The enforcement directorate (ED) conducted raids at the premises of KPMG arm BSR & Associates and Deloitte Haskins & Sells LLP in connection with a money-laundering probe into the alleged financial irregularities at Infrastructure Leasing & Financial Services Ltd (IL&FS). According to reports, the raids are conducted under the Prevention of Money Laundering Act (PMLA).
IL&FS filed for bankruptcy in 2018 with an aggregate debt burden of over Rs91,000 crore. According to a
report from Economic Times, "The senior management at IL&FS allegedly caused illegal personal gains at the expense of the company by falsifying accounts and boosting the balance sheet."
The ED had started the money-laundering probe into the alleged financial irregularities at IL&FS in 2019 after taking cognisance of an FIR (first information report) filed by the economic offences wing (EOW) of Delhi police against IL&FS group companies IRL and ITNL (IL&FS Transportation Networks Ltd) and their officials, among others, says a
report from Free Press Journal.
According to
Business Today, this is the first time in the IL&FS probe that the auditors are being searched by the ED.
Last week, the Supreme Court (SC) set aside an order passed by the Bombay High Court (HC) that quashed a probe by the serious fraud investigation office (SFIO) against the two auditor firms, paving the way for action against them under the companies act. The apex court allowed the national company law tribunal (NCLT) to take forward its inquiry against IL&FS. (
Read: Auditors Cannot Escape Probe Even if They Resign: SC)
The apex court stressed that auditors play a vital role in the affairs of a company and have to act in the larger public interest, adding that an auditor acting in a fraudulent manner, directly or indirectly, is very serious misconduct.
However, the bench says automatic disqualification of auditors and the entire firm, including partners, for five years to become an auditor of any other company is highly disproportionate and it is ultimately for the legislature and Parliament to provide the debarment.
The SC also noted that on the principle of joint and severe liability, the auditors and the entire firm, including partners, shall be liable and, therefore, can be subjected to Section 140(5) and the consequences mentioned in Section 140(5) of the Companies Act.
Earlier on 30 May 2019, the SFIO filed a criminal complaint before the Sessions Court in Mumbai against, amongst others, Deloitte and BSR & Associates that performed the audit for IL&FS, IL&FS Financial Services Ltd (IFIN) and IL&FS Transportation Networks Ltd (ITNL).
Interestingly, in December 2019, the national financial reporting authority (NFRA) had said Deloitte Haskins and Sells did not comply with the standards of auditing in the crisis-ridden IFIN.
In its audit quality review (AQR), NFRA said that the quality control systems and processes of Deloitte were found to be 'severely inadequate and ineffective'.
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