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August 3, 2023

NFRA asks the HC to lift the stay orders against the former IFIN auditors

NFRA asks the HC to lift the stay orders against the former IFIN auditors

The Delhi High Court has been contacted by the National Financial Reporting Authority (NFRA), which is asking for the cancellation of earlier rulings that effectively put a hold on the auditing regulator’s 2020 directives against former auditors of IL&FS Financial Services (IFIN).

On Friday, the High Court will review the situation as well as a number of applications filed by auditors contesting the constitutionality of the NFRA’s authority to look into the professional misconduct of auditors.

Udayan Sen, the former head of Deloitte Haskins and Sells LLP, which carried out the statutory audit of IFIN for 2017–18, received a seven-year ban and a fine of Rs. 25 lakh from NFRA in 2020. Additionally, it had given a five-year suspension and a Rs. 15 lakh fine to Deloitte Haskins auditors Rukshad Daruvala and Shrenik Bald.

Following a mitigation into the involvement of the auditors in the 2018 IL&FS disaster, the regulator has found numerous instances of professional misconduct, negligence, and non-adherence to auditing norms.

The auditors then petitioned the Delhi High Court to declare that Section 132(4) of the 2013 Companies Act and the pertinent rules, which provide the NFRA the authority to look into professional errors by auditors, are unconstitutional.

NFRA’s orders against the auditors were subsequently suspended by the High Court pending resolution of the matter.

In its most recent petitions, NFRA has urged that the petitioners (auditors) should not be granted any audit work while the current procedures are ongoing because it “would be hazardous to the public interest.”

It would be similar to allowing someone who is unfit to drive to keep driving just because they challenged the Motor Vehicles Act or allowing a surgeon who is unfit to perform surgery to keep performing operations just because they challenged certain rules governing their profession. The public interest is ultimately hurt, according to NFRA.

An investigation by the Serious Fraud Investigation Office (SFR) revealed significant audit flaws, and the Enforcement Directorate (ED) has taken action against IL&FS management for suspected money laundering, according to the regulator. The IL&FS group, of which IFIN was a significant part, operated over 300 subsidiaries and defaulted on debts of over Rs. 90,000 crore. In relation to potential financial irregularities, the ED also searched audit companies BSR and Associates and Deloitte Haskins and Sells, both of which were formerly IL&FS Financial Services auditors.

Provident and pension funds “had an exposure of close to Rs. 20,000 crore in the IL&FS case. Both of these funds contain the life savings of individuals who relied on their investments to generate returns for them as a form of social security, according to the NFRA. Therefore, there are a lot at stake, and it’s important to protect public funds. These businesses make up what are known as “public interest entities (PIEs),” it claimed.

According to the audit regulator, this is an appropriate situation for the High Court to invoke the greater public interest, reverse its earlier instructions, and permit NFRA to carry out its regulatory actions against the auditors.

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