Deloitte Office, Rotterdam

New Delhi, April 28: 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.”

Deloitte on its part contends that 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 collateralised which in turn was independently 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.

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