NCLAT Dismisses Deloitte Haskins’ Plea on SFIO’s Report in IFIN Case

As the IL&FS saga unfolds, this case serves as a reminder of the critical role of financial accountability, corporate governance, and regulatory oversight in India’s financial sector.

NEW DELHI (India CSR): The National Company Law Appellate Tribunal (NCLAT) has dismissed a petition filed by Deloitte Haskins and Sells LLP and its two associates, challenging the admissibility of the second interim investigation report submitted by the Serious Fraud Investigation Office (SFIO) in the Infrastructure Leasing and Financial Services (IFIN) case.

The plea also contested the compilation of documents submitted by the Ministry of Corporate Affairs (MCA), which included findings from the IFIN probe and supported the proceedings against the auditors for freezing their assets.

NCLAT Upholds NCLT’s Order on SFIO’s Report

A two-member bench of NCLAT upheld the earlier ruling of the Mumbai Bench of the National Company Law Tribunal (NCLT), which had deemed the SFIO’s second interim report admissible for both interim relief and final decisions.

“We are of the view that the second SFIO report and the compilation of documents filed by the Union of India before the NCLT are fully admissible. The NCLT has not committed any error in rejecting IA No. 65 of 2024,” the tribunal stated in its 44-page order.

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The ruling is a setback for Deloitte Haskins and Sells LLP, which had argued that the SFIO report could not be considered legal evidence before the NCLT. However, the appellate tribunal dismissed this argument, stating that the SFIO’s findings and documents remain subject to scrutiny when the applications are decided on their merits.

Background of the IFIN Investigation

The IL&FS (Infrastructure Leasing and Financial Services) crisis, which surfaced in 2018, was one of India’s worst financial collapses. The company defaulted on several loans, triggering a major liquidity crunch in the financial sector. The Ministry of Corporate Affairs (MCA) then directed SFIO to conduct a detailed probe into IL&FS and its subsidiaries, including IFIN (IL&FS Financial Services Limited).

• November 30, 2018 – SFIO submitted its first interim report to the central government.
• May 28, 2019 – A second interim investigation report was submitted by SFIO on IFIN’s financial irregularities.
• May 29, 2019 – Based on the report, MCA initiated action under Section 212 (14) of the Companies Act, 2013, seeking appropriate orders for disgorgement of assets and holding individuals accountable.
• July 18, 2019 – Deloitte Haskins and Sells LLP, along with its partners, was added to the case.

Deloitte’s Legal Challenges and Response

Deloitte and its associates challenged the inclusion of SFIO’s findings in multiple legal forums, including NCLT, NCLAT, and even the Supreme Court.

• The auditors argued that the SFIO’s second interim report lacked legal admissibility and should not be relied upon in the NCLT proceedings.
• Deloitte’s plea was first rejected by NCLT on July 22, 2024, leading to an appeal before the NCLAT, which has now been dismissed.
• The firm also moved the Supreme Court, but later withdrew the appeal on February 28, 2024.

Following the latest NCLAT ruling, Deloitte Haskins and Sells LLP issued a statement, clarifying that the decision was technical and not a judgment on the merits of the allegations.

“The NCLAT’s order does not pass judgment on the substance of the allegations. We are evaluating the legal remedies available in accordance with the law. Our firm maintains that our audits were conducted in full compliance with applicable laws, regulations, and professional standards in India,” the statement read.

Implications of the NCLAT Ruling

The ruling has wider implications for the ongoing corporate fraud investigations in India. Section 212 (14A) of the Companies Act, 2013, allows the government to take action if fraud has occurred in a company, leading to undue benefits for directors, key managerial personnel, or other entities.

Under this provision, the government can seek orders from NCLT to recover illicitly acquired assets and hold responsible individuals accountable.

Future Course of Action

With Deloitte’s plea dismissed by NCLAT, the next legal battle will unfold at the NCLT, where the SFIO’s findings will be further examined. If the allegations against Deloitte and its associates hold in court, they may face penalties or liability for their role as auditors of IFIN.

Meanwhile, the government and regulatory agencies continue to focus on strengthening audit and financial regulations to prevent future financial collapses like IL&FS.

(India CSR)