New Delhi: The legal battle arising from the IL&FS crisis, one of India’s most significant corporate scandals, has entered a crucial new phase. Three leading audit firms—Deloitte Haskins & Sells, BSR & Associates, and SRBC & Co.—have approached the National Company Law Appellate Tribunal (NCLAT), challenging an order that allowed proceedings against them in connection with alleged fraud at Infrastructure Leasing & Financial Services (IL&FS).
The Core Legal Dispute Over Section 339
At the center of the dispute is Section 339 of the Companies Act, 2013, which empowers tribunals to hold individuals personally liable if a company’s business has been carried on with the intent to defraud creditors or other stakeholders. The provision enables action not only against directors and managers but also against persons who may have knowingly participated in such activities.
In March 2026, the Mumbai bench of the National Company Law Tribunal (NCLT) ruled that auditors could not automatically be excluded from proceedings related to alleged corporate fraud. The tribunal observed that auditors are not merely external observers and may be examined if questions arise regarding their role in relation to a company’s financial reporting and governance practices.
Audit Firms Defend Their Boundaries
The three audit firms have now challenged that ruling before NCLAT. Their principal argument is that Section 339 was designed to apply to promoters, directors, and individuals involved in running a company’s affairs, rather than independent auditors whose role is limited to examining and certifying financial statements.
During a recent hearing, NCLAT granted interim relief to the audit firms, directing that no coercive action be taken against them until the appellate tribunal delivers its verdict. The matter has been scheduled for further hearing on June 15. The interim protection is being viewed as a significant development because the outcome could have far-reaching implications for the auditing profession in India.
Legal experts note that Section 339 is an extraordinary provision that is invoked only in exceptional circumstances. It effectively allows courts and tribunals to “pierce the corporate veil,” a legal doctrine under which individuals behind a company can be held directly responsible for wrongdoing instead of allowing liability to remain confined to the corporate entity itself. If this principle is extended to audit firms, it could substantially expand their exposure in corporate fraud cases.
The audit firms contend that auditors are governed by a separate legal framework under Section 141 of the Companies Act, which lays down rules relating to auditor appointments, qualifications, disqualifications, and professional responsibilities. According to their position, accountability for auditors should be determined within that framework rather than through Section 339, which they argue was never intended to cover independent audit professionals.
Echoes of the 2018 IL&FS Collapse
The dispute has renewed attention on the IL&FS collapse, which came to light in 2018 when the infrastructure financing giant defaulted on obligations linked to approximately ₹91,000 crore of debt. Subsequent investigations revealed allegations of financial irregularities, manipulation of accounts, and efforts to present a healthier financial picture than the company’s actual condition. The episode triggered widespread concerns about corporate governance standards and the effectiveness of audit oversight mechanisms.
The fallout from the crisis also played a major role in strengthening India’s financial reporting oversight structure. Regulatory scrutiny of auditors increased significantly in the years that followed, with greater emphasis on accountability, transparency, and early detection of financial misconduct.
A Landmark Precedent for Corporate Governance
Corporate law specialists believe the eventual ruling in this case could become a landmark precedent. If NCLAT upholds the NCLT’s interpretation, audit firms may face broader legal exposure in future corporate fraud investigations. Conversely, if the appellate tribunal grants relief to the auditors, it could reinforce the distinction between the responsibilities of company management and those of independent auditors.
