21 August 2019: Kapil Sibal, appearing for Deloitte, said the company would not be able to function if the government’s plea to ban them is allowed to be heard by the NCLT.
21 August 2019: The National Company Law Appellate Tribunal (NCLAT) on Tuesday declined to stay hearings at the Mumbai bench of the National Company Law Tribunal (NCLT) on a government plea to ban Deloitte Haskins & Sells for the firm’s alleged role in the IL&FS case. NCLT is scheduled to hear the ministry of corporate affairs’ (MCA) plea, seeking a five-year ban on the auditors on September 5. On August 9, NCLT had held that it has powers to order a ban on these audit firms, which was challenged by the latter at the NCLAT.
Declining the plea of the audit firm for interim relief, a three-judge bench headed by Justice SJ Mukhopadhyay said hearing would continue at NCLT but no orders will be passed against the auditors. NCLAT will continue to hear the case on September 20 while a notice has been issued on the auditors’ petitions.
Deloitte Haskins and KPMG affiliate BSR & Co had challenged Section 140 (5) of the Companies Act, 2013, under which the MCA has initiated the banning process. They argued that the proceedings were initiated after they had quit as the auditors of IL&FS and Section 140 (5) cannot be applied restrospectively.
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 FY17-18, BSR was the statutory auditor of IL&FS Financial Services (IFIN) and resigned only in June 2019, nine months after the company was sent to the bankruptcy court.
Kapil Sibal, appearing for Deloitte, said the company would not be able to function if the government’s plea to ban them is allowed to be heard by the NCLT.
“There’s nothing that I will be able to do. We (Deloitte) have 2,000 partners and 20,000 employees in the country. The hearing in NCLT could jeopardise my defence against the government’s decision,” Sibal told NCLAT.
Sanjay Shorey, director (prosecution), MCA, said the Serious Fraud Investigation Office (SFIO) has prepared a 50,000-page report on the affairs at IL&FS group. SFIO, in its investigation, found the auditors guilty of painting a rosy picture of IFIN despite being aware of the poor financial health of the company.
On July 18, NCLT had allowed the MCA’s plea to make Deloitte, BSR & Associates and their partner parties to the IL&FS case, a decision that was also challenged at the appellate tribunal and is scheduled to be heard on September 16. The financial affairs of the IL&FS group came under scrutiny last year after it defaulted on short-term and long-term debt obligations.
- First published in The Financial Express edition dated 21 August 2019. BSR Associates has clarified that it had not appealed in the NCLAT against the Mumbai bench’s order. The appeal was filed by Deloitte and its partners. The error is regretted.