The Indian Ministry of Corporate Affairs (MCA) is reported to have petitioned the National Company Law Tribunal under Section 140 (5) of the Companies Act to ban Deloitte Haskins & Sells and KPMG affiliate BSR & Associates from carrying out audits for five years for their alleged role in covering up bad loans at Infrastructure Leasing & Financial Services Limited (IL&FS) unit IL&FS Financial Services.
IL&FS fell into bankruptcy with debts totalling around INR994bn ($14bn). The firm had significant government-related investors, including the Life Insurance Corporation of India and State Bank of India, which between them held some 32% of IL&FS equity. KPMG did not itself carry out the audit of the firm because such activity may only be done by a firm registered in India. Deloitte audited IL&FS Financial Services between FY2008-09 and FY 2017-18. BSR & Associates audited the unit from 2017-18.
Mid-May IL&FS issued show cause notices to the two audit firms and the Mumbai Sessions Court received a charge sheet filed by the Serious Fraud Investigation Office (SFIO) early June. The charge sheet identifies a total of 30 individuals and entities, including the two audit firms.
Separately, the Enforcement Directorate, India’s law enforcement and economic intelligence department, has summoned Deloitte Haskins & Sells to answer questions as part of a money laundering investigation.
The ripples from the collapse of IL&FS have continued to spread. Ratings agencies that gave the firm triple-A ratings are also being investigated and the MCA is apparently considering sanctions against them under Section 447 of the Companies Act which could result in one or more of the ratings agencies also being suspended. Links between IL&FS and companies in receipt of loans are under the spotlight too.
The SFIO has reportedly raised a further issue, saying that the Reserve Bank of India (RBI), the central bank, should investigate its own failure to act despite evidence of discrepancies at IL&FS as early as 2014.
Should the MCA succeed in banning Deloitte and KPMG it would mean that all of the bg 4 accountancy firms are banned or partially banned from audit work in India.
Earlier this month, the RBI issued a statement saying that it will not approve EY member firm SR Batliboi & Co for ‘carrying out statutory audit assignments in commercial banks for one year starting from 1 April 2019’ while in January 2018, the Securities Exchange Board of India (SEBI) banned all PWC members and entities from issuing audit certificates to any listed company in India for two years. The ban is in relation to the Satyam Computer services scam from nine years ago where directors and employees had collaborated in overstating and falsifying account books and financial statements.