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Reliance Capital plans to file Rs 10,000 crore defamation suit against PwC

In what could be the biggest legal battle between a company and its auditor, Reliance Capital is all set to file a Rs 10,000-crore defamation suit against its erstwhile auditor, Price Waterhouse & Co (PwC), two people with direct knowledge of the matter said.

Separately, some shareholders of the Reliance Group companies are also expected to file a class action suit against PwC for eroding value of their investment.

The decision to take legal action comes after the company received a clean chit from two law firms, a senior counsel and its current auditor, against allegations levelled by PwC. "The board met on Thursday and it was decided that legal action must be taken against the auditor. A separate class action lawsuit against PwC would also be taken as some shareholders had approached the company regarding this," said one of the persons in the know.

The audit firm caused defamation, reputation loss and also a massive loss to shareholders of the company, the person added.  Price Waterhouse and Co, a network firm of PwC India, had resigned as auditor of Reliance Capital and Reliance Home Finance in June and stated that it did not receive satisfactory responses to its request for additional information from the companies. PwC, in a letter to ministry of corporate affairs (MCA), had said it resigned under the provisions of section 143 (12) of the Companies Act. Section 143 (12) deals with resignation of an auditor in cases where it suspects fraud

Reliance Capital last week told the stock exchanges it had taken opinions of two law firms, independent lawyers and joint auditors, and found there was no merit in allegations levelled by PwC. An email seeking comment sent to PwC did not elicit any response. A Reliance Capital spokesman did not specifically comment on the lawsuit but said the company's board will take all appropriate legal steps to safeguard interests of all stakeholders.

 Anticipating a Tussle

According to the persons quoted above Reliance has only decided the quantum of the defamation suit. Also the class action suit would be filed separately by some shareholders with either the promoters or Reliance companies themselves could also become parties in the class action suit.

"Several stakeholders are planning a separate class action suit under section 245 of the Companies Act, 2013 claiming damages against PwC for the loss caused by its action. Shares of Reliance Capital and Reliance Home Finance have declined 48% and 58%, respectively, since June 11, the date when PwC resigned," said a person close to the development.

PwC may be anticipating the legal tussle and has already hired law firms. On June 18, ET had reported that PwC engaged Shardul Amarchand Mangaldas, J Sagar and AZB, and asked them to prepare a defence against not just Anil Ambani-led Reliance Group but also regulators and probe agencies such as National Financial Reporting Authority (NFRA) and the Serious Fraud and Investigation Office (SFIO).

Industry insiders point out that auditors, mainly the big four - Deloitte, PwC, EY and KPMG - are under tremendous pressure due to the investigations in Infrastructure Leasing and Financial Services (IL&FS) and two of its subsidiaries. Investigators have alleged negligence and connivance between auditors and management in their charge sheet filed in the IL&FS Financial Services Ltd case.

Read more at:

https://economictimes.indiatimes.com/industry/services/consultancy-/-audit/reliance-cap-plans-to-file-rs-10000-crore-defamation-suit-against-pwc/articleshow/70652732.cms?from=mdr

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LEGAL OPINION SAYS NO COMPANIES ACT BREACH: RELIANCE CAPITAL

Reliance Capital Ltd's Board of Directors in their special review meeting here on Thursday noted that legal opinion from a reputed law firm confirmed that there was no violation attracting Section 143 (12) of the Companies Act as alleged by audit firm, Price Waterhouse & Co to the Ministry of Corporate Affairs (MCA), a company statement said.

Reliance Capital, in the statement, said the Board took note of the views of legal experts who independently carried out an in-depth examination of the matter and the issues raised by PwC.

"The Board noted the independent legal opinion from reputed law firm confirming that there was no violation attracting Section 143(12) of the Companies Act, and which concluded that the PwC letter is devoid of any rationale or basis and is invalid," the statement said.

Section 143 of the Companies Act deals with "Powers and duties of auditors and auditing standards" and subsection (12) says that if the "auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed".

Reliance Capital said the Board also noted the views of other joint auditors, who have been its auditors for the last three financial years and continue as the sole statutory auditors of the company, confirming that there are no violations as alleged by PwC.

The company said that the Board also noted that PwC had duly audited the accounts for the financial year 2017-2018, as also limited review of financial results of three consecutive quarters ended December 2018, without any qualifications or raising any concerns.

Reliance Capital said the Board, at the special review meeting, also noted that the alleged basis relied upon by PwC for reporting under Section 143(12) is itself grossly inadequate, and does not even point to a single specific instance of alleged fraud.

According to the statement, the Board considered all facts including: "PwC had chosen not to attend the Audit Committee meeting on June 12, 2019; PwC abruptly resigned at the unearthly hour of 4.32 am on June 11, 2019; After resigning and ceasing to be the auditor of the company, PwC filed its letter with MCA later the same day; PwC did not even share a copy of its letter with the company or even with the Board's independent Audit Committee, despite repeated requests from the company." It also reaffirmed to take all appropriate steps to safeguard the interests of all stakeholders, the statement said. Resigning as one of the statutory auditors of Reliance Capital in June, PwC had alleged diversion of funds and wrote to the MCA.

The company had refuted the charge.

For more detail please click below mentioned link:

https://www.relianceada.com/