No coercive action against Deloitte in IL&FS case: Bombay HC

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Updated: October 18, 2019 6:43:26 AM

The high court’s earlier interim order was passed in response to a petition filed by BSR in August seeking to declare Section 140 (5) of the Companies Act unconstitutional, or ultra vires of the Constitution of India.

Deloitte, IL&FS case, IL&FS scam, Bombay HC, NCLT, National Company Law Tribunal, industry news, Serious Fraud Investigations Office, SFIO, Deloitte HaskinThe high court’s earlier interim order was passed in response to a petition filed by BSR in August seeking to declare Section 140 (5) of the Companies Act unconstitutional, or ultra vires of the Constitution of India.

The Bombay High Court on Thursday granted interim relief to Deloitte Haskin and Sells, which prevents the government from taking any “coercive action”, against the former auditor of the IL&FS group in the criminal complaint filed by the Serious Fraud Investigations Office (SFIO) earlier this year. In response to a plea filed by Deloitte in October, the HC extended a previous order passed by the court on September 4, which allowed the same relief to BSR & Associates. The HC will hear the matter again on November 14.

The high court’s earlier interim order was passed in response to a petition filed by BSR in August seeking to declare Section 140 (5) of the Companies Act unconstitutional, or ultra vires of the Constitution of India.

BSR also sought a stay on all proceedings against the audit firm until the petition was disposed off. Section 140 of the Company’s Act deals with the removal and resignation of auditors and sub-section 5 states that if the National Company Law Tribunal (NCLT) is satisfied that any auditor has “directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud”, it may ban such firms from conducting auditing activities for a period of five years.

BSR had filed its petition in the Bombay HC to challenge the government’s move to ban the former auditors of the IL&FS group. Earlier this year, the government moved NCLT seeking a ban on Deloitte Haskin and Sells and BSR for five years under Section 140 (5) of the Companies Act. The petition was based on investigations of the SFIO into the IL&FS group’s financial irregularities, which alleged that Deloitte and BSR knowingly withheld crucial information which directly led to losses for creditors and investors.

The SFIO, based on its finding, had in May filed a criminal complaint in the City Sessions Court of Mumbai. SFIO’s complaint accused the two audit firms of colluding with officials of the company to conceal facts and of “fraudulently falsifying the books of accounts and thereby financial statements from FY14 to FY18”.

Earlier this month, Deloitte had moved the HC seeking immunity against coercive action by the government in the criminal case against the former management of IL&FS and its ex-auditors. The government had earlier challenged the interim relief given to BSR in the Supreme Court, but the country’s apex court had upheld the HC’s order. The financial irregularities of IL&FS came into scrutiny after the group defaulted on short-term and long-term debt obligations to the tune of nearly `1 lakh crore.

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