IL&FS Case Deloitte : Bombay HC quashes prosecution of erstwhile auditors of IL&FS | India Business News – Times of India

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MUMBAI: In a major relief to auditors BSR Associates and Delotte Haskins and Sells, Bombay high court on Tuesday quashed the prosecution of the erstwhile auditors of crisis-ridden IL&FS for being ‘bad in law.’
The HC upheld the constitutional validity of Section 140(5) of the Companies Act under which the Corporate Affairs Ministry (MCA) had sought a ban on the auditors for five years. It however, said that the provisions would not apply to auditors who have resigned.
The HC, however, continued its interim relief to the auditors against any “coercive action” as it stayed its order for eight weeks on a request made by the Serious Fraud Investigation Office (SFIO) to enable the agency to go in appeal before the Supreme Court.
The National Company Law Tribunal had said that it had jurisdiction to hear a plea made by the MCA for a five-year ban on the IL&FS former auditors— BSR Associates, N Sampath Ganesh, Deloitte Haskins and Sells LLP, Kalpesh Mehta and Udayan Sen— under the Companies Act. The ministry acted after the SFIO investigated into affairs of IL&FS group and submitted its report.
A bench headed by chief justice B P Dharmadhikari ( who heard the matter when he was not yet the chief justice) had reserved the matter for judgment after a lengthy hearing. The bench pronounced the judgment on Tuesday.
BSR had challenged the constitutional validity of Section 140(5) of the Companies Act being invoked by MCA. In June, MCA had petitioned NCLT in Mumbai to seek a ban on Deloitte and BSR for five years under this section.
The section allows NCLT to suo motu (on its own) or on an application made by the central government, if satisfied that the auditor of a company has
Directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers directed the company to change its auditors. The auditors against whom a final order is passed by the tribunal shall not be eligible to be appointed as auditors of any company for five years and action under Section 447, the section also stipulates.
Section 447 provides for jail term of minimum six months or maximum 10 years’ if the auditor is found guilty of fraud involving at least Rs 10 lakh or one percent of the company turnover, whichever is lower.
BSR had resigned as auditors of IL&FS as soon as proceedings had begun against the infrastructure leasing company.
The HC had earlier stayed proceedings before the NCLT and directed that ‘no coercive action shall be taken’ against the auditors in criminal complaint filed by the SFIO in Mumbai.
The HC had also allowed the former auditors of IL&FS to amend their petitions, challenging the October 18 NCLT order, appointing Mukund M Chitale & Co as the new statutory auditors.

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