The Ministry of Corporate Affairs (MCA) on Friday moved a petition with the National Company Law Tribunal (NCLT) for re-opening of three accounts — Infrastructure Leasing and Financial Services Ltd (IL&FS), IL&FS Financial Services Ltd and IL&FS Transportation Networks Limited (ITNL). The move comes after primary investigations reports submitted by the Serious Fraud and Investigations Office (SFIO) and the Institute of Chartered Accountants of India (ICAI) found financial mismanagement in the affairs of the companies and alleged fraudulent transactions.
Sanjay Shorey, director, legal prosecution, MCA, said the ministry was looking to reopen the accounts for last five years. The re-opening will take about 30 days, Shorey said.
The MCA is looking to reopen the accounts and recast them under the never-used Section 130 of the Companies Act. The law allows for reopening of accounts on the order of a court or a tribunal if the earlier accounts were prepared in fraudulent manner and affairs of the company were mismanaged, leading to a doubt on the reliability of financial statements.
The government plea urged the NCLT to appoint an independent chartered accountant to take a closer look at the accounts and revise the balance sheets of IL&FS, IL&FS Financial Services and ITNL.
The petition filed with the NCLT also made a reference to ICAI findings with respect to Deloitte Haskin and Sells LLP during its audit of IL&FS and ITNL, BSR and Associates LLP during its audit of IL&FS Financial Services and SRBC & Co LLP during its audit of ITNL and IL&FS. Mint could not ascertain the findings against these three auditors.
BSR is an affiliate of KPMG and SRBC is an affiliate of EY Ltd.
The division bench presided by VP Singh and Ravikumar Duraiswami said “this was the first time such petition had been moved and according to the law, the tribunal will have to inform all the concerned departments and persons, including the Securities and Exchange Board of India, the income tax department and the Reserve Bank of India (RBI) and we need to hear their stand before passing an order as well.”
“We have also informed the Sebi, RBI and the income tax department for the initiation of the process,” said Sanjay Shorey.
The court will hear the matter on January 1.
The tribunal directed the government to serve proper notice to all relevant departments within the next three days so they could prepare their resources.
According to Ashish K Singh, founder of law firm Capstone Legal, the implications of reopening the accounts are manifold. “Firstly, it can have a cascading effect on the current accounts as well because any change in the past years would definitely impact them. Secondly, recalculation can lead to changed tax implications, especially with respect to income tax. Reassessment of tax will follow the reopening of accounts.This is a remedy that should be used sparingly as it can immensely affect the financial stability of any company.”
Source: Livemint, December 21, 2018