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Last Updated : Jul 22, 2019 09:24 PM IST | Source: Moneycontrol.com

IL&FS case: NCLT reserves order in 5-year ban sought on IFIN auditors Deloitte and BSR Associates

The MCA had sought to ban Deloitte and BSR Associates – former auditors of IFIN -- for five years for colluding with management and not raising red flags despite knowing the poor state of affairs at the company.

Tarun Sharma @talktotarun

The Mumbai bench of the National Company Law Tribunal (NCLT) has reserved its order in a case where the Ministry of Corporate Affairs (MCA) had sought to ban auditors of IL&FS Financial Services Limited (IFIN) -- Deloitte and BSR.

The MCA had sought to ban Deloitte and BSR Associates – former auditors of IFIN -- for five years for colluding with management and not raising red flags despite knowing the poor state of affairs at the company.

The auditors had moved the National Company Law Appellate Tribunal (NCLAT) on July 19 against the impleadment order passed by NCLT Mumbai.

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The MCA has already filed a caveat in this matter in NCLAT.

The auditors argued that the Section 140 (5), under which the government was seeking a ban applies to those auditors that are currently in charge of auditing the company and not the ones who have resigned or whose term has expired. BSR Associates resigned last month and Deloitte’s term had ended in 2018.

Sanjay Shourie, Director Prosecution MCA and Manmohan Juneja Wester Regional Director MCA, argued the matter for MCA, while Darius Khambatta and Janak Dwarkadas represented BSR Associates and Deloitte, respectively.

Khambatta and Dwarkadas argued that the section only empowers the tribunal to change an auditor if it finds the auditor has engaged in fraud. They added that the tribunal can ban them only when a final order is passed in the case and if the auditors are found guilty of fraud.

They further stated that the SFIO investigation report is an interim one and the special court had not taken cognizance of the report so far. The SFIO report had pointed out that the auditors had failed to verify the mismatch of assets and liabilities in the company.

The SFIO chargesheet goes on to state that the auditors falsified books of accounts and financial statements of the company from FY14 to FY18 and did not report the negative net owned fund, as well as its negative capital to risk (weighted) assets ratio, resulting in loss to those who had invested in the company’s NCDs.

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First Published on Jul 22, 2019 07:54 pm
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