The High Court will examine the matter on Friday along with a batch of petitions by the auditors who have challenged the constitutional validity of NFRA’s power to investigate professional misconduct of auditors.
In 2020, NFRA had imposed a seven-year ban and a penalty of ₹25 lakh on Udayan Sen, former chief of Deloitte Haskins and Sells LLP that conducted the statutory audit of IFIN for 2017-18. It had also banned auditors Rukshad Daruvala and Shrenik Baid of Deloitte Haskins for five years and imposed penalty of ₹15 lakh each on them.
The regulator had cited various instances of professional misconduct, gross negligence and non-adherence to auditing standards, following an investigation into the role of the auditors in the 2018 IL&FS crisis.
Subsequently, the auditors had approached the Delhi High Court and challenged the vires of Section 132 (4) of the Companies Act, 2013, and the relevant rules that empower NFRA to investigate professional lapses by auditors.
The High Court had subsequently stayed NFRA’s orders against the auditors until the disposal of the issue.
In its latest applications, NFRA has suggested that during the pendency of the current proceedings, the petitioners (auditors) should not be allowed to carry out any audit work “as it would be hazardous to public interest”.”It is akin to permitting a person who is not fit to drive to continue to drive merely because he has challenged the vires of the Motor Vehicles Act or permitting a surgeon who is not fit to carry out surgery to conduct surgeries because he has challenged certain rules governing his profession. The ultimate sufferer is public interest,” NFRA has contended.
The regulator said IL&FS group, of which IFIN was a major part, operated over 300 subsidiaries and defaulted on debts of over Rs 90,000 crore. A probe by the Serious Fraud Investigation Office (SFIO) had revealed major lapses in audit and the Enforcement Directorate (ED) has taken action against IL&FS management for suspected money laundering. The ED also conducted searches on audit firms BSR and Associates and Deloitte Haskins and Sells, both former auditors of IL&FS Financial Services, over alleged financial irregularities.
“In the IL&FS case, provident and pension funds had an exposure of close to ₹20,000 crore. Both these funds include life savings of people, who trusted their investments to provide them some returns as a measure of social security,” NFRA said. “Therefore, there are huge stakes and public money is involved which ought to be safeguarded. Such companies constitute what are called ‘public interest entities (PIEs)’,” it said.
The audit regulator has argued that this is a fit case for the High Court to invoke the larger public interest, vacate its earlier directions and allow NFRA to implement its regulatory orders against the auditors.
