BSR in its petition urged the high court to declare the Section 140 (5) of the Companies Act, under which the government sought the ban on the auditor, unconstitutional
By Anwesha Ganguly
Findings of the Serious Fraud Investigation Office (SFIO) against IL&FS Financial Services (IFIN) provide enough evidence to prosecute the company’s former auditors, the Centre told the Bombay High Court on Friday. The government said this in a written reply to the writ petition filed in the high court by BSR & Associates, one of IFIN’s former auditors, in August.
Last month, BSR & Associates filed the writ against the government’s plea to ban the auditors of IL&FS for five years. The audit firm’s petition said the government’s cases are based on SFIO’s investigation into IL&FS which is ongoing and incomplete. It contended that the court cannot take action against BSR based on interim findings of the investigative agency.
The high court on September 4 ordered an interim stay on all ongoing proceedings against BSR. It will hear the matter on October 3.
“Our understanding is that the SFIO’s report on IFIN is complete and final. You cannot ask the government to wait for the report on all the over 300 group companies of IL&FS before taking action against involved parties. The government’s reply broadly says there is no further evidence required, and that a fraud of such a large scale should be dealt with urgently,” a person involved in the process said.
Following an SFIO investigation into the affairs of IFIN, the government had in May initiated criminal proceedings in the Bombay City Sessions Court against the former board of IL&FS and former auditors of IL&FS – Deloitte Haskin & Sells and BSR. The government had also moved the National Company Law Tribunal (NCLT) seeking to ban the firms from auditing practices for five years.
BSR in its petition urged the high court to declare the Section 140 (5) of the Companies Act, under which the government sought the ban on the auditor, unconstitutional. The Section 140 of the Company’s Act deals with the removal and resignation of auditors. The sub-section 5 states that the NCLT may direct a company to change its auditors if the auditor has “directly or indirectly acted in a fraudulent manner or abetted or colluded in any fraud”. The sub-section also allows the tribunal to ban such auditors for five years.
FE had on September 5 reported that the government plans to appeal against the HC’s interim stay order in the Supreme Court (SC). The SC on Thursday upheld the HC’s stay on proceedings against BSR. The SC observed that BSR’s petition “…had raised arguable points” and should be dealt with elaborately and promptly.
The SC’s order also allowed the government the liberty to appoint a new auditor. The government will file an application at the NCLT for the appointment of a new auditor in the coming two days, counsel Sanjay Shorey informed the tribunal