The National Company Law Appellate Tribunal (NCLAT) rejected the appeals filed by various Appellants including partners, employees, Directors of 'Deloitte Haskins & Sells LLP' and the KPMG arm of BSR & Associates, where they had contended that they were not related to the case involving the alleged fraud in of IL&FS Financial Services Limited' (IFIN), a subsidiary of Infrastructure Leasing and Financial Services Limited (IL&FS) and thus were not proper and necessary parties.
Justices S.J. Mukhopadhaya and Justice Bansi Lal Bhat relied on the judgment of the honourable Supreme Court in Aliji Momonji & Co. v. Lalji Mavji & Ors.─ (1996) 5 SCC 379 where it was held "….where the presence of the respondent is necessary for complete and effectual adjudication of the dispute, though no relief is sought, he is a proper party. Necessary party is one without whose presence no effective and complete adjudication of the dispute could be made and no relief granted."
As per Section 143 of the Companies Act, 2013, an auditor is duty bound to report to the Central Government if it finds reason to believe that an offence of fraud involving accounts is being or has been committed in the company by its officers or employees.
Earlier the Ministry of Corporate Affairs had filed a company petition under Sections 241-242 of the Companies Act, 2013 against IL&FS and its Group Companies at NCLT Mumbai Bench for, inter alia, impleadment of Appellant(s) which was allowed by an order dated 18th July, 2019. NCLT had further directed that accounts of IL&FS, IFIN and ITNL for the past 5 years, be re-opened and recast, observing that the affairs of these companies had indeed been mismanaged, casting a doubt on the reliability of their financial statements.
Deloitte contended that it had ceased to be the auditor of IFIN at the end of the Annual General Meeting held for F.Y. 2017-18 on account of operation of law on expiry of its term under Section 139 of the Companies Act, 2013 and was not the statutory auditor of the company on the date of filing of the said Company Petition.
BSR was the Joint Statutory Auditor for the F.Y. 2017-2018 along with Deloitte and was never the Statutory Auditor of IL&FS. Deloitte on the other hand had been the sole auditor of IFIN for nine years prior to that i.e. for the period F.Y. 2007-2008 to 2016-2017. BSR further contended that they were never in-charge of nor responsible for the management and operations of IFIN and had issued only one Joint Audit Report for F.Y. 2017-18, along with Deloitte. Furthermore, it was submitted that there was no material against the Appellants for any fraudulent activity.
Rejecting their contentions NCLAT held that …"The various acts prejudicial to public interest have been highlighted which has cascading impact on various sectors of economy. The Department of Economic Affairs which is responsible for the financial stability of economy and in the Country too has raised Red Signals of the likely collapse of 'IL&FS' and has expressed its deep concern on the impact of Indian Economy in its Confidential Note dated30th September, 2018.
90. …..in public interest and to save the economy of the Country from collapse, if the Tribunal is of the opinion that it requires to give appropriate hearing to the concerned parties, including those who audited IL&FS and/ or those who have managed or were concerned with IL&FS or its Group Companies, it cannot be held to be illegal."
NCLAT further underscored that the honourable Supreme court in Union of India, Ministry of Corporate Affairs v. Gitanjali Gems Ltd. & Ors. etc.─ Company Appeal (AT) No. 103 of 2018 in unequivocal terms held that the provisions of Sections 130, 212 and 241/242 operate conjointly so as to give full effect to the provisions of the Companies Act, 2013.
NCLAT is empowered to pass orders under Section 242 of the Companies Act, 2013 in a petition under Section 241(2) if it forms opinion that the affairs of the company have been conducted in a manner prejudicial to the public interest. Once such opinion is formed by the Tribunal, it may pass any order as it deem fit and proper.
The Appellate tribunal however granted relief to the Appellants by allowing the interim order to continue for a period of 2 weeks of had stayed operation of the NCLT order.
Mr. Kapil Sibal and Mr. Abhinav Vashith, Sr. Advocates for Deloitte
Mr. Karan Khanna, Mr. George Varghese, Ms. Ritu Anand, Advocates for UOI
Mr. Mukul Rahtogi, Sr. Advocate for BSR
Deloitte Haskins & Sells LLP v. Union of India─ Company Appeal (AT) No. 190 of