by the fraudulent borrower.
Hearing on the matter would continue on March 3.