The National Company Law Appellate Tribunal (NCLAT) has ruled against Deloitte Haskins and Sells and its two associates, dismissing their plea challenging the admissibility of a key investigation report submitted by the Serious Fraud Investigation Office (SFIO). The report pertains to the financial irregularities at Infrastructure Leasing & Financial Services (IL&FS), a major non-banking financial institution that defaulted on several loans, leading to a nationwide financial crisis.
Deloitte and its associates had argued that the SFIO’s second interim report should not be considered as legal evidence. However, the NCLAT upheld the Mumbai bench of the National Company Law Tribunal’s (NCLT) earlier ruling, affirming that the report was fully admissible under the law.
Key Findings and Tribunal’s Stand
The SFIO’s second report played a significant role in the proceedings against IL&FS and its auditors. The Ministry of Corporate Affairs (MCA) had submitted a compilation of documents, including the SFIO findings, urging legal action against Deloitte and other entities linked to the financial scandal.
On July 22, 2024, the NCLAT ruled that the SFIO report and accompanying documents could be considered both for interim relief and final judgments. The tribunal stated that rejecting the report at this stage was not justified as the evidence needed to be examined on its merits.
Legal Implications of Section 212 (14A)
The tribunal’s decision was based on Section 212 (14A) of the Companies Act, 2013, which allows the government to take legal action if a company has engaged in fraudulent activities. According to this law, the government can seek the disgorgement of assets or cash acquired through fraud and hold directors, auditors, or other key personnel personally accountable.
Deloitte’s Response
Deloitte Haskins and Sells LLP responded to the NCLAT’s ruling, stating that the decision was procedural and not a verdict on the merits of the case. The firm maintained that its audits were conducted per professional standards and legal regulations. Deloitte is currently evaluating its legal options to challenge the ruling.
Background of the IL&FS Crisis
The IL&FS crisis emerged in 2018 when the company and its subsidiaries defaulted on multiple loans, leading to a financial crisis in the Indian markets. The government intervened by removing IL&FS’s existing board and appointing a new one to restructure its massive debt, which stood at approximately Rs 94,000 crore. SFIO was tasked with investigating the financial misconduct, leading to the filing of multiple reports, including the second interim report that Deloitte challenged.
What’s Next?
With NCLAT dismissing Deloitte’s plea, the SFIO report remains a critical piece of evidence in the ongoing legal proceedings. The case will now proceed in the NCLT, where the role of Deloitte and other auditors will be examined further.
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