Deloitte Haskins & Sells Moves Bombay HC Challenging Constitutional Validity Of Parts Of The Companies Act

Deloitte Haskins & Sells has moved the Bombay High Court challenging the constitutional validity of certain parts of Section 140(5) of the Companies Act, 2013.

The Companies Act, 2013, deals with the removal of auditors by the central government.

Additionally, Deloitte has also challenged the central government’s plea at the National Company Law Tribunal (NCLT) which seeks a five-year ban on former auditors of IL&FS Financial Services (IFIN).

The development comes after BSR & Associates, the joint auditor of IL&FS Financial Services Ltd for financial year 2017-18, moved the high court challenging the validity on similar grounds.

Incidentally, Deloitte Haskins and Sells stands accused of connivance in the IL&FS crisis.

Earlier, the Ministry of Corporate Affairs (MCA) had earlier sought a five-year ban on auditors alleging that they had colluded with the management in dubious lending practices at the IL&FS Group.

The central government had also moved the Supreme Court challenging the interim stay order granted by the Bombay High Court, which was to remain effective till further orders by the court. To this, the Supreme Court had directed the high court to decide the matter immediately.

Appearing for Deloitte, senior advocate Amit Desai told the Bombay High Court that the facts of the case are very much similar to the plea filed by KPMG’s associate firm BSR & Associates LLP.

It may be recalled that recently, the court had stayed proceedings against the audit firm in the Mumbai bench of the NCLT until further order, giving interim relief to BSR & Associates.

Arguing on behalf of BSR & Associates, senior counsel Darius J Khambata, stated that when the government moved NCLT under Section 140 (5) to remove auditors, his client had already resigned from the company and hence do not know how to remove a person who has already left the position.

He argued that under Section 140 (5), the NCLT has the power to remove the statutory auditor of a company either suo motu or after the central government files an application.

If the NCLT passes an order under the law, such a person or firm can’t be appointed as auditor for five years.

Khambata argued on behalf of BSR & Associates that Section 140 (5) is ultra vires the the premise that it only allows for summary proceedings which is left to the sole discretion of the NCLT.

He argued that the section is only meant for auditors and not for promoters, adding that under that law, the management, which could be fraudulent, has been given chance to be heard but not auditors.

A division bench of Justice Ranjit More and NJ Jamdar has adjourned the matter to October 16.