Integrity of professional auditing firm questioned -Altair Dispute
The major shareholders of Altair project have filed legal actions in the District Court of Colombo against PricewaterhouseCoopers Lanka (Private) Limited (PwC Sri Lanka), a leading professional body for their alleged contribution to facilitate a hostile take-over of the Altair project in November 2019 through a fabricated and unauthorised report.
A A Infraproperties Pvt. Ltd., 100% owner of the Altair project together with its parent company South City Projects (Kolkata) Ltd. (Plaintiffs) have filed legal actions in the District Court of Colombo against PwC Sri Lanka along with Jaideep Halwasiya and Pradeep Moraes who are alleged to be the main conspirators who perpetrated the hostile takeover.
The Plaintiff in District Court of Colombo appealed that purported report was a concerted act of conspiracy of the three co-defendants, to create an environment to facilitate the said fraudulent and hostile take-over of Indocean Developer (Private) Ltd (IDPL), the Altair project company.
It is noted that the Board of Directors of IDPL has never requested nor approved to commence or procced with any such investigative procedure with the PwC Sri Lanka in early 2019. PwC has been acting as the internal auditor of IDPL since 2015.
As per the documents submitted with the Hon’ble Court by the plaintiff’s counsel, the purported report was signed and published on 15th of November last year by PwC Sri Lanka, although one of the director representing the Plaintiffs clearly raised their objections to the move. Infact on the strength of the purported report, the director concern along with other director representing the plaintiff were removed from the Board of Altair Company as part of hostile takeover.
The District Court has also issued an enjoining order preventing PwC Sri Lanka and other co-defendants from destroying the evidence of the alleged conspiracy. The material evidence includes ranges from emails to any other communication exchanged between the defendants that could be pertinent to prove the conspiracy between the defendants.
The plaintiffs claimed that some parts of the report were drafted by the Halwasiya and Moraes and not by PwC which could be evident from the material evidence filed in Hon’ble court. Further, it has been alleged that PwC has sought information privately and most of the data filed in the report were as per direction of the conspirator co-defendants, thereby, failing to conduct a fair audit or verification.
It claimed that the directors of PwC Sri Lanka have used the corporate name of PwC in order to avoid personal liability for their fraud. Thus, it contended that all directors of PwC who are all public accountants practicing under the name and style of PwC are liable in person and hence, plaintiffs argued that these individuals shall incur unlimited personal liability in respect of assignments done under cover of PwC’s corporate name.
In addition, plaintiffs, has already filed an oppression and mismanagement action under the Company’s Act, inter alia against Jaideep Halwasiya and Pradeep Moraes to take back the control of the project before the Commercial High Court, Colombo.
Halwasiya who has 12.5 per cent stake in A A Infraproperties Pvt. Ltd., wherein South City Projects have 87.5% in A A Infraproperties, is accused of seizing control of IDPL through issue of preferential shares to a Dubai-based company owned by his son and two of his business associates.
In the process A A Infraproperties shareholding was reduced to approx 13 percent from 100%.
In 2018, the Securities and Exchange Board of India (SEBI) barred Price Waterhouse from auditing any listed company in India for 2 years, saying that the firm was complicit with the main perpetrators of the Satyam fraud and did not comply with auditing standards.SEBI also ordered disgorgement of over $1.75 million wrongful gains from the firm and 2 partners, referred to as “India’s Enron”. This action might perhaps be the first instance when the integrity of a professional accounting body was called into question by way of legal action in Sri Lanka.
