Bombay HC dismisses Amit Goenka’s plea against Sebi order in Shirpur Gold Refinery case

The Bombay High Court has dismissed a petition filed by Amit Goenka contesting the Securities and Exchange Board of India’s (Sebi) appointment of KPMG as a forensic auditor to probe alleged fund siphoning at Shirpur Gold Refinery.

In its 2021 communication, Sebi had appointed KPMG Assurance and Consulting Services as a forensic auditor to review the financial statements of Shirpur Gold Refinery Ltd for the fiscal years 2018-2019 through 2020-2021. KPMG had submitted a report March 2023. 

The market regulator, an interim order dated 25 April 2023, accused debt-ridden Shirpur Gold of fund diversion. Goenka served as the company’s non-executive chairman in 2021-22.

Read this | Experts bat for proper litigation policy as taxman's delays get flak from courts

“We do not find any justifiable reason assigned by the petitioner (Amit Goenka) in the writ petition for the belated challenge being raised to the appointment of KPMG as forensic auditor on 13 September 2021," a bench comprising justices Rajesh S Patil and AS Chandurkar said in an order that was uploaded Thursday.

The high court said that Goenka was free to pursue the matter before Sebi in accordance with the law.

Sebi’s interim order was prompted by a February 2021 complaint, alleging that loans taken by Shirpur Gold Refinery were not used for company operations but were siphoned off to companies under the control of Subhash Chandra, chairman emeritus of Essel Group, and his family. The complaint also alleged that Shirpur had failed to provide public shareholders with information regarding its operations, leading Sebi to investigate the matter.

On 25 April 2023, the markets regulator had issued a show-cause notice cum interim order against Amit Goenka, Shirpur Gold Refinery, and five others for alleged fraudulent practices and manipulation of financial statements.

In its order, Sebi, through its whole-time member Ashwani Bhatia, directed that the entities must not dilute or sell their holdings in Shirpur. Sebi noted that Shirpur had allegedly devised a scheme to divert funds from debtors to entities within the promoter group.

“It appears that the main reason for Shirpur's defaults to lenders is non-receipt of funds from its debtors amounting to ₹404 crore. The same appears to be part of a well-designed scheme devised by promoters to move the funds out of Shirpur and transfer to their accounts while misusing the IBC process,” Bhatia had said in the order. 

And this | The curious case of UAE-based funds in India’s small-cap bubble

Pradeep Sancheti, senior counsel representing Goenka, argued before the high court that KPMG was ineligible to submit a forensic report as it did not meet the eligibility criteria prescribed under Sebi's tender. 

He further contended that KPMG's report, submitted on 21 March 2023, could not be considered a ‘forensic report’ as directed, noting the absence of a mandatory Unique Document Identification Number (UDIN) and that KPMG was not listed as a registered firm with the Institute of Chartered Accountants of India (ICAI).

Also read | Mint Explainer: Why real estate investment trusts are in Hindenburg’s crossfire

On behalf of Sebi, senior counsel Mustafa Doctor argued that if any adverse order was passed against Goenka, he had the option to appeal. Doctor emphasized that the challenge to the forensic auditor's appointment was merely a tactic to delay proceedings, given that Goenka had not challenged the interim order, despite it being a quasi-judicial order.