"The auditors were detained for questioning in the evening and later arrested. The auditors are under probe to determine whether they deliberately overlooked irregularities of the bank and whether the auditors received kickbacks in lieu of overlooking the lapses," said a police official.
"The duo will be produced before the local court in Mumbai seeking their custody," he added.
In a press statement, the Mumbai police also said that during the course of investigations the auditors association with the real estate firm Housing Development and Infrastructure Ltd or HDIL had also come to light.
"Both the auditors could not provide convincing explanations regarding their alleged role as statutory auditors," said Mumbai police in the press release.
The arrested people are Ketan Lakdawala and Jayesh Sanghani. The account banks of PMC Bank were audited by Lakdawala & Co and Ashok Jayesh & Associates. In the audit report for FY19, the auditors had raised concerns on recovery of assets against which a provision of ₹26.82 crore has been made by the bank.
Ketan Lakdawala is proprietor of Lakdawala and Co. Jayesh Sanghani is proprietor of Ashok Jayesh and Associates.
The extent of irregularities in the books of PMC Bank later turned out to be much larger. The scam at PMC Bank unfolded following a confession by its former managing director Joy Thomas to Reserve Bank of India on 1 October that the bank’s exposure to the real estate firm Housing Development and Infrastructure Ltd is over ₹6,500 crore — four times the regulatory cap, or 73% of its entire assets of ₹8,880 crore.
In his confession letter Thomas also stated that the auditors missed most of these irregularities as they were looking at only the incremental advances and scrutinised accounts shown by the management.