SEBI directs appointment of forensic auditor under Section 11 of SEBI Act on suspicion of misuse of books of accounts and misrepresentation of financials

Securities and Exchange Board of India (SEBI), Mumbai: The whole-time Member of SEBI, Madhabi Puri Buch addressed the issue of whether there was any prima facie suspicion or evidence of financial misrepresentation and misuse of books of accounts by the company in question.

Parsvnath Developers Ltd. (PDL) mentioned themselves as one of the largest real estate development companies in Northern India involved in development and construction of real estate projects. SEBI, on the basis of a letter by Ministry of Corporate Affairs where list of shell companies were provided, viewed these shell companies as potentially involved in misrepresentation and misuse of books of account. PDL was also in that list.

The Board asked for various documents as an evidence of work taken up by the company and saw a possible violation of SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015. Board noted that PDL had failed to show commencement certificates for any work of contract and sub-contract carried by it which suggested that the revenue of the company has been overstated as no evidence to show completion of work was provided. Company also failed to provide evidence of execution of contracts undertaken by the company or given to other companies.

Therefore, the board was of the view that in the interest of investors, the company’s finances should be independently audited. Under Sections 11, 11(4), 11-A and 11-B read with Section 19 of the Securities and Exchange Board of India Act, 1992, the Board directed the exchange to appoint an independent forensic auditor. Board concluded that the company was on suspicion of misusing the books of accounts and misrepresentation of financials/business of the Company. [Parsvnath Developers Ltd. In Re, 2018 SCC OnLine SEBI 154, order dated 08-08-2018]

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