IL&FS: Bombay HC grants interim relief to Deloitte Haskins and Sells from coercive action in criminal proceedings

After BSR & Associates (a KPMG arm), the Bombay High Court on Thursday granted interim relief to IL&FS former auditor Deloitte Haskins and Sells from coercive action in the criminal complaint filed by Serious Fraud Investigation Office (SFIO) before the trial court..The order prevents the SFIO of the Ministry of Corporate Affairs (MCA) from taking coercive action against the former auditor and its partners in the criminal proceedings until further orders. The SFIO had filed a complaint on May 30, this year..A Division Bench of Justices Ranjit More and N J Jamadar granted an interim relief until November 14, when the matter will be heard next..A Bench led by Justice More passed the order in response to the plea filed by Deloitte, accused of connivance in the IL&FS crisis on October 3, challenging the constitutional validity of Section 140 (5) of the Companies Act, 2013 and MCA plea at NCLT seeking a ban on auditors for five years..On Thursday, Senior Counsel Amit Desai, appearing for Deloitte sought relief from proceedings against the auditing firm before the trial court to be held on Friday. However, advocate Hiten Venegaonkar, counsel for SFIO opposed the request and claimed that ‘no coercive action’ should not mean that cognizance should not be taken by the trial court in the proceedings..Moreover, on Thursday, the Division Bench also extended the relief granted in its previous order of September 4 to BSR & Associates until further orders..Senior Counsel Navroz Seervai, along with advocate Sujay Kantawala, appeared for the petitioner Sampath Ganesh, who is a Partner at BSR &Associates..Granting interim relief to BSR, the High Court, on September 4 had also stayed proceedings before NCLT under Section 140 (5) of Companies Act. The relief continues until further orders..The High Court is hearing pleas by BSR and Deloitte as the Supreme Court on September 26 had disposed of an SLP filed by MCA challenging the September 4 order of the Bombay High Court. The Apex Court had directed the High Court to expeditiously dispose of the writ plea of BSR & Associates..During the earlier hearing, Senior Counsel Amit Desai, appearing for Deloitte had submitted that while his plea is on admitted facts similar to that of BSR & Associates matter, it is on the different question of law and requested the Court that he be heard at length..In this regard, the Court noted that it will hear Deloitte’s plea along with on-going BSR matter and directed the Additional Solicitor General (ASG) Anil Singh to argue on the constitutional validity of the provision of the Companies Act invoked by MCA on the next date of hearing..However, on Thursday, Special Counsel Aspi Chinoy, appearing for MCA placed on record an e-mail communication received from the Law Secretary. It was submitted by the Central Government that since Chinoy has already been appointed to represent it, no separate representation on behalf of the Attorney General (AG) of India is required. In view of this, the Court dispensed with the notice issued to the AG of India..Senior Counsel Darius Khambata for BSR had argued that the May 29 order of SFIO was on the basis of incomplete investigation and subsequent order of NCLT to ban auditors for five years under Section 140(5) of the Companies Act is ultra vires since it prescribes a change of auditors or removal..BSR further submitted that while criminal prosecution can be conducted under section 447 of the Companies Act, banning auditor firms for five years without any trial is arbitrary..To this, Special Counsel Aspi Chinoy had submitted that the government took prompt action, as it was a financial crisis caused by the misdemeanor of the directors and the auditors..Chinoy had further argued that the criminal pleas of Deloitte and BSR be dismissed since NCLT proceedings under Section 140(5) of the Companies Act would not come under the criminal writ jurisdiction of the High Court. The National Company Law Appellate Tribunal (NCLAT) is an appropriate platform to deal with this plea, Chinoy had said..While an interim relief will continue till further orders, the Court has posted the matter for continued hearing on November 14..The financial transactions of the IL&FS group came under the scrutiny of the SFIO last year after the group defaulted on debt worth Rs. 91,000 crore..The SFIO probe had revealed that auditors colluded with IL&FS Financial Services Ltd (IFIN) executives and concealed information about the wrongdoings of the management despite having full knowledge of the affairs at IL&FS..Following the SFIO findings, the MCA, under Section 140(5) of Companies Act, 2013, had moved an application seeking the removal of the auditors, and a five-year ban for allegedly conniving with the management of IFIN..Veritas Legal is advising Deloitte while AZB & Partners is advising BSR..[Read Orders dated October 17, 2019]