Mumbai/New Delhi: India’s capital market regulator has shown interest in reviewing the findings of a government-appointed audit firm that pointed to a series of alleged accounting irregularities by Reliance Communications Ltd (RCom), the country’s second largest mobile phone company by subscribers, officials said.

The interest of the Securities and Exchange Board of India (Sebi) indicates that Anil Ambani-controlled RCom may have to answer more than one watchdog agency on its accounting practices at a time mobile phone service providers are engaged in a price war to gain market share.

“They have evinced interest in looking into the matter," said a senior department of telecommunications (DoT) official, who did not want to be named because he is not authorized to speak to the media. “They will conduct their own investigation internally before taking any action."

A senior Sebi official said the market regulator would “definitely have to look into the matter" in such cases, but could not say if the process of internal examination had started or would start sometime soon.

An emailed questionnaire sent to RCom did not elicit a response before this edition went to the press. RCom officials reached on phone had no immediate comment to make on the matter.

A representative of the Reliance-Anil Dhirubhai Ambani Group (R-Adag) that owns RCom, met DoT secretary P.J. Thomas in connection with the audit report, said a senior DoT official who didn’t want to be named.

The audit firm, Jaipur-based Parakh and Co., submitted the report to DoT last week. The report alleged RCom had under-reported revenue to save on licence fees and inflated numbers to the stock exchanges.

The report said the company had sought to avoid paying nearly Rs316 crore to the national exchequer—Rs258.46 crore in licence fees and Rs57 crore in spectrum usage fees—in 2006-07 and 2007-08.

DoT has formed a special committee to look into the auditors’ report headed by member (finance) of the Telecom Commission, Vijayalakshmi K. Gupta. The committee is expected to officially unseal the report and share it with RCom in the first week of November. RCom cannot officially comment on the findings until they are placed in the public domain.

RCom’s shares fell 6.54% to Rs231.60 on Wednesday on the Bombay Stock Exchange. The bellwether index, the Sensex, rose 1.2% to 17,231.11 points.

RCom, with 84.11 million users, offers services on both GSM (global system for mobile) and CDMA (code division multiple access) technologies. The firm had refuted the findings in an emailed statement on Monday, accusing the auditor of bias and acting at the behest of corporate rivals.

A sector analyst with the Singapore-based arm of a foreign brokerage said it was “not good news for the company and that is getting reflected in its stock price".

“Financial irregularities, even when they are merely alleged, unnerve investors and that applies to all the listed firms of Adag," added the analyst who, while declining to be named because his company policy doesn’t allow direct media interaction, pointed to the drop in share prices of other R-Adag firms.

While Reliance Capital Ltd declined 1.64% to Rs935, Reliance Infrastructure Ltd dipped 2.6% to Rs1,321.80 and Reliance Power Ltd by almost 1% to Rs162.65.

The Institute of Chartered Accountants of India (ICAI) has asked RCom, DoT and the auditor to provide details of the inquiry, PTI reported, citing Uttam Prakash Agarwal, ICAI president.

According to the audit report, there was a difference of Rs2,915 crore in the revenue reported by RCom to the regulator and stock exchanges. The bourses received the higher figure.

R-Com allegedly violated other Telecom Regulatory Authority of India and DoT rules, too. The auditors alleged that the company counted revenue of Rs617 crore twice and also counted non-telecom revenue as telecom revenue.

Telecom firms are battling it out for market share. Most sector analysts expect the escalating tariff war in the 494 million subscriber-strong Indian telecom sector to erode the margins of existing mobile phone firms and erect substantial entry barriers for aspiring service providers.

Anirudh Laskar in Mumbai contributed to this story.