NSEL scam: EOW arrests two auditors

The Economic Offences Wing (EOW) of the Mumbai police arrested two auditors — Shrawan Jalan and Amit Kabra — on Friday in the ₹ 5,574-crore National Spot Exchange

The Economic Offences Wing (EOW) of the Mumbai police arrested two auditors — Shrawan Jalan and Amit Kabra — on Friday in the ₹ 5,574-crore National Spot Exchange Ltd (NSEL) scam. The duo was produced before a court on Friday and has been sent to police custody till October 7.

The NSEL case, which came to light in 2013, involves settlement crisis and payment default of ₹5,574 crore that led to losses for 13,000 investors. It pertains to the hatching of a criminal conspiracy to defraud investors, inducing them to trade on the platform of NSEL, creating forged documents like bogus warehouse receipts, falsified accounts and thereby committing a criminal breach of trust.

The agency stated that Jalan and Kabra belonged to SV Ghatalia and Co, the statutory auditor for NSEL for financial years 2009-10 and 2011-12 and a member firm of accounting firm Ernst & Young (EW) Global.

The EOW told the court on Friday that the accused auditors “were responsible for verification, auditing, reporting and certifying that the financial statements reveal a true and fair view. Investigation also revealed that accused did not verify and report about the accreditation of warehouses, control mechanism, use of settlement guarantee fund [SGF], position of commodities as on March 31 and physical movement of commodities”. It further stated that Jalan and Kabra were responsible for verifying NSEL’s books of account, auditing the said books, reporting and certifying that the financial statements revealed a true and fair view.

A statement from SV Ghatalia & Associates LLP read, “We are surprised and dismayed at the sudden course of action taken by the EOW and will vigorously defend the reputation of our partners and our firm. The action by the department is for a six-year-old matter. During this period, we have always extended our full cooperation to the authorities and participated in over 50 meetings with the department.”

“We reiterate that our audit of the NSEL’s financial statements for the years ended 31 March 2010, 2011, 2012 was in accordance with the auditing standards generally accepted in India. “We were succeeded by another auditor for the financial year 2012-13. NSEL defaulted in its settlements in August 2013. We have made several written and oral submissions during the last six years about the settlement of NSEL’s contracts that were outstanding as of 31 March 2012, our last year of the audit,” the statement read.