BANKERS IGNORED AUDITORS’ RED FLAG
Geetanjali’s overdraft was at ~665 million
Punjab National Bank and other lenders ignored warnings from the auditors of Gitanjali Gems in March 2017 about the jewellery firm’s working capital borrowings as well as default on loan payments.
According to Ford, Rhodes and Parks, the auditors of BSE listed Gitanjali Gems, the company’s overdraft was consolidated at ~665 million — above its sanctioned limit.
It had also defaulted on loan repayment to the Life Insurance Corporation of India (LIC). The auditor drew shareholders’ attention to the 12 per cent non- convertible debentures issued to LIC, after the company failed to pay principal and interest dues of ~35 million.
“The company has not created liquid assets of ~15 million, as per rules,” the auditor said.
There were also dues to be paid to ICICI Bank — principal of $8.75 million (~567.4 million) and interest of $0.97 million (~63.2 million) on external commercial borrowings. Gitanjali Gems also owed IDBI Bank a principal of $0.73 million (~47.7 million), according to the auditor report.
The company had consolidated debt of ~82.5 billion as of March 2017.
The audit report was signed by chartered accountant A D Shenoy. When contacted, Shenoy said all the relevant information was in the public domain.
The new auditor, Ambavat Jain & Associates, appointed as the Companies Act, 2013, mandates auditor rotation after 10 years, in its report with the half-yearly results said the company had statutory overdues of ~114.5 million, including a ~30 million liability to the income tax department, as of the end-September 2017.
Gitanjali shares are down 62 per cent to ~22.45 as of Tuesday, and have lost ~4.6 billion value since the scam broke in mid-February.
On the other hand, Deloitte, the auditor of the Nirav Modi- owned Firestar International (FIPL), had also raised flags in March 2016, but the audit report had failed to detect any large-scale fraud in the company till March 2017.
Deloitte is the auditor of two Modi companies that are currently under investigation. It signed off on accounts of FIPL for two fiscal years ending March 2016 and March 2017.
The banks had received a warning from CARE Ratings for FIPL, after the company’s financial metrics deteriorated.
In a statement on February 1, 2016, CARE had warned that FIPL was operating on a stretched operating cycle till March 2015, which led to working capital bank facilities being fully utilised at a time when its operational performance was on a decline. CARE had then downgraded the company’s debt instruments worth ~24.6 billion.
The rating agency also warned about Firestar Diamonds, a subsidiary based in Hong Kong, saying that the company would not be able to repay its loans unless its parent company stepped in as a guarantor.