The National Financial Reporting Authority (NFRA) has banned Coffee Day Global (CDGL) auditor ASRMP & Co for two years after finding it guilty of audit failures and “professional misconduct” in the 2019 financial year. In an order issued on Wednesday, the auditor regulator of large listed companies also fined the audit firm Rs 1 crore.

ASRMP & Co has been prohibited from “being appointed as an auditor or internal auditor for two years, or performing any audit of financial statements or internal audit of the functions and activities of any company or body corporate,” the NFRA said in sequence. It also imposed a fine of Rs 10 lakh on one contracting partner of the company and Rs 5 lakh on each of the two contracting partners of the company. They have been banned from being appointed auditors or internal auditors for five years.

“Following the investigation and proceedings under Section 132(4) of the Companies Act, and after being allowed to present their case, NFRA found that the firm and its partners conducting the audit as project partners were guilty of professional misconduct, and the following fines and sanctions are ordered by this penalty, effective 30 days from the date of this order,” NFRA said.

NFRA launched an investigation into the professional conduct of auditors after markets watchdog Sebi announced its findings in April 2022, revealing the transfer of funds worth Rs 3,535 crore from seven subsidiaries of CDEL, which operates Café Coffee Day, to Mysore. Amalgamated Coffee Estate is an entity owned and controlled by CDEL’s promoters.

According to the NFRA, its investigation revealed that CDGL’s FY 2019 auditors failed to meet the relevant requirements of the Auditing Standards and the provisions of the Corporations Act 2013 and also demonstrated a “serious lack of competence”. According to the regulator, the auditors also failed to assess potential conflicts of interest and maintain their independence from CDGL by establishing audit and non-audit relationships with many Coffee Day Group companies and family members of the promoters. Additionally, the regulators said they attempted to deceive NFRA by adding more files and changing files in audit files, which amounted to tampering.

They also failed to exercise professional judgment and scepticism in auditing Rs 6,958.91 crore fraudulently conducted transactions with MACEL, which were not fully disclosed in related party disclosures in their entirety and failed to report an understatement of loan by Rs 222.50 crore fraudulently given to MACEL and ever-greening of loans through the structured circulation of funds among group companies.

Overall, the NFRA noted that “pervasive misstatements” amounted to Rs 7,514.10 crore, although auditors erroneously reported that CDGL’s FY19 financial statements gave an accurate and fair view.

In early January this year, Sebi fined Coffee Day Enterprises Rs 26 crore for transferring funds from a subsidiary to a company linked to the promoter. In another order, NFRA also fined MACEL’s auditor Rs 5 lakh and banned her from being appointed as an auditor or internal auditor or doing any audit work for five years.