The central government has moved to the National Company Law Tribunal seeking a 5-year ban on auditors Deloitte Haskins & Sells and BSR & Co for alleged irregularities in hiding bad debts of the cash strapped Infrastructure Leasing & Financial Services Limited (IL&FS). Financial daily, the Economic Times reported that the centre sought a five-year ban under Section 140 of the Companies Act. Notably, this is the first time the government has invoked this act to debar an auditor. The two firms won't be allowed to audit any listed or unlisted company, including banks and non-banking financial companies (NBFCs), for five years if the proposed punishment is accepted by the NCTL.
The NCTL has, in turn, has directed the government to share the 800-page chargesheet filed by the Serious Fraud Investigation Office to the audit firms. The development comes after the lawyers and the executives accused in the case argued that they have not been served with the documents which also includes chargesheet. The firms moreover have also asked for time to prepare to respond to the ministry of corporate affairs' (MCA) allegations. The government lawyers submitted that they had shared the electronic version of the chargesheet to BSR & Co but Deloitte is yet to receive the same. The firm has 10 days to prepare a case to defend itself as the NCTL set the next hearing date on June 21st.
The SFIO in its chargesheet alleged that "The loans were transferred by mere book entry and resulted in the closure of old loans. The new loans didn't require provisioning or recognition as NPA (non-performing asset). Hence the assignment of the same was prejudicial to the interest of the company. The auditors having the knowledge of the same had not reported the same in the audit report."
It further added that the firms fraudulently helped the IL&FS hid information of various loans, inflated profits and showed that everything is running well. "Investigations revealed that the auditors, along with their engagement teams of IFIN did not perform their duties diligently. The auditors, despite having the knowledge of the funding of the defaulting borrowers for principal and interest payments, failed to report in the auditors' report for FY 2013-14 to FY 2017-18," the agency alleged.
