NCLT Reserves Order On Plea Seeking Ban On IL&FS Auditors Deloitte, BSR & Associates
Corporate affairs ministry has sought a five-year ban on Deloitte and BSR & Associates for failure to detect the IL&FS crisis.
The National Company Law Tribunal on Monday reserved its order on a government petition seeking a five-year ban for IL&FS Financial Services’ auditors Deloitte Haskins & Sells and BSR & Associates.
After hearing arguments of the auditors and the Ministry of Corporate Affairs, the NCLT bench comprising VP Singh and Ravikumar Duraisamy reserved the order.
Deloitte Haskins & Sells and BSR Associates, which is an affiliate of KPMG, are no longer the auditors of crisis-hit IL&FS Group, with the former resigning in 2017-18 and the latter as recent as last month.
But the corporate affairs ministry has sought a five-year ban on them for their failure to do the statutory job properly while they were auditing these group companies.
Representing Deloitte, Janak Dwarakadas, last week, had argued that section 140 (5) of the Companies Act, 2013, under which the corporate affairs ministry was seeking to ban them for five years applied only to auditors who are still auditing the company and not for those who had already resigned.
Also, if the alleged IL&FS fraud that Deloitte and BSR & Associates have been accused of is proved and NCLT passes a final order, then automatically the auditors will get barred from the business of auditing, he had said.
The investigation report by the Serious Fraud Investigation Office, based on which the corporate affairs ministry has asked for banning them, is only an interim report and it doesn't establish fraud.
It is a mere allegation which can't be the basis of banning any auditor, they said.
BSR & Associates counsel Darius Khambata, however, said the auditors can be tried under Section 447 of the Companies Act, 2013, which establishes the grounds under which a fraud can established and if found guilty then they can be penalized or barred for a maximum of 10 years.
And, he said, the corporate affairs ministry can proceed with their plea under Section 447 if they are confident of proving fraud.
Countering these arguments, ministry's counsel Sanjay Shorey said once there is an allegation of fraud, consequences will follow. An auditor cannot be absolved of the consequences of his past omissions and commissions in the name of "interpretation", he added.