Govt. may ban Deloitte for 5 years by Ministry of Corporate affairs over allegations of fraud in IL&FS accounts.
The government might ban Deloitte Haskins and Sells over its alleged role in the mess at Infrastructure Leasing and Financial Services (IL&FS). The Ministry of Corporate Affairs might invoke the Companies Act to debar the global auditing firm over charges of fraudulent actions and misconduct in the IL&FS case, reports suggest.
The ministry is considering imposing a ban on Deloitte under the provision of Section 140 (5) of the Companies Act, news agency IANS reported. The section allows the National Company Law Tribunal (NCLT) to take action against auditors involved in fraudulent activities.
Section 140 (5) of the Companies Act states: “Without prejudice to any action under the provisions of this Act or any other law for the time being in force, the Tribunal either suo motu or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors.”
“The investigations on the company IFIN are in progress and we are cooperating fully. We reaffirm that we have conducted our audits in accordance with the Standards on Auditing and applicable laws and regulations,” a Deloitte spokesperson told IANS.
In its defence, Deloitte maintained that IL&FS Group’s defaults began in May 2018. During this period, the three principal arms of the group – IL&FS, IL&FS Transportation Networks Limited (ITNL) and IL&FS Financial Services Limited (IFIN) – were audited by Ernst & Young and KPMG.
Deloitte did not audit 347 subsidiaries of the IL&FS Group, most of which are overseas, the report said. These companies were audited by various smaller firms, most of them being non-Big Four. Also during the many years that Deloitte was auditing the Group, it was seen that the secured loans were sufficiently collateralised which in turn was independently valued by reputable parties such as Knight Frank or NM Raiji, the report added.
If the government does decide to ban Deloitte, it will be second Big Four company to face such punishment after PricewaterhouseCoopers (PwC). In January 2018, the Securities and Exchange Board of India had debarred PwC from providing audit services to listed companies and intermediaries for two years.
The market regulator had also ordered the disgorgement of over Rs 13 crore of wrongful gains from PwC and its two erstwhile partners who worked on Satyam’s accounts.