IL&FS case: NCLAT dismisses Deloitte, KPMG petitions

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Published: March 5, 2020 4:40 AM

As per Section 143 of the Companies Act, 2013, an auditor is duty-bound to report to the central government if it finds reason to belive that an offence of fraud involving accounts, is being or has been committed in the company by its officers or employees.

The two were impleaded by the National Company Law tribunal (NCLT) in July 2019 following the Centre’s plea. The two were impleaded by the National Company Law tribunal (NCLT) in July 2019 following the Centre’s plea.

The National Company Law Appellate Tribunal (NCLAT) on Wednesday dismissed the pleas of IL&FS auditors — Deloitte Haskins & Sells and KPMG arm BSR & Associates — challenging their impleadment in the case of an alleged fraud at a subsidiary, IL&FS Financial Services (IFIN).

The two were impleaded by the National Company Law tribunal (NCLT) in July 2019 following the Centre’s plea. The NCLAT stayed the order within a week.

Deloitte Haskins & Sells LLP and its partners challenged the maintainability of the petition, but the NCLT rejected the application in August 2019.

“In the circumstances, before passing any appropriate order in public interest and to save the economy of the country from collapse, if the tribunal is of the opinion that it requires to give appropriate hearing to the concerned parties, including those who audited IL&FS and/or those who have managed or were concerned with IL&FS or its group companies, it cannot be held to be illegal. We find no merit in these appeals,” the two-member NCLAT bench, headed by its chairperson justice SJ Mukhopadhaya, said.

However, NCLAT’s July 2019 stay order will continue for two weeks.

Deloitte Haskins & Sells LLP was an auditor of debt-hit IL&FS Financial Services until 2017-2018 when they rotated out as the auditors of IL&FS on account of operation of law and argued that it wrongly impleaded as a party respondent in the matter. BSR said it was the joint statutory auditor of IFIN for the 2017-2018 along with Deloitte Haskins & Sells LLP and never been a statutory auditor. BSR also said the company was wrongly impleaded.

IFIN, the key subsidiary of the IL&FS engaged in financial services, has been in default since September 12, 2018. This has led to the resignation of the managing director & CEO and four independent directors of IFIN on September 21, 2018. IFIN used to contribute around 14.16% to the assets of the IL&FS Group.

As per Section 143 of the Companies Act, 2013, an auditor is duty-bound to report to the central government if it finds reason to belive that an offence of fraud involving accounts, is being or has been committed in the company by its officers or employees.

IL&FS had an admitted debt, across group companies, of around Rs 91,000 crore as on March 31, 2018. The consolidated debt of the company increased to Rs 91,091.3 crore in 2018 from Rs 48,671.3 crore in 2014. Of its total debt obligations, Rs 57,000 crore was borrowed from the state-run banks.

The Centre, however, is of the veiw that the act of fraud in IL&FS was perpetuated due to misrepresentation and falsehoods about the financial state of affairs of the concerned company, which has jeopardised the financial health apart from causing serious damage and financial loss to various stakeholders. The department of economic affairs red-flagged the impending collapse of Il&FS in an internal note dated on September 30, 2018.

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