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The high court, which was pronouncing the order through video conferencing, said that National Company Law Tribunal (NCLT), part of MCA, cannot ban the audit firms for five years. NCLT had earlier ruled that it has jurisdiction to “remove and ban” the auditors even if they have rotated out or resigned.
The court has given eight weeks’ time to the Ministry to challenge the ruling in the Supreme Court.
The high court upheld the constitutionality of section 140(5) but said that it will not apply to auditors who have resigned. Legal experts say that this could also imply that it could not be applied to firms that have rotated out. The court also squashed the prosecution or the criminal complaint by the Serious Fraud Investigation Office (SFIO) filed before the Special Court and termed it “bad in law” and said it there was “non application of mind.”
Deloitte & Haskins and Sell LLP had moved the court to challenge the constitutional validity of Section 140 (5) of the Companies Act as well as the central government’s plea at the NCLT that sought five year’s ban on former auditors of IFIN.
While BSR, part of KPMG India, had challenged the constitutionality of the section since when the government moved to the NCLT under Section 140 (5) to remove auditors, it had already resigned from the company and it had argued that how the government can remove a person who has already left the position.
Law firm Veritas Legal was representing Deloitte in the case, while BSR was being represented by AZB & Partners.
The audit firms had earlier argued that NCLT can only ban existing auditors and lacks the jurisdiction to ban them as they are no longer auditors of IFIN. The government has sought ban on BSR and Deloitte for their alleged role in concealing bad loans at IL&FS and its group firms including IFIN.
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