NCLAT refuses to stay NCLT hearing in IL&FS fraud case

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Updated: August 28, 2019 12:59:09 PM

The National Company Law Appellate Tribunal (NCLAT) on Tuesday said the NCLT Mumbai will hear an application against auditing firm Deloitte in the IL&FS Group scam case but the tribunal will not pass any order in the matter till its next hearing.

The NCLAT, however, said that the NCLT will not pass any final order till its next hearing on September 20.NCLT will hear the application by the corporate affairs ministry under the application under Section 140(5).

The National Company Law Appellate Tribunal (NCLAT) on Tuesday said the NCLT Mumbai will hear an application against auditing firm Deloitte in the IL&FS Group scam case but the tribunal will not pass any order in the matter till its next hearing. A three-member bench of the NCLAT headed by Chairperson Justice S J Mukhopadhaya said that the National Company Law Tribunal (NCLT) will hear the application by the corporate affairs ministry under the application under Section 140(5). The tribunal, however, would not pass any order till its next hearing on September 20, the NCLAT said. The NCLAT order came on an appeal moved by Deloitte against the NCLT order on August 9 rejecting the auditor’s plea which challenged the tribunal’s jurisdiction to ban it for five years for omissions and commissions in the IL&FS Group scam.

The NCLT is scheduled to hear on September 5 the corporate affairs ministry’s application seeking a five-year ban on the auditor afresh on September 5. The appellate tribunal ruled that it would hear the plea filed by the accounting firm and also issued notice to the Ministry of Corporate Affairs, directing it to file its reply within two weeks. During the proceedings of NCLAT, senior advocate Kapil Sibal, appearing for Deloitte, submitted that such prohibition cannot apply as it was no longer an auditor of IL&FS. “This can not apply on us (Deloitte) as we are no longer auditor of the company,” said Sibal.

NCLT had allowed the corporate affairs ministry to prosecute them along with 21 others in the same case, though the implementation of the same has been stayed after they sought time to challenge the order at the appellate tribunal NCLAT. The ministry in June moved NCLT seeking a five-year ban on these auditors in the IL&FS fraud case.

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 another big four, the US-based KPMG — had challenged the jurisdiction of the NCLT to ban them under Sec 140(5) of Company’s Act. They had challenged the jurisdiction of the NCLT to ban them, saying section 140(5) of the Companies Act pertains to auditors who are still auditing the company in question while they have already resigned from the service and thus cannot be banned under the given provisions.

While Deloitte had stopped auditing IL&FS Group, which owes over Rs 95,000 crore to lenders and other financial institutions, by the end of FY2017-18, BSR was the statutory auditor of IL&FS Financial Services (IFIN) and resigned only in June this year-nine months after the company was sent to the bankruptcy court. 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, triggering the ministry to seek ban on the auditors.

  • PTI CORRECT: This story, first published on 20 August 2019, was updated to change headline and body, and drop the name of BSR Associates LLP

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