In A First, NCLT Allows Government To Reopen IL&FS Books
The National Company Law Tribunal on Tuesday allowed the Corporate Affairs Ministry to reopen the books of the crippled Infrastructure Leasing & Financial Services Group and its subsidiaries for the past five years under Section 130 of the Companies Act to ascertain financial mismanagement.
For the first time, the government on Dec. 21, 2018, had invoked the powers under Section 130 of the new Companies Act of 2013 to reopen the books of a company.
The government wants to check the balance sheets of the crippled group and its two listed subsidiaries—ITNL and IL&FS Financial Services—for the past five years (FY 2013-18) and the move comes after the Serious Fraud Investigation Office and Institute of Chartered Accountants of India reports indicated that the accounts were prepared fraudulently and negligently in the last five years by the previous management.
The statutory bodies, including the Reserve Bank of India, the Securities and Exchange Board of India and the Income Tax Department gave their no-objection for restating the accounts.
However, the auditors Ernst & Young-owned SRBC & Co, Deloitte Haskins & Sells and KPMG affiliate BSR Associates opposed the move citing that they had no role in the alleged frauds. The financial accounts are made by the company and not the auditors, they argued.
To this, the government informed the tribunal that the ICAI had sent a show-cause notice in relation to the alleged frauds to the auditors. The auditors argued that the ICAI probe is nascent and can't be the basis of recasting of financial accounts.
Hearing the petition, the two-member NCLT bench of judges VP Singh and Ravikumar Duraisamy observed that “based on the ICAI and SFIO reports though it cannot be concluded that the auditors and former directors had any role in preparing of the financial accounts, let’s reopen it in the interest of fairness”.
The tribunal clarified that the order is without any prejudice and will not affect the proceedings before ICAI and SFIO probe.
The government also wants NCLT to appoint an independent chartered accountant to restate the accounts and revise the balance sheets and wants three months to do the job. The group owes over Rs 94,000 crore to lenders, mostly banks.
This is the first instance of the government invoking Section 130 of the Companies Act, which empowers it reopen accounts only on a court/tribunal order.