Review Banning Of Audit Firms For Fraud, Law Panel Tells Government

Banning audit firms in the case of fraud should be an exception and debarment may be restricted to only those individuals or partners involved in the wrongdoing, a panel has suggested.The panel headed by Corporate Affairs Secretary Injeti Srinivas has said in a report—that was submitted to Finance Minister Nirmala Sitharaman today—that a firm should be banned only if it refuses to cooperate in investigation proceedings or its top management is involved in a fraud.The suggestions come after the Ministry of Corporate Affairs, in June, had sought a five-year ban on Deloitte Haskins & Sells and BSR Associates, for allegedly colluding with the management of IL&FS group’s non-bank lending arm in dubious practices.The report cites Section 140(5) of the Companies Act, 2018, that states any auditor—individual or firm—directly or indirectly involved in a fraudulent manner or colluded in any fraud with a company or its directors, and such act has been established in the final order made by NCLT.The auditor, by virtue of the NCLT’s order, is ineligible for appointment as an auditor of any company for a period of five years from the date of such an order.The National Financial Reporting Authority, under Section 132 of the Act, is also empowered to pass an order debarring any auditor—an individual or firm—from being appointed as an auditor, internal auditor or a valuer for a period of six months to 10 years, the report said.While the provision under Section 140(5) kicks in once the final determination is made by NCLT, Section 132(4)(B) gives power to NFRA to decide on the total tenure of ban based on the facts and circumstances, the report said. “In either case, there’s no provision to limit the debarment in case of an audit firm to the partners who were actually involved in the wrongdoing.”The panel said it would be “disproportionate” to make an entire firm responsible in cases where only a few partners representing the firm are responsible for a fraud and instead, sought imposition of heavy monetary penalties on the firm. The panel was set up to examine the decriminalisation of certain offences under the Companies Act, 2013, comprising Uday Kotak, Sidharth Birla, TK Vishwanathan, Ajay Bahl, Shardul Shroff, Amajit Chopra, Preeti Malhotra, Rajib Sekhar Sahoo, G Ramaswamy and KVR Murthy as members.The panel also said debarment of a professional should rest with Institute of Chartered Accountants of India—the body that regulates the profession. “The right to practice for professionals is a core requirement for exercising their right to livelihood and thus, debarment should be considered a serious punishment.”Recategorise 23 Offences Under Companies LawThe panel has also proposed recategorisation of 23 offences out of the 66 remaining compoundable offences under the Companies Act. These offences should be dealt with the in-house adjudication framework under which these defaults would be subject to a penalty levied by an adjudicating officer.The committee has also suggested amendments to 46 penal provisions to either remove criminality, or to restrict the punishment to only fine.The proposals are aimed at de-clogging criminal justice system in the country..Decriminalise 46 More Offences Under Companies Law, Says Panel Report

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Review Banning Of Audit Firms For Fraud, Law Panel Tells Government

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