Adani Row: Auditor Named In Hindenburg Report Quits Adani Total Gas

The scathing report had questioned Adani Total Gas for hiring the 'tiny firm' called Shah Dhandharia for auditing the company with a market capitalisation of Rs 640 million. 

The chartered accountancy firm, M/s. Shah Dhandharia & Co. LLP, which was named in the Hindenburg Research report on Adani Group has resigned, Adani Total Gas Ltd has informed. 

The stocks of Adani Group have taken a beating since US short-seller Hindenburg Research accused it of stock manipulation and accounting fraud earlier this year. The Hindenburg report had also raised the issue of the size and capability of the firms auditing the conglomerate. The Adani Group has denied any wrongdoing.

The report had had questioned Adani Total Gas for hiring the "tiny firm" called Shah Dhandharia for auditing the company that had a market capitalisation of about Rs 640 million. 

"Shah Dhandharia seems to have no current website. Historical archives of its website show that it had only 4 partners and 11 employees. Records show it pays Rs 32,000 (USD 435 in 2021) in monthly office rent. The only other listed entity we found that it audits has a market capitalization of about Rs 640 million (USD 7.8 million)," the report stated.

In a stock exchange filing, Adani Total Gas Ltd said, "We wish to inform that M/s. Shah Dhandharia & Co. LLP, Chartered Accountants, have resigned as the statutory auditors of the company i.e., Adani Total Gas Limited (ATGL) with effect from May 2, 2023."

The company attached the May 2, 2023, resignation letter from the auditor.

Reason Behind Resignation 

The auditor mentioned in its resignation letter said that it has been granted a second five-year term starting July 26, 2022, and has finished auditing the company for the fiscal year ending on March 31, 2023.

"We have carefully evaluated and due to increased professional pre-occupation in other assignment, we regrettably propose our resignation. Our resignation does not result from an inability to obtain sufficient appropriate audit evidence," it said.

It went on to say, "There are no other circumstances connected with our resignation which we consider should be brought to the notice of the Board. In view of the above and as discussed and agreed with the management, we express our inability to continue as the statutory auditors for the company. Please accept our resignation with immediate effect."

It remains uncertain if the accounting firm will resign from Adani Enterprises as well. The flagship group, which includes businesses such as airports and data centers, has scheduled a board of directors meeting on May 4 to discuss its financial results.

Hindenburg Report Allegations

The Adani Group has been under attack after allegations of fraud, corruption, stock manipulation, and money laundering were levelled by the Hindenburg report. The US short seller also charged the Adani group with using a vast network of shell companies in opaque financial transactions. The report led to at one stage wiping out almost $140 billion of the Adani group's market capitalisation. Adani group has denied all allegations.

Hindenburg report also alleged that the Adani Group's audit partner who signed off on Adani Total Gas Ltd audits was only 23 years old when he was first appointed, and the audit partner at Shah Dhandharia who signed off on the audits of Adani Enterprises was only 24 years old when he started.

Both are now just 28 years old. Shubham Rohatgi, who signed off on ATGL's audit for the 2022-23 fiscal on May 2, 2023, on behalf of Shah Dhandharia & Co LLP, was also flagged by proxy advisory firm Institutional Investor Advisory Services (IiAS) in July 2022.

"We raise concerns over the quality of the audit conducted since the signing partner of FY22 - Shubham Rohatgi - became an associate member of ICAI (Institute of Chartered Accountants of India) in 2018. We believe he does not have the requisite experience to audit the financial statements of a NIFTY 100 company," it had said.

On January 29, the Adani group refuted the Hindenburg accusations and claimed to have a policy of appointing global Big Six or regional leaders as statutory auditors. The group referred to Arthur Andersen, Coopers & Lybrand, Deloitte and Touche, Ernst & Young, KPMG, and Price Waterhouse, which are now collectively known as the Big 4 after the merger of PricewaterhouseCoopers in 1998 and the collapse of Arthur Andersen in 2002 following the Enron scandal.