Also, the counsel’s argued, if the alleged fraud that the auditors have been accused of is proved and the tribunal passes a final order, then automatically the auditors will get barred from the business of auditing. However, the SFIO investigation report based on which the MCA has asked for banning them is only an interim report and it doesn’t establish fraud. It is a mere allegation which can’t be the basis of banning any auditor.
The auditors, the counsel argued, can be tried under section 447 of the companies
act 2013 which establishes the grounds under which a fraud can established and if found guilty then they can be penalised or barred for a maximum of 10 years. And, they said, the MCA can proceed with their plea under Section 447 if they are confident of proving fraud.
The matter was part heard on Friday and has been posted for further hearing on Monday. Meanwhile, the NCLT has allowed the MCA to prosecute the auditors in the matter.
The SFIO, in its complaint, had alleged that the auditors were aware that IFIN was lending to defaulting borrowers through group companies
so that it could suppress its non-performing assets and not provide for the bad debt.
Moreover, the SFIO report said, that the auditors failed to verify the end-use of bank finances and money raised through non-convertible debentures (NCDs) despite it being a regulatory mandate for verifying such things. The SFIO complaint goes on to say that the auditors falsified books of accounts and financial statements of the company from FY14 to FY18 and did not report the negative net owned fund, as well as its negative capital to risk (weighted) assets ratio, resulting in loss to investors who had invested in the company’s NCDs. The audit committee members colluded with the management and overlooked the many impairment indicators in contravention of the accounting standards and principles of prudence, the SFIO said in its complaint.