IL&FS probe: NCLT allows govt to prosecute auditors Deloitte, BSR; C Sivasankaran and 2 independent directors

Mumbai: The NCLT has given a go-ahead to the government to prosecute Deloitte and BSR Associates for their failure to detect and report the scams that took place across the now-bankrupt IL&FS group and 21 other entities when they were the auditors of IL&FS Financial Services.

The NCLT in an order posted on its website on Thursday said the corporate affairs ministry can go ahead with the prosecution based on the findings of the probe conducted by the Serious Fraud Investigation Office (SFIO). But the posting does not mention its views on the government demand to ban these two auditors for five years from business, though.

The tribunal also allowed the government plea to implead Udayan Sen and Kalpesh Mehta, partners at Deloitte, and BSR Associates partner Sampath Ganesh. Both these auditing companies noo longer work with the group of the company, though.

The tribunal allowed prosecution of C Sivasankaran and his group as the probe has revealed that management of IFIN abused their position by giving loans to the Siva group as some group companies failed to repay the earlier loans granted to them by IFIN. The investigation also revealed Sivasankaran had a personal relationship with Ravi Parthasarthy and Hari Sankaran, the former chairman and the former vice-chairman of IL&FS Group.

 IL&FS probe: NCLT allows govt to prosecute auditors Deloitte, BSR; C Sivasankaran and 2 independent directors

Representative image. Reuters

Further, the tribunal also asked the corporate affairs ministry to implead Surinder Singh Kohli and Subhalakshmi Panse who were independent directors of IFIN and were part of the audit committee but asked the government not to prosecute them as the SFIO probe did not name them. "Therefore, their prosecution is not justified at this stage but both Kohil and Panse, can be impleaded as they were independent directors and were thus part of the audit committee," the tribunal said.

According to the SFIO complaint, it was alleged that the auditors were aware that IFIN was lending to defaulting borrowers through group companies hence suppressing its non-performing assets and not provide for the bad debt. Moreover, the SFIO report said, auditors failed to verify the end-use of bank loans and money raised via NCDs despite it being a regulatory mandate for verifying such things.

The SFIO report has found that the audit committee members colluded with the management and overlooked many impairment indicators in contravention of the accounting standards and principles of prudence.

In the case of Panse and Kohli, the investigations revealed they were aware of the NPAs of the company and also knew that loans were being granted to group companies of existing defaulting borrowers in order to prevent them being classified as NPA.

Updated Date: Jul 25, 2019 15:20:28 IST