NCLT allows reopening of IL&FS’s past accounts
NCLT has also allowed recast of accounts of IL&FS subsidiaries—IL&FS Transportation Network Ltd and IL&FS Financial Services—for the past five years
Mumbai: The Mumbai bench of the National Company Law Tribunal (NCLT) on Tuesday allowed the government to reopen and recast the accounts of Infrastructure Leasing and Financial Services Ltd (IL&FS) and its subsidiaries, IL&FS Transportation Network Ltd and IL&FS Financial Services, for the past five years.
The NCLT, however, struck down allegations made by the ministry of corporate affairs (MCA) against statutory auditors Deloitte Haskins and Sells, SRBC and Co. Llp, an affiliate of global audit firm EY, and BSR and Associates Llp, an affiliate of KPMG, about fraudulent mismanagement of accounts.
MCA had alleged that auditors had fraudulently mismanaged IL&FS and two other group companies for the past five years.
“We don’t prepare any accounts as it is made out in the petition of the MCA. We are mere auditors and we have audited accounts that were prepared by the company,” argued Mustafa Doctor, a senior counsel appearing for Deloitte. “The ministry is alleging a fraud on the basis of primary reports prepared by the Institute of Chartered Accountants of India (ICAI), which has no mention or a whisper of fraud.”
Venkatesh Dhond, a senior counsel appearing for SRBC and Co. Llp, argued that when someone alleges fraud, they have to make out a case about the points on the basis of which they are making the allegation. “A fraud means active participation in the affairs, which is a very serious charge. We are a globally reputed company and such charges without any base will have implications,” Dhond argued.
The institute’s probe is at a nascent stage and cannot be the basis of recasting the financial accounts, said the counsel.
During the arguments, Sanjay Shorey, director of legal prosecution at the MCA, said the ministry wants to reopen accounts going back five years, beginning FY13.
“The bases of seeking to reopen and recast (the accounts) is not only ICAI’s primary report, but we are also relying upon the findings of the Serious Fraud Investigation Offices (SFIO), especially funds that were gone in Employees Welfare Trust (EWT),” argued Shorey.
The ministry also informed the NCLT that it had sent a notice to the Securities and Exchange Board of India, the Reserve Bank of India, the income tax department, and other authorities and individuals before seeking permission to reopen the accounts of IL&FS and its affiliates, and all departments have said that they have no objection to that.
Earlier in December, when the MCA had moved the NCLT to reopen the accounts of IL&FS, the division bench presided over by V.P. Singh and Ravikumar Duraiswami had directed it to inform all the departments and people concerned, including Sebi, the income tax department and RBI, as their positions needed to be heard.
IL&FS accumulated a debt of more than ₹91,000 crore and defaulted on some of its commitments. At present, the newly-appointed board is trying to sell the assets of the group and use the money to reduce debt and revive the company.
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