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NCLT has rejected the plea made by IL&FS auditors Deloitte and BSR Associates, who had challenged the tribunal’s jurisdiction to ban them for five years.
In June, the Ministry of Corporate Affairs (MCA) had moved NCLT, seeking a ban on the IL&FS auditors for five years.
Deloitte’s counsel Janak Dwarakadas and BSR counsel Darius Khambata had challenged the jurisdiction of NCLT to ban the auditors, pointing out that Section 140 (5) of the Companies Act is applicable only to auditors who are still auditing the company in question, while they have already resigned from the service. Thus they cannot be banned under the circumstances. Section 140(5) of Companies Act states that “the Tribunal (NCLT) either suo motu or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors.”
The reason to ban auditors has been sought by the Ministry after the Serious Fraud Investigation Office (SFIO) in its investigation found them guilty of not taking action despite being aware of the poor financial health of IL&FS. NCLT argued that it has jurisdiction over the matter. The tribunal will hear the Ministry’s plea on September 5.
Deloitte in a statement said the ruling was “unfortunate” and they will review the order and decide on the future course of action shortly.
“We remain committed to high standards of audit quality and ethical conduct in our professional practice. We have faith in the country’s regulatory and judicial processes and will continue to cooperate fully with the authorities,” a Deloitte spokesperson said in a statement.
NCLT approved the appointment of auditors to restate the books of IL&FS and its subsidiaries. On Thursday, the Ministry had proposed Borkar & Mazumdar & Co and MM Chitale & Co for IL&FS and IFIN respectively; and GM Kapadia & Co and CNK & Associates for IL&FS Transportation Networks to audit IL&FS and its subsidiaries.
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