The Ministry of Corporate Affairs (MCA), on Tuesday, moved the National Company Law Tribunal (NCLT) Mumbai Bench for freezing assets of Deloitte Haskins & Sells and BSR & Associates, auditors of IL&FS Financial Services (IFIN), following their impleadment in NCLT proceedings in the IL&FS fraud case.
The Mumbai Bench of NCLT comprising Judges V P Singh and Rajesh Sharma heard the arguments of Advocate Sanjay Shorey, Director of Legal Prosecution of MCA. Advocate Shorey sought an ad-interim order from the NCLT to freeze assets of the auditors till the tribunal decides on the application of MCA to ban them for five years.
Seeking to restrain activities of the auditors by freezing their accounts, Shorey submitted that the tribunal can allow the auditors and other respondents to withdraw certain amount based on their requirement every month as it had done in case of former directors of IL&FS.
“The MCA does not have powers to stop operations of the auditors and we plead to NCLT that they should be allowed to withdraw money required only for operational expenses till the order on the application of their ban is passed,” Shorey argued.
The MCA, on June 8, had filed two applications before NCLT including the plea for impleadment of the auditors and for the freezing of their assets. On July 18, NCLT passed an order to implead auditors and other respondents.
However, the tribunal, on July 25, put a 10-day stay on its own impleadment order, allowing auditors time to file an appeal with the National Company Law Appellate Tribunal (NCLAT). The NCLAT will hear the appeal on August 19.
Judge VP Singh of Mumbai bench of NCLT on Tuesday said if its order to prosecute the auditors is upheld by the NCLAT, the matter related to the application of freezing assets will be taken up after that.
The NCLT adjourned the hearing on the matter of freezing the assets of the auditors to August 28.
The applications for impleadment and asset freeze of the auditors were filed by the MCA based on the findings of the Serious Fraud Investigation Office (SFIO) in the IL&FS fraud case.
SFIO probe had revealed that the auditors colluded with IFIN executives and concealed information about the wrongdoings of the management despite having full knowledge of the affairs at IL&FS.
Following the SFIO findings, the MCA, under Section 140 (5) of Companies Act, 2013, had moved an application seeking the removal of the auditors and banning them for five years for allegedly conniving with the management of IL&FS Financial Services (IFIN). The MCA had also sought an appointment of statutory auditor on June 10. Section 140(5) empowers NCLT to direct a company to remove or change an auditor acting in a fraudulent manner.
MCA argued that NCLT has a discretionary power to remove and ban Auditors as prime intent and emphasis of section 140 (5) of Companies Act, 2013 is to debar them.
The Mumbai bench of NCLT, on July 22, reserved its order on an application to ban auditors and it will be passed in due course.
The financial transactions of the IL&FS group came under the scrutiny of SFIO last year after the group defaulted debt worth Rs. 91,000 crore.
Read July 25 NCLT Order: Click Here