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NCLAT Rejects Deloitte Haskins Sells Plea On Admissibility Of SFIO's IFIN Report

NCLAT Rejects Deloitte Haskins Sells Plea On Admissibility Of SFIO's IFIN Report
Upholds the decision of the National Company Law Tribunal
A two-member bench of the National Company Law Appellate Tribunal (NCLAT) has dismissed Deloitte Haskins and Sells' petitions against the Serious Fraud Investigation Office's (SFIO) second interim report on Infrastructure Leasing & Financial Services (IL&FS).
Deloitte and its two associates had challenged the admissibility of the report and asset-freezing proceedings. The petitions also contested the compilation submitted by the government (MCA) to the tribunal.
The appellate tribunal upheld the 22 July 2024 decision of the Mumbai bench of the National Company Law Tribunal (NCLT), allowing the report to be used for interim relief and final declaration.
The compilation included documents related to the Infrastructure Leasing and Financial Services (IFIN) investigation report and the amended request on the proceedings against them to freeze their assets.
The NCLAT held, "The second SFIO report and the compilation of documents filed by the Union of India before the NCLT was fully admissible. It can be looked into by the NCLT for proceeding under Section 212 (14A) and no error has been committed by the Adjudicating Authority (NCLT) in rejecting IA No 65 of 2024.”
Deloitte Haskins and Sells, and its two associates, who were the auditors, contended that the second interim report was not admissible as legal evidence and could not be relied on.
However, the appellate tribunal was unconvinced. It said that the objection for rejecting the documents and the report by the SFIO could not be accepted, as they were yet to be examined because applications were decided on merits.
In its 44-page order, the NCLAT stated, "The issue of what has been pleaded in the application or the petition and the material or evidence on the record have to be examined when applications are decided on merits. Thus, on the submission that there are no pleadings about compilation of documents, cannot be a reason to accept the prayers.”
Section 212 (14A) of the Companies Act, 2013 states that if a fraud happens in a company, and any director, key managerial personnel, officer, or any other person or entity takes undue advantage or benefit, the government may file an application after the SFIO report before the tribunal for appropriate orders on disgorgement of such asset, property or cash and also for holding that person liable.
Commenting on the development, Deloitte Haskins and Sells said, "The NCLAT's order is not a judgment on the merits of the allegations and is of a technical nature. The firm is evaluating the remedies available to it in accordance with law".
It added, "The firm maintains that its audits have been performed in accordance with applicable laws, regulations and professional standards in India. As always, the firm remains committed to high standards of audit quality and ethical conduct in its professional practice."
After the IL&FS crisis, SFIO was directed by the Ministry of Corporate Affairs (MCA) to investigate the company’s and its subsidiaries’ affairs.
The first interim report of the SFIO was submitted on 30 November 2018. On 28 May 2019, it submitted the second report to the Central government on the investigation into IFIN.
Based on the second report, on 29 May 2019, the ministry acted under the Companies Act by filing a criminal complaint before the Session Court, Special Judge.
It also pleaded to restrain persons involved from alienating their properties by mortgaging, creating a charge or lien, creating third-party rights and/or selling moveable and immovable properties.
On 18 July 2019, Deloitte Haskins and Sells was impleaded, along with its partners.
They challenged it before the NCLAT, which rejected it.
Later, they approached the Supreme Court. However, the appeal was withdrawn on 28 February 2024.
Thereafter, the government moved an amendment application. Meanwhile, the ministry prepared a convenience compilation of the annexure/documents underlying the IFIN investigation report, which was objected to by Deloitte and its associates.
They challenged it before the NCLT by filing an interim application, which was rejected on 22 July 2024, and subsequently challenged before the NCLAT.
In 2018, IL&FS faced a mega-crisis after its entities defaulted on several loans, which shook the finance industry.
On 1 October 2018, the tribunal superseded the existing board of the IL&FS on the Centre’s recommendation.
A new board, having a debt burden of Rs.94,000 crore, was appointed to take charge of the affairs and the appellate tribunal conceived a framework for the resolution of the crisis-hit group.