Govt to file special leave petition in SC against Bombay HC order on IL&FS auditor

Published: September 6, 2019 4:15:39 AM

Last month, BSR had filed a writ petition in the Bombay High Court seeking that the court declare Section 140 (5) of the Companies Act unconstitutional.

IL&FS crisis, IL&FS crisis insights, IL&FS crisis explained, IL&FS crisis news, IL&FS crisis timelineThe Serious Fraud Investigation Office (SFIO) had in May filed a criminal complaint against 30 parties in the IL&FS case, including the former auditors of IL&FS Financial Services.

By Anwesha Ganguly

The government is expected to file an appeal in the Supreme Court against the recent stay order of the Bombay High Court on the proceedings against BSR & Associates, former auditor of the IL&FS group. “The government will file a special leave petition (SLP) in the SC under the Article 132 of the Constitution, likely in the coming week,” a person aware of the developments said.

According to Article 132, “An appeal shall lie to the Supreme Court from any judgment, decree or final order of a high court in the territory of India, whether in a civil, criminal or other proceeding, if the high court certifies under Article 134A that the case involves a substantial question of law as to the interpretation of this Constitution.”

The Bombay HC on Wednesday ordered an interim stay on the ongoing proceedings against BSR & Associates in the National Company Law Tribunal (NCLT) and Mumbai City Sessions Court for the audit firm’s alleged role in the downfall of IL&FS.

Following the order, the NCLT on Thursday adjourned sine die the proceedings against the former auditors of IL&FS. The legal counsel for the Ministry of Corporate Affairs, Sanjay Shorey, told the tribunal that the government is exploring legal remedies as regards the high court order.

The high court order came in response to a petition filed by BSR & Associates in August. “No coercive action shall be taken qua the petitioners in criminal complaint filed before the special court,” the order stated. It further stated that “the respondents and/or their agents and/or their servants are restrained from continuing any further proceedings qua the petitioners under Section 140(5) of the [Companies] Act.”

The Serious Fraud Investigation Office (SFIO) had in May filed a criminal complaint against 30 parties in the IL&FS case, including the former auditors of IL&FS Financial Services. In its complaint, the SFIO accused Deloitte Haskin & Sells and BSR & Associates of colluding with officials of the company to conceal facts and “fraudulently falsifying the books of accounts and thereby financial statements from FY2013-14 to 2017-18.”

The audit firms knowingly withheld crucial information which directly led to losses for creditors and investors, the charge sheet said.

Based on the SFIO’s findings, the Ministry of Corporate Affairs had in June filed a petition in the NCLT seeking a ban on the two firms from carrying out audit activities for five years. The petition was filed under Section 140, sub-section 5 of the Companies Act.

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 a period of five years.

Last month, BSR had filed a writ petition in the Bombay High Court seeking that the court declare Section 140 (5) of the Companies Act unconstitutional.

The legal representatives of the Deloitte and BSR had earlier challenged the NCLT’s jurisdiction to ban them. The petition was subsequently quashed by the tribunal. Deloitte then moved the appellate tribunal against the order. The appellate tribunal last month ordered a stay on the NCLT passing any orders in the matter till the case is resolved in the NCLAT.

On Wednesday, senior counsel Mukul Rohatgi, appearing for BSR, argued before the high court that the government’s actions against the auditors were unwarranted and in violation of Article 21 of the Indian Constitution, which states that “no person shall be deprived of his life or personal liberty except according to a procedure established by law.”

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