Deloitte, Haskins & Sells LLP has resigned as the statutory auditors of Adani Ports and Special Economic Zone (APSEZ).
The audit firm had red flagged at least three transactions in the past two quarters after it wasn’t convinced by the management’s claims that these had not been struck with related parties.
Deloitte had argued that no independent external agency had been appointed to validate the Adani group’s claims.
The audit committee of the company’s board of directors has appointed M S K A & Associates, an independent member firm of BDO International, as its new auditor.
Adani Ports said in a regulatory filing that Deloitte had been its statutory auditor since May 2017.
In July 2022, the company reappointed Deloitte as its statutory auditor for another term of five years.
APSEZ said Deloitte had resigned because it was not given a “wider audit role” covering other listed Adani portfolio companies.
It claimed that Deloitte had indicated its position at a recent meeting with the APSEZ management and its audit committee, which comprises four independent directors. “There are no other reasons other than (that) mentioned in the resignation letter received from the statutory auditors dated August 12.”
The resignation letter from Deloitte, which was appended to the regulatory filing, said: “We are tendering our resignation …with immediate effect because we are not statutory auditors of a substantial number of other Adani group companies…including an Adani group company (and its subsidiaries) after our completion of our term of five years.”
It wasn’t clear which Adani group company Deloitte was referring to.
Adani Ports said that the “grounds advanced by Deloitte for resignation as statutory auditor were not convincing or sufficient to warrant such a move”.
It added that Deloitte was told that “it was not within the remit of the APSEZ and its board to recommend group-wide appointments as other listed Adani portfolio companies are completely independent with separate boards, executive teams and minority shareholders”.
“It was agreed to amicably end the client-auditor contractual relationship between APSEZ and Deloitte,” the company said in its filing.
Deloitte’s resignation comes amid reports of differences with the company over three transactions which were flagged by the auditor in the financial statements for the quarter ended March 31, 2023 and quarter ended June 30, 2023. One of these transactions pertained to an engineering contract with a subsidiary of a firm identified in the Hindenburg report. The report had alleged that listed Adani companies had paid Rs 6,300 crore to PMC Projects, a private contractor, over the past 12 years to help construct major projects and that a 2014 DRI investigation called PMC Projects a “dummy firm” for the Adani group. The Adani group has maintained that the contractor was not a related party.
The other issue was the renegotiated terms of sale of its under-construction container terminal in Myanmar to Solar Energy, a company incorporated in Anguilla, a British overseas territory in the Caribbean.
The sale consideration was revised downward from Rs 2,015 crore ($260 million) to Rs 246.51 crore ($30 million) and APSEZ booked an impairment loss of Rs 1,558.16 crore.
There were also several financing transactions (including equity) with certain other parties against whom allegations were made in the Hindenburg report. The company had claimed that they were not related parties. However, the management did not consider it necessary to have an independent external examination of these allegations because of the ongoing investigation by market regulator Sebi.
The market regulator has been directed by the Supreme Court to submit its report on these allegations by August 14. Deloitte’s resignation has occurred before that event.