MUMBAI : After Infibeam Avenues Ltd’s surprise firing of its joint statutory auditor S.R.B.C. & Co. LLP on Sunday, there is more trouble brewing for the EY India affiliate firm.

The Securities and Exchange Board of India (Sebi) has started a probe against S.R.B.C based on a complaint by Infibeam, a person familiar with the matter said.

“Leakage of unpublished price sensitive information (UPSI) is a violation of Sebi insider trading norms and if proven, is a serious lapse of auditor responsibility. Sebi is in the process of seeking information from the auditor," the person mentioned above said on condition of anonymity. He said Infibeam has also written to audit watchdog National Financial Reporting Authority (NFRA) and the ministry of corporate affairs (MCA).

Infibeam on Sunday said the auditor shared UPSI to third-party and external email accounts.

According to a second person, Infibeam asked S.R.B.C to verify on leaks after it received a whistleblower compliant. The audit firm then conducted a forensic audit. “The CA firm conducted a forensic audit for the period of February 2017 and May 2017 when these alleged leaks happened. The audit did find some emails were sent from company email IDs to third party and personal email ids. While S.R.B.C. does not support this practice of forwarding emails to private accounts, it did not find any malfeasance or breach of data. S.R.B.C. has also done an analysis of these third party accounts to come to this conclusion. The firm is exploring legal options," said this person, declining to be named.

However, as per Infibeam’s release, the auditor said to the company that “there is no technical means to verify whether there was no further sharing of UPSI".

A spokesperson for Infibeam in an emailed response to Mint said, “We have informed appropriate authorities on this matter. We believe it is a violation of insider trading regulations and further, the regulator will look into the matter".

A second person cited above said, whenever a company changes its auditor, it is supposed to inform all regulators citing the reasons. “The company and the board has gone into details citing reasons for sacking the auditor," the person added.

S.R.B.C. denied the charge. “We strongly deny the allegations made against us by Infibeam. We have conducted a comprehensive investigation and stand by our findings that there was no wrongdoing on our part. We are confident of our position and are open to a third party/regulatory inspection and will respond to the regulators, as required," the firm said in an emailed statement to Mint.

An email sent to a Sebi spokesperson remained unanswered.

Terminating S.R.B.C. still needs a shareholder nod and permission from the National Company Law Tribunal (NCLT).

Leakage of UPSI is prohibited and is in contravention of regulation 3(1) and (2) of insider trading rules and section 12A(e) of the SEBI Act which prevents unauthorised possession and communication of such information. A violation of insider trading rules can lead to a fine of 25 crore and being barred from securities markets.

“It should be investigated by SEBI and NFRA and appropriate action should be taken. Meanwhile, this EY affiliate should review its client risk assessment procedures for accepting new clients," said Prof. R. Narayanaswamy, professor of finance and accounting at Indian Institute of Management, Bangalore.

Infibeam’s statement said the auditor shared UPSI on multiple occasions leading to breach of trust and loss of faith. Infibeam cited anonymous tips and asked EY to look into these alleged leakages, as per the statement.

Interestingly, relations between S.R.B.C. and Infibeam have been sour for some time now, with the firm qualifying the company’s results for nearly three quarters. It had once even cited a whistleblower complaint for the qualification.

“The auditor has questioned the company’s accounting for revenue, related party loans and acquisitions. The company’s allegation against the auditors (of leaking confidential information) is grave. May be it is returning the compliment, or may be not. Interestingly, S.R.B.C. came in only in 2018 after KPMG (affiliate) resigned citing “time and resource constraints". Did EY (affiliate) accept the new client just to meet business targets? The case raises many questions," said Narayanaswamy.