Ex-IL&FS auditors again question NLCT jurisdiction to ban them

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Published: July 19, 2019 10:14:54 PM

Representing Deloitte, Janak Dwarakadas argued that Section 140(5) of the Companies Act does not apply if the auditors are no longer with a company.

IL&FS, IL&FS auditors, NLCT jurisdiction, Deloitte Haskins & Sells, Companies Act, KPMG, latest news on IL&FSDeloitte Haskins & Sells and BSR Associates, which is an affiliate of KPMG, are no longer the auditors of the crippled IL&FS group, with the former resigning in FY18 and the latter as recently as last month.

The harried auditors of IL&FS group, Deloitte and BSR Associates, Friday reiterated their contention that the National Company Law Tribunal (NCLT) has no jurisdiction to ban them saying existing law says only those auditors on board can be penalised. Deloitte Haskins & Sells and BSR Associates, which is an affiliate of KPMG, are no longer the auditors of the crippled IL&FS group, with the former resigning in FY18 and the latter as recently 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 argued that Section 140(5) of the Companies Act does not apply if the auditors are no longer with a company. The said section deals with resignation of auditors. “Section 140(5) is only applicable to existing auditors,” he said and pointed out that Deloitte had retired due to rotational laws in FY18.

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Questioning the powers of the tribunal, he further said the corporate affairs ministry is asking NCLT to stretch the rules. “Section 140(5) has a limited purpose to remove or change an auditor, (and not punish them)”, he said adding SFIO findings against Deloitte are subject to legal challenges.

Echoing similar views, BSR counsel Darius Khambata also said the Companies Act says an auditor can be punished only under Sections 132 and 447, while Section 140(5) allows the government to only remove an auditor. “Section 140(5) seeks removal and no punishment of an auditor”, he said and stressed that only if an auditor is prosecuted under section 447, and then tried under 141(3)(h), it can lead to his automatic disqualification for 10 years.

He went on to argue that no court has any jurisdiction to amend a law, which can only be done through legislation. 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. The tribunal will continue hearing on July 22.

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