A day ahead of its crucial annual general meeting (AGM) in Chennai, Financial Technologies India (FTIL) ? the holding company for the crisis-ridden National Spot Exchange (NSEL) ? received a body blow after its auditors announced on Tuesday that financial statements for fiscal 2012-13 should not be relied upon. The statement by Deloitte Haskins & Sells forced FTIL to postpone key resolutions that were to be voted on at the AGM.
FTIL?s current auditor Deloitte Haskins & Sells informed the company on September 23, that ?…in accordance with Standard on Auditing (SA) 560, the auditors? report dated May 30, 2013, on the standalone and the consolidated financial statements of the company, for the year ended March 31,2013 should no longer be relied upon?, an exchange filing read.
The Jignesh Shah-promoted FTIL, which owns almost 100% of NSEL, said three resolutions would be deferred: The adoption of audited financial statements for the fiscal, the validation of interim dividend and declaration of final dividend and the reappointment of the retiring statutory auditors, ?to respect auditors? views?.
The auditors? move came after it took cognisance of the communication of NSEL?s management and the statutory auditors in the exchange?s financials. The spot exchange is embroiled in a R5,600-crore settlement crisis. While the exchange had chalked out a schedule to make weekly payouts of R174.72 crore, six such payouts have failed with total settlements of R157.6 crore. Tuesday?s payout resulted in a payment of just R11.45 crore. FTIL provided a bridge loan of R177.23 crore to NSEL to help payouts to small investors during the second settlement on August 27.
The Forward Markets Commission (FMC) is expected to soon take a call on the ?fit and proper? tag of the promoters of FTIL. Meanwhile, the finance ministry is examining a report on the NSEL crisis. Should FTIL and Jignesh Shah lose the ?fit and proper? tag for NSEL, they run the risk of losing it for MCX and MCX-SX also. While renewing the licence for MCX-SX recently, the capital markets regulator directed the formation of a committee to oversee the running of the exchange.
The FY13 annual reports of FTIL and NSEL show that the latter?s revenues accounted for more than 70% of the parent company?s total revenue of R657.4 crore in FY13. In terms of net earnings, NSEL?s profits equals nearly 38% of FTIL?s profit after tax.
Experts opined that in the absence of the resolution on the passing of the accounts, the AGM cannot be considered conclusive. However, SA 560 allows auditors to disregard the accounts if certain developments occurred, subsequent to their auditing, and therefore, did not reflect in the examined accounts.
?Passing the accounts of a company is mandatory resolution for an AGM to be considered as complete. In the light of this announcement, the company is required to revise the account before the auditors approve them. The company may have to seek an approval of Registrar of Companies for more time to complete the AGM post these amendments,? said Chetan Desai, joint managing partner with BDO India.
Some also believe that the move is surprising given that many companies whose accounts do not reflect the actual financial health of the company still sign the accounts with certain qualifications.
?The auditor?s decision may be based on the uncertainty on the liability to be borne by FTIL on behalf of NSEL. There is a possibility that the current auditor may even resign,? said an expert.
