The National Company Law Tribunal (NCLT) on Friday rejected an application filed by Deloitte and BSR challenging its jurisdiction to ban them for five years for their alleged lapses in the IL&FS case.
In June, the ministry of corporate affairs had moved the NCLT for a ban on Deloitte and BSR, who were earlier the auditors of IL&FS Group and IL&FS Financial Services (IFIN), respectively.
The tribunal on Friday said it would hear the ministry’s application afresh on September 5.
The auditors — the local arm of the England-based Deloitte Haskins & Sells, which is one of the big four accounting firms, and BSR & Associates, which is the local affiliate of US-based KPMG — had challenged the jurisdiction of
the NCLT to ban them under Section 140(5) of Company’s Act.
Section 140(5), they said, pertains to auditors who are still with the company in question; while they have already resigned from the service and thus cannot be banned under the given provisions.
Deloitte had stopped auditing IL&FS Group, by the end of 2017-18, while BSR was the statutory auditor of IFIN and resigned in June this year — nine months after the company was sent to the bankruptcy court.
BSR counsel Darius Khambata and Deloitte’s counsel Janak Dwarakadas had argued that before banning them, the tribunal has to pass a final order in the matter which establishes that fraud was indeed committed by the auditors.
The ministry move to ban them came after the Serious Fraud Investigation Office (SFIO) in its investigation found them guilty of painting a rosy picture of IFIN despite being aware of the poor financial health of the company.
The counsel of the auditors had said merely based on an investigation by the SFIO is not sufficient to ban them.
The SFIO, in its report, alleged that these auditors were aware that IFIN was lending to defaulting companies through group companies so that they could suppress their NPAs and not provide for the bad debt. Terming the ruling “unfortunate”, Deloitte in a statement said 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.
Reacting the development, BSR said it would challenge the NCLT order.
“Based on the advice of our legal advisors, we will be appealing against the NCLT order. We believe we are entitled to receive the benefits of the due process of law and will continue to defend our position in accordance with the law,” BSR said in a statement.
Meanwhile, the NCLT on Friday approved the appointment of the auditors to recast accounts of IL&FS and its subsidiaries.
The ministry had on Thursday proposed Borkar & Muzumdar & Co and MM Chitale & Co for IL&FS and IFIN respectively; and GM Kapadia & Co and CNK & Associates for IL&FS Transportation Networks.
