The National Company Law Tribunal (NCLT) has allowed the Ministry of Corporate Affairs (MCA) to prosecute the auditors of IL&FS Financial Services (IFIN) — Deloitte Haskins and BSR Associates — based on the investigation report filed by the Serious Fraud Investigation Office (SFIO).
Other individuals allowed by the tribunal to be prosecuted include partners of audit firm Deloitte Udayan Sen, Kalpesh Mehta, and Sampath Ganesh, partner in BSR Associates. Surinder Singh Kohli and Subhalakshmi Panse, independent directors on the board of directors of IFIN, are also on the list. They were part of the audit committee of IFIN.
The tribunal in its order has observed that in the investigation by SFIO, no role of independent director has been specified. Therefore, prosecution of independent directors in the case is not justified, at this stage. But Kohli and Panse have been impleaded as they were part of the audit committee.
The SFIO, in its complaint, had alleged that the auditors were aware that IFIN was lending to defaulting borrowers through group companies so that it could suppress its non-performing assets and not provide for the bad debt.
Moreover, the SFIO report said that the auditors failed to verify the end-use of bank finances and money raised through non-convertible debentures (NCDs), despite it being a regulatory mandate for verifying such things.
The SFIO complaint goes on to say that the auditors falsified books of accounts and financial statements of the company from FY14 to FY18 and did not report the negative net owned fund, as well as its negative capital to risk (weighted) assets ratio, resulting in loss to those who had invested in the company’s NCDs.
The audit committee members colluded with the management and overlooked many impairment indicators in contravention of the accounting standards and principles of prudence, the SFIO said in its complaint.
In the case of Panse and Kohli, the investigation revealed they were aware of the stressed asset portfolio of the company. They knew loans were being granted to group companies of existing defaulting borrowers.