MCA Moves Petition to Bar IFIN Auditors for Five Years

MCA Moves Petition to Bar IFIN Auditors for Five Years

The Ministry of Corporate Affairs (MCA) on 10th June (Monday) filed a petition with the National Company Law Tribunal (NCLT), Mumbai to bar Deloitte Haskin & Sells and BSR and Co for a period of five years for lapses in the audit of IL&FS Financial Services Ltd (IFIN).

The application filed by the MCA is against Deloitte, BSR and individuals including former Deloitter Chief Executive Udayan Sen, Deloitte partner Kalpesh Mehta and BSR partner Sampath Ganesh. The MCA’s move to ban the IFIN auditors comes after the deep investigation by the Serious Fraud Investigation Office (SFIO), which revealed that the auditors connived with IFIN’s former directors in concealing information about the malpractice of the management despite having full knowledge of the circumstances. The proposed ban, if accepted, would prevent the two companies from auditing any listed or unlisted company, including banks and nonbanking financial companies (NBFCs), for five years. IL&FS Financial Services is one of the 348 subsidiaries of the IL&FS group, which owes more than Rs 95,000 crore to lenders.

The tribunal has asked the auditors to file their reply by June 19 and the case has been listed for hearing on June 21. The MCA has also sought to appoint a new statutory auditor for the company. The advocate representing Deloitte told the tribunal that it was no longer the statutory auditor for IFIN. Deloitte was the auditor for IFIN till 2017-18 and BSR is currently the statutory auditor for the company. The MCA will also file a caveat (right to be heard) in the Bombay High Court and NCLAT in case auditors move these forums against the MCA and seek any relief, said the MCA lawyer.

The MCA has filed the petition against the audit firms and individual auditors for prosecution under section 140(5) of the Companies Act for negligence and lapses in audit of IFIN, which can lead to a bar from auditing companies for a period of five years.

“An auditor against whom a final order has been passed by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a period of five years from the date of passing of the order and the auditor shall also be liable for action under section 447,” reads the Companies Act.

Section 447 pertains to criminal charge of fraud and this can lead to imprisonment and a penalty of nearly 10 times the size of fraud if upheld by the special court which rules charges filed by the fraud office. A spokesperson for Deloitte said that they will continue to stand by their audit and find the action unfortunate.

“This proposed action by the MCA is unfortunate. DHS LLP is confident that it has not failed or been negligent in its duties. The firm stands by its audit work, which has been performed in accordance with professional standards in India, as well as applicable laws and regulations,” says the Deloitte spokesperson. “DHS LLP has faith in the judicial processes and looks forward to presenting its position, which will be supported by facts, to the courts and other relevant authorities,” he adds.

A spokesperson for BSR and Co said that they are aware of the MCA petition and are studying it. “BSR’s audit of IFIN was performed in accordance with the applicable auditing standards and legal framework. We will defend our position in accordance with the law, and are confident that the judicial process will confirm BSR’s position. BSR is committed to audit quality and the highest ethical standards and does not shirk from that responsibility. Since the matter is sub judice, we will not comment further on this,” he adds.

With these auditors likely staring at a bar of five years, 276 of NSE listed companies will need to look for new auditors. Among the two of them KPMG affiliates audit 150 NSE listed companies, Deloitte audits 126 NSE companies, as per data compiled by NSE infobase, which is a part of Prime Database, primary market tracker. The Big Four auditors have recently been on the receiving end of regulatory action due lapses in their audit practices.

Read More News:

AMD Shakes Up Gaming World with Next-Gen Processor

NASA's Twin Satellites to Study Signal Disruption

Source: IANS