Even as
Deloitte Haskins and Sells remains perched precariously on the high wire over its questionable role in the IL&FS
audit process, it appears that the
Ministry of Corporate Affairs may invoke section 140 (5) of the
Companies Act
to debar the firm for alleged malpractice in IL&FS accounts. This
extreme action is being warranted after Deloitte's alleged misdemeanours
and conduct in the IL&FS case.
This Section essentially looks at the following:(5) Without prejudice to
any action under the
provisions of this Act or any other law for the
time being in force, the Tribunal either suo motu or on an application
made to it by the
Central Government or by any person concerned, if it is satisfied that the
auditor of
a company has, whether directly or indirectly, acted in a fraudulent
manner or abetted or colluded in any fraud by, or in relation to, the
company or its directors or officers, it may, by order, direct the
company to change its auditors.
If this were to happen, it will be the second such instance after
Price Waterhouse was nailed in the Satyam scam.
In January, 2018, nine years after the
Satyam scandal stunned corporate India, SEBI banned
Price Waterhouse (PW) from providing
audit services to listed
companies and
market intermediaries for two years in the Satyam fraud. Two PW
partners were banned for three years. The regulator also imposed a
disgorgement of Rs 130.9 million on Price Waterhouse, and two of its
chartered accountants - S
Gopalakrishnan and
Srinivas Talluri.
The three entities also have to pay 12 per cent interest on the
disgorgement amount since January 7, 2009, in 45 days from the date of
the order. Further, it said that no listed company or intermediary
registered with SEBI to be engaged with any
audit firm associated with the
PW network for
issuing any certificate with respect to compliance of statutory
obligations which SEBI is competent to administer and enforce, under
various laws for a period of two years. These entities were charged
under SEBI prohibition of Fraudulent and Unfair Trade Practices (FUTP)
regulation.
When contacted,
Deloitte spokesperson told IANS: "The investigations on the company
IFIN are
in progress and we are cooperating fully. We reaffirm that we have
conducted our audits in accordance with the Standards on Auditing and
applicable laws and regulations."
According to sources, the Group's defaults began in May 2018. The three principal arms of
IL&FS Group - IL&FS,
ITNL and
IFIN -- according to sources within
Deloitte saw
SRBC &CO (E&Y) audit two of the firms in both 2017-18 and 2018-19, namely IL&FS and
ITNL. IFIN meanwhile was audited by BSR (KPMG) in 2018-19 DHS (Deloitte) and BSR (KPMG).
In 2016-17 DHS audited IL&FS,
ITNL along with
SRBC &Co (E&Y) and IFIN on its own. Of course, till 2015-16 for many years DHS audited all three Group entities.
Trying to maintain distance from the opaque architecture of the 347
subsidiaries - majority of them overseas -- Deloitte has clarified that
they were audited by various smaller firms, most of them being non Big
Four. It has also emerged that during the many years that Deloitte was
auditing the Group, secured loans were sufficiently collaterised which
in turn was independentl;y valued by reputable parties such as
Knight Frank or realty and
N M Raiji.
The value of the assets and loans was corroborated by the fact that in 2015-16,
Piramal Group had proposed to acquire a stake in IL&FS at Rs 750 a share after commissioning a detailed due diligence exercise by
KPMG. LIC had at the time bunged in a monkey wrench, saying that the value was too low citing fair value at Rs 1100.
Similarly, Deloitte has claimed that they did not audit the financial
statements of 111 subsidiaries, 36 jointly controlled entities, 11
associates in 2016-17, or the financial information of 13 subsidiaries,
two jointly controlled entities or six associates. This is where the
real jiggery pokery exists.