New Delhi, Sep 23: The ICAI Disciplinary Committee considered the matter concerning one CA. Mehul Chandrakant Shah (M.No. 049361), of M/s. Shah Shah & Shah, Mumbai, in relation to his role as statutory auditor of M/s. Shree Ashtavinayak Cine Vision Ltd.
The proceedings arose after an Appellate Authority order dated 26 May 2026 set aside the earlier Disciplinary Committee findings dated 11 February 2022 and the consequential punishment order dated 1 June 2022, and remanded the matter for fresh consideration after providing an opportunity of hearing.
The disciplinary proceedings concerned allegations that the auditor failed to adequately verify loans and capital advances routed through the company's overseas subsidiary and failed to sufficiently assess whether amounts shown as recoverable were actually recoverable.
The Committee examined whether the Respondent had exercised the due diligence required under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
he Committee found that the Company had advanced substantial funds to its overseas subsidiary, Shree Ashtavinayak Cinevision FZE, Dubai, which had in turn advanced funds to third parties as capital advances for acquiring copyrights relating to motion pictures that remained incomplete.
The Committee noted that the subsidiary had earned no revenue during FY 2009-10 to FY 2012-13, except for the period from 1 April 2010 to 30 September 2010, which the Committee considered indicative of an absence of meaningful business activity.
The Respondent contended that he had undertaken several audit procedures, including enquiries with the Board and Audit Committee, obtaining confirmations, reviewing subsidiary auditors' reports and internal audit reports, and examining supporting documents. He also relied upon SA 240 and SA 600, maintaining that a statutory auditor is not an investigator and that subsequent discovery of alleged fraud could not, by itself, establish professional misconduct.
The Committee, however, held that the performance of certain audit procedures did not by itself establish compliance with the required standard of due diligence. It considered the substantial and long-standing advances, delayed projects, financial distress of the Company and the absence of meaningful business activity in the overseas subsidiary as circumstances requiring enhanced scrutiny of the recoverability and carrying value of the amounts shown as assets.
The Committee also considered the Emphasis of Matter included in the Respondent's audit report for FY 2012-13, which drew attention to the Company's financial difficulties, inability to repay loans and other liabilities, recovery proceedings and delays in film production and distribution projects.
The Committee held that merely highlighting the Company's financial difficulties did not discharge the auditor's obligation to independently examine the underlying advances and their recoverability.
The Committee further noted that an amount of ₹2.75 crore advanced to Shri Akshay Khanna through Shri Neeraj Vohra remained outstanding in 2013, along with other amounts advanced to film actors and other persons in earlier years.
According to the Committee, the prolonged outstanding balances required adequate verification of recoverability and consideration of whether appropriate provisions were necessary.
On the issue of confirmations, the Committee stated that obtaining confirmations from parties or relying on reports of subsidiary auditors could not, in the circumstances of the case, replace the Respondent's independent professional assessment of whether the amounts were actually recoverable.
The Committee also referred to SA 500 in discussing external confirmations and concluded that the audit procedures were inadequate in light of the circumstances existing during the relevant period.
The Committee rejected the contention that its conclusion was based merely on hindsight arising from subsequent investigations. It stated that its findings were based on circumstances available from the records during the relevant period, including substantial advances, prolonged outstanding balances, delayed projects, financial distress and the limited business activity of the overseas subsidiary.
In the Committee's view, these circumstances required professional skepticism and additional substantive audit procedures. Ultimately, the Committee concluded that the Respondent had failed to exercise the due diligence expected of him as statutory auditor.
It found deficiencies in the verification of loans and advances and held that he had not adequately established whether the amounts shown as advances and recoverable balances represented recoverable assets or whether appropriate provision was required. The Respondent was accordingly held guilty of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
Consequently, by its order dated 15 September 2026, the Disciplinary Committee directed that CA. Mehul Chandrakant Shah's name be removed from the Register of Members for six months and imposed a fine of ₹5,00,000, payable within 60 days from receipt of the order.
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