PwC had informed the Ministry of Corporate Affairs about certain irregularities in the books of accounts of Reliance Capital and Reliance Home Finance, and resigned as the auditor of the company on 11thJune.
It was also claimed by PwC that the company did not provide satisfactory answers to their queries.
After resigning, the board of Reliance Capital met to review allegations of Price Waterhouse & Co., noted that there were no violations by the company.
Now, a company within the Anil Ambani led Group company (Reliance Capital) is suing the auditors for false claims and damaging the company’s reputation.
They claimed Rs. 10,000 crore for damages. Moreover, some shareholders of the company are separately taking on the world-renowned audit firm with a class action suit for the loss the auditors’ actions and statements have caused them.
Reliance Capital grounds the reasons for filing legal suit as it has obtained opinions from its current auditor as well as independent legal firms that there was no wrongdoing on its part and that the irregularities in its books as pointed out by PwC do not exist.
It appears Reliance Capital had sent these opinions to the auditors to respond but got no reply. This is the reason for this legal suit for damages.
The disputes arise earlier in June this year, when PwC sent a letter to the Ministry of Company Affairs that they are invoking the provisions of section 143 (12) of the Companies Act and are quitting as auditors of two companies, Reliance Capital and Reliance Home Finance.
Now, this particular clause implies that the company has committed some financial irregularity and when the auditors asked for details or explanations, the management did not provide them a satisfactory reply.
Hence, the company’s board has since met and decided to haul PwC to court and ask it to pay Rs 10,000 crore as compensation for the damages caused.
The wordings used are “defamation, reputation loss and also a massive loss to shareholders of the company”.
The class action suit under section 245 of the Companies Act 2013 is being planned by some section of the shareholders of both the companies and the promoters can become parties to that suit later.
Also, they claimed that the shares of Reliance Capital and Reliance Home Finance fell 48% and 58% respectively, as soon as the auditors resigned.
Now, if the auditors’ version is being proved as false then the shareholders will argue that the loss they incurred on the bourses were deliberately caused by the auditors.
It is also learnt that both sides have engaged some top law firms to fight the legal battle.