The Serious Fraud Investigation Office ( SFIO ) has submitted a petition to the Mumbai Bench of the National Company Law Tribunal ( NCLT ) against the former auditors of IL&FS Financial. According to insider information, SFIO has requested the freezing of assets belonging to Deloitte Haskins & Sells and BSR and Associates, an affiliate of the global consulting firm KPMG.
Sources indicate that SFIO filed its petition under section 140(5) of the Companies Act, which pertains to the removal of auditors. SFIO alleges that Deloitte and BSR neglected their duties as auditors. Deloitte served as the auditor for IL&FS Financial during the financial years 2015-16 and 2016-17, while both BSR and Deloitte were joint auditors for the financial year 2017-18. BSR acted as the sole auditor for the financial year 2018-19.
Previously, SFIO sought to freeze the auditors’ assets, but the matter was contested in the Bombay High Court, which ruled in favor of the auditors. The High Court held that once an auditor resigns or is no longer in that position, regardless of the reason, proceedings under section 140(5) cannot be initiated.
Subsequently, SFIO appealed the High Court’s decision in the Supreme Court, which ruled in favor of SFIO in May of last year. The Supreme Court expressed concern that such an interpretation might encourage auditors to resign after detecting fraud, allowing fraudulent activities to persist.
Auditors have since filed a review petition in the Supreme Court, scheduled for a hearing in the second week of March.
In response to an inquiry, KPMG stated, “This matter is sub judice, so we cannot comment on it.” Deloitte has not responded to the email seeking a response.
The IL&FS scam, amounting to Rs 91,000 crore, came to light in 2018 when the company and its subsidiaries began defaulting. The infrastructure financing giant had been providing long-term loans using short-term resources. The government later took control of IL&FS and revamped the board.
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