Supreme Court Declines Bombay HC's Stay on IL&FS Audit Issue Involving Deloitte & KPMG

In a big relief for audit firms BSR and Associates, and Deloitte Haskins and Sells, both former auditors of IL&FS Financial Services, the Supreme Court refused to stay the Bombay High Court order which quashed all prosecution against the firms in the IL&FS scam.

A bench headed by Chief Justice S.A. Bobde and comprising Justices M.R. Shah and A.S. Bopanna said: "We want to penalize the government for filing its petition late."

The bench also questioned the Ministry of Corporate Affairs (MCA) about the delay in filing the appeal. It, however, said that the MCA can continue with its probe in the matter.

In April, the High Court quashed all prosecution, pending before the National Company Law Tribunal and a special court in the city, against the two firms over the allegations of financial irregularities. BSR, which is part of KPMG India, and Deloitte, moved the High Court last year challenging the plea by the Centre before the tribunal seeking their removal as auditors of IL&FS. And, under section 140 (5) of the Companies Act, this kind of removal would also lead to a five year ban on the audit firms.

The NCLT, in August last year, found merit in the Centre's plea, and approved the proposal for removal of both audit firms. Challenging this decision, the firms moved the High Court and submitted before the court that they had already resigned as auditors of IL&FS, and this had happened long before the Centre's decision seeking their removal. The firms have challenged the constitutional validity of section 140 (5) of the Act.

The MCA had moved the court seeking this kind of removal and also initiated criminal proceedings against the audit firms for their alleged role in financial irregularities in the IL&FS Group. The SFIO had allegedly claimed the BSR and audit firms had acted in breach of auditing standards, and they had failed to detect financial inconsistencies at IL&FS.