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NCLAT questions calls for second probe into former IL&FS auditors

The two-member Bench also observed that there would be confusion if the inspector rank personnel-led probe led to a different conclusion than the SFIO.

Written by Aashish Aryan | New Delhi | Updated: December 6, 2019 4:24:49 am
IL&FS, IL&FS debt, IL&FS auditors, IL&FS revenue, IL&FS bankruptcy The government wants to implead the auditors in the case to fix the liability for conduct of fraudulent business at IL&FS, and charge them under Section 339 of Companies Act, the counsel told NCLAT on Thursday.

The National Company Law Appellate Tribunal (NCLAT) on Thursday questioned the government’s call for a second parallel probe into the role of former auditors of beleaguered Infrastructure Leasing and Financial Services (IL&FS), while one by the Serious Fraud Investigation Office (SFIO) was already on and had not been concluded.

Hearing a plea moved by auditors Deloitte Haskins & Sells LLP and B S R Associates LLP, a two-member Bench led by Chairperson Justice SJ Mukhopadhaya observed that only if the National Company Law Tribunal (NCLT) came to a definite conclusion that there was a fraud, it could recommend initiation of inspector rank-led probe into the auditors’ role in IL&FS.

The two-member Bench also observed that there would be confusion if the inspector rank personnel-led probe led to a different conclusion than the SFIO.

The auditors had approached NCLAT following an order of the NCLT Mumbai Bench, which had allowed the Centre to implead the auditors as respondents in an ongoing case of oppression and mismanagement at IL&FS.

In July this year, the Mumbai Bench of NCLT had allowed the central government to implead the auditors as accused to probe their alleged role in the downfall of IL&FS.

The auditors have, however, maintained that all the audits at IL&FS and its subsidiaries had been done in accordance with the government set standards and thus there was no negligence of their part.

The government wants to implead the auditors in the case to fix the liability for conduct of fraudulent business at IL&FS, and charge them under Section 339 of Companies Act, the counsel told NCLAT on Thursday.

This section of the Companies Act states that if during the course of winding up of the company, the adjudicating authority establishes that “any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose,” it can fix liability on directors, managers or any other officers of the company.

The government had in June initiated an SFIO probe into the role of Deloitte Haskins & Sells LLP and B S R Associates LLP, and their key auditors for their alleged role in approving the account books of IL&FS and its subsidiaries without the necessary due diligence.

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