- NCLAT had set July 12 as deadline for the IL&FS group to reach an agreement with creditors of 13 companies to begin releasing payments.
- these companies have a total outstanding debt of Rs 16,372 crore.
- The central government on Monday took the unprecedented step of seeking a ban on auditors Deloitte Haskins & Sells and BSR & Co for their alleged role in helping hide bad loans at the bankrupt IL&FS Financial Services.
- The government sought a five-year ban under Section 140 of the Companies Act, the first time it has invoked this provision to debar an auditor.
- The proposed ban, if accepted, would prevent the two firms from auditing any listed or unlisted company, including banks and non-banking financial companies (NBFCs), for five years.
- The government has also made the Reserve Bank of India (RBI), Sebi and the Institute of Chartered Accountants of India (ICAI) as respondents in the case.
- THE ALLEGATIONS :Government representatives told the NCLT that it was the auditor’s duty to ensure that the loans and advances of an NBFC are properly secured.
They alleged that in IFIN’s case, the divergence between the net worth of the borrower and the amount borrowed was huge. For instance, one company which had borrowed Rs 385 crore had a net worth of only Rs 85 crore, while another with a net worth of Rs 9 crore had managed to borrow Rs 223 crore.
The lawyers argued that the auditors were aware of funding of defaulting borrowers for principal and interest payments.
The loans were transferred by mere book entry and resulted in the closure of old loans. The new loans didn’t require provisioning or recognition as NPA (non-performing asset).
The Serious Fraud Investigation Office alleged that the auditors suppressed the information of various loans, inflated profits and presented a rosy picture.
The lawyers representing Deloitte, however, argued that the firm was no longer the auditor of IFIN and hence the Section 140 of the Companies Act does not apply to them.
IFIN was audited by KPMG affiliate BSR & Co in 2018-19 and jointly by BSR and Deloitte Haskins & Sells in 2017-18. Deloitte was the sole auditor of IFIN in 2015-16 and 2016-17.
The Economic Times
