NCLAT dismisses Deloitte, BSR & Associates appeal against impleadment in alleged fraud case concerning IL&FS subsidiary

The National Company Law Appellate Tribunal today dismissed appeals by IL&FS auditors, Deloitte Haskins and KPMG arm- BSR & Associates, against an order impleading them as parties in the ongoing fraud case concerning IL&FS subsidiary, ILFN. (Deloitte Haskins vs UOI).Stating that the case involved the alleged commission of acts which were prejudicial to public interest and various sectors of economy, the NCLAT opined,."In the circumstances, before passing any appropriate order 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.The Judgment was pronounced by a two-member Bench comprising Chairperson, Justice SJ Mukhopadhyay and Member (Judicial) Justice Bansi Lal. .In appeal before the NCLAT against the impleadment order passed by the National Company Law Tribunal, Mumbai, Delloite and BSR (Appellants) argued that it was neither a necessary nor a proper party for adjudication of the oppression & mismanagement proceedings initiated against the IL&FS subsidiary. .It was added that the NCLT had no jurisdiction to pass orders against an auditor under Section 241 or Section 242 of the Companies Act, 2013 since an auditor was not involved in the management of the affairs of a company. .In view of the specific and special alternate remedies available against auditors under Sections 132, 447of the Companies Act, 2013 or by the Institute of Chartered Accountants established under the Chartered Accountants Act, 1949, the Appellants argued that there was no question of invoking the jurisdiction under Sections 241 and 242 of the Companies Act, 2013 to seek any remedy or relief against them..The Central Government, on the other hand, argued that the "act of fraud", which was the subject matter before the NCLT, was perpetuated on account of mis-representation and falsehoods about the financial state of affairs of the company. .Therefore, members of the Board of Directors, Promoters as well as Auditors etc. who were privy to the inner working of the businesses could not evade responsibility for the fraudulent activities, misfeasance, persistent negligence and continuous defaults in carrying out their duties, it was submitted. .After considering the submisisons put forth by the parties, the NCLAT, at the outset, clarified that it was expressing any opinion on the allegations made in the case against parties as it required further investigation..The NCLAT stated, "The only question arises in these appeals is as to whether this Appellate Tribunal should interfere with the impugned order dated 9th August, 2019 whereby the Appellants have been impleaded as party Respondents.".In response to the issue, the NCLAT concluded that in cases involving the alleged commisison of fraud, Sections 130, 212 and 241/242 of the Companies Act operated conjointly so as to give full effect to the provisions of the statute. .The NCLAT observed that keeping in mind the rules of natural justice, when any order is passed against one or other, including investigation, it is always open to the Tribunal to ask such party to be impleaded..The Tribunal is empowered to pass order 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.NCLAT.The NCLAT opined that if the NCLT, before passing any appropriate order in public interest and to save the economy of the country from collapse, is of the opinion that an appropriate hearing is to be awarded to any party, granting such opportunity by impleading it in the proceedings could not be be held to be illegal..The appeals were accordingly dismissed for being devoid of any merits..Appeals by Delloite and BSR Directors challenging the NCLT order were also dismissed. .The NCLAT today also ordered that the interim order passed which had stayed the operation of the NCLT order shall continue to be in operation for another two weeks..Deloitte was represented by Senior Advocates Kapil Sibal, Abhinav Vashith..UOI was represented by Advocates Karan Khanna, George Varghese, Ritu Anand..Senior Advocate Mukul Rahtogi represented by BSR & Associates. .Read the Judgment: