Money & Banking

IL&FS case: Court relief for Deloitte, BSR & Associates

Venkatesh Ganesh Mumbai | Updated on September 05, 2019 Published on September 05, 2019

Corporate Affairs Ministry, which sought a 5-year ban on the auditors, restrained from continuing its proceedings

The Bombay High Court has granted interim relief to audit firms Deloitte and BSR & Associates and has restrained the Ministry of Corporate Affairs from continuing its proceedings seeking a ban on the two companies before NCLT.

The Court has deferred the hearing till October 3.

On August 9, the NCLT had rejected the plea made by Deloitte and BSR & Associates, who had challenged the tribunal’s jurisdiction to ban them for five years for their omissions and commissions in the IL&FS Group fraud.

The matter was then taken to the National Company Law Appellate Tribunal (NCLAT) which also refused to give any interim relief to Deloitte and BSR Associates.

The auditors had challenged the NCLT’s jurisdiction to ban them, pointing out that Section 140(5) of the Companies Actwas applicable only to auditors who are still auditing the company in question. They cited that they had already resigned from auditing services.

The NCLT argued that it had jurisdiction over the matter and a fresh plea was was heard on September 5. The reason to ban the auditors follows the Serious Fraud Investigation Office (SFIO) probe, which in its investigation found them guilty of not taking action despite being aware of the poor financial health of IL&FS.

The Division Bench of Justice Ranjit More and Justice NJ Jamadar from the Bombay HC directed the Serious Fraud Investigation Office (SFIO) not to take any coercive action against BSR.

Legal experts agreed with the decision. “The (interim) relief was given on the basis of principle of natural justice and non applicability of certain provisions due to technical reasons,” said Krrishan Singhania, Partner at Singhania and Company, a law firm.

The non applicability of provisions refers to the fact that the decision to punish the auditors cannot be taken by the NCLT.

The Ministry of Corporate Affairs had sought disqualification of five years for both Deloitte and BSR due to alleged violations of accounting standards while auditing IL&FS subsidiary IFIN. Deloitte was the only auditor of IFIN for a decade from 2007 to 2017 and from the 2017-18 financial year, BSR was appointed as a joint stautory auditor of IFIN.

In May 2019, IFIN sought the removal of BSR as its auditor. In June, BSR resigned and filed an application before the NCLT challenging the petition filed by MCA.

Senior Advocates Mukul Rohatgi and Navroz Seervai, who appeared on behalf of the auditors, argued that since BSR resigned in June, which was accepted by IFIN, the proceedings under Section 140 (5) are not applicable.

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Published on September 05, 2019
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