Setback for Deloitte, BSR Associates as NCLT reiterates jurisdiction to ban auditors

The Mumbai bench of the National Company Law Tribunal (NCLT) has reiterated its jurisdiction to decide on imposing a ban on audit firms Deloitte and BSR Associates.

The first order pertains to a plea challenging NCLT's jurisdiction to impose a five-year ban under section 140 of Companies Act on Deloitte and BSR as auditors of IFIN, a financial arm of the IL&FS group.

The second order gives MCA the clearance to appoint auditors for recasting the audit books of ILFS, IFIN and ITNL.

The NCLT will now hear the government's plea to bar IFIN auditors on September 5.

The order is a huge setback for Deloitte and BSR Associates, a part of the KPMG group. Deloitte spokesperson said, “We note the NCLT’s ruling, which is unfortunate. We will review the order and decide on a course of action shortly. DHS LLP remains committed to high standards of audit quality and ethical conduct in its professional practice. The firm has faith in the regulatory and judicial processes and will continue to cooperate fully with the authorities.”

After the first charge sheet on May 28, filed by the Serious Fraud Investigation Office against the IL&FS auditors, MCA moved the NCLT to ban them for five years.

After a lengthy argument by MCA Legal Director Sanjay Shourie and Western Regional Director, Manmohan Juneja, the court agreed to hear the matter. However, the auditors' lawyers - Darious Khambhata for BSR Associates and Janak Dwarakadas for Deloitte - challenged the jurisdiction of NCLT to pass an order to ban the auditors.

This was, however, rejected on August 9 by the Mumbai bench of NCLT.

MCA argued that auditors had not acted on time and had deliberately overlooked wrongdoings in IL&FS.

Sources told Moneycontrol that “both auditors will move to National Company Law Appellate Tribunal (NCLAT) against this order”.

As per the second order, MCA can now recast and reopen the account books of IL&FS, ITNL and IFIN.

Hari Sankaran, the former Vice Chairman of IL&FS, had challenged this order in Supreme Court, but his application was rejected by a vacation bench of the Apex court.

MCA can appoint only Comptroller and Auditor General emplaned auditor. So it has appointed MM Chitale & Co for IL&FS and IFIN, CNK Associates LLP for IL&FS Transporation Network Limited, Borkar and Mazumdar & Co for IL&FS and IFIN and GM Kapadia & Co for ITNL.