Chartered accountants face probe for alleged role in aiding Chinese loan apps

Some CAs are alleged to have signed various statutory documents of these app companies such as incorporation forms, and annual returns among others without conducting proper due diligence, people aware of the matter said.

For instance, some of these loan app entities provided fake addresses in the incorporation documents that the CAs did not physically verify.

“The purview of investigation is to ascertain if there was any professional misconduct on the part of the chartered accountants,” said Debashis Mitra, president, ICAI. “Further, the probe will also look into whether these professionals have signed or authored any false documents supplied by such shell companies.”

Earlier this year, the Registrar of Companies (ROC) together with the Serious Fraud Investigation Office (SFIO) launched a probe into several shell entities acting as a front for these Chinese lenders doing business in violation of various domestic laws. Subsequently, the Enforcement Directorate (ED) also initiated an extensive probe.

Any entity wanting to get into the lending business needs to get a license from the Reserve Bank of India (RBI) as a non-banking financial company (NBFC).

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“The process is far more stringent for foreign entities. Also, there are certain limitations on investments from China,” said a person with direct knowledge of the matter.

Some NBFCs created dummy entities in India that were used by Chinese entities for lending activities.

Now while creating such dummy entities, some professionals like CAs and Company Secretaries allegedly certified the documents without conducting proper due diligence, the person said.

“Once the prima facie opinion is formed by the ICAI, the cases where lapses are found will be referred to the disciplinary committee,” Mitra said.

ICAI’s probe is in addition to investigations by other agencies.

In some of the cases, the SFIO or local police have filed FIRs against various entities including professionals like CAs and company secretaries.

Mitra said the institute had received references from the government regarding the alleged role of certain professionals including CAs in facilitating Chinese shell companies since January.

To be sure, there is no restriction on Chinese companies setting shop in India. However, the entities will have to comply with various requirements prescribed in Indian law including security clearance from the Home Ministry.