Bombay HC Dismissions the BSR Associates Arm, Quashes All Proceedings against Auditors Complaint Seeking Ban on Deloitte and KPMG - Synopsis
Dilpreet Singh 22 Apr 2020

In a major relief to Deloitte and KPMG's BSR Associates, the High Court of Bombay dismissed a plea filed by the Ministry of Corporate Affairs (MCA) requesting a five-year ban on the two auditors for alleged violation of accounting standards while working for the debt-ridden IL&FS Financial Services (IFIN). 

Chief Justice BP Dharmadhikari and Justice NR Borkar quashed and set aside proceedings brought against the auditors by the Serious Fraud Investigation Office under the guidance of MCA. The Court noted that the directions given to the SFIO by MCA pursuant to Section 212(14) of the Companies Act, 2013, dated 29 May 2019, are unsustainable.

Previously, on 5 September 2019, the High Court granted a temporary stay to MCA's proceedings before NCLT seeking a five-year ban on auditors. 

The Court referred to the decision of the Supreme Court in KK Mishra vs. Madhya Pradesh State, in order to investigate the claim that MCA had failed to apply its mind in issuing orders to prosecute the auditors.

The bench observed, referring to the aforementioned interim report-

"Admittedly, the report does not project itself as an interim report under S. 212(11) and the Central Government has not supplied to petitioners the communication with reference to which it was filed by SFIO. It is difficult to presume that office of SFIO would on its own, file any report of incomplete investigation. Alleged processing note prepared by somebody to facilitate its consideration are also not given to the petitioners despite demand. Petitioners therefore have rightly argued & asked this Court to draw adverse inference against the respondent no. 1. 

It is humanly impossible to read & appreciate such a large report of the SFIO, apply mind & give the appropriate directions within 30 hours. UOI claims that two officers independently & separately read all these papers running into about 756 + 32,000 pages and applied mind to it within 30 hours. Assistance of a processing note prepared for that purpose was also taken. In absence of such processing note & the responsible affidavit of the concerned competent person/s, it is difficult to accept this submission".

Accordingly, Court set aside the course of MCA to SFIO and the consequent lawsuit lodged by SFIO as unsustainable. MCA's petition to the NCLT requesting a ban on auditors was considered to be untenable. 


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