The government has moved the company law tribunal seeking a five-year ban on the auditors of crisis-hit Infrastructure Leasing & Financial Services (IL&FS). The auditors under a cloud are Deloitte and BSR Associates. The industry has been facing several headwinds in the recent past.
Last year, PricewaterhouseCoopers (PWC) was banned from auditing any listed company for two years for its role in the Satyam scam.
Shailesh Haribhakti, non-executive chairman at Baker Tilly DHC, TP Ostwal, managing partner at TP Ostwal and Associates and Dinesh Kanabar, CEO of Dhruva Advisors are in conversation to discuss the issue.
Dinesh Kanabar, CEO of Dhruva Advisors
"You should look at the vested interest for whatever arbitrator, you should first go to the heart of the matter, which is really to say were the audit firms in default carrying out their duties and that is something which only an investigation can show. The fact that the accounts of these companies, of IL&FS group of companies, were found to be incorrect now, how much would the auditors be responsible or not responsible is the question which first has to be determined.
"If a conclusion is indeed reached that the audit firms did not discharge their duties properly then merely because there is a market issue and because there are too many other firms which need to be rotated or whatever else cannot be the bases for not taking action. Globally, there is a concept of big four being too big to fail, that cannot be the basis of determining what should be the punishment. So where I stand is that first you need to determine whether or not whichever the audit firm is did or did not do its job properly. If they did not then action needs to be taken.”
Shailesh Haribhakti, non-executive chairman at Baker Tilly DHC
"I want to step back a little bit and say that the law will take its course, but we need to figure out what was the applicable law when the alleged, negligence, non-deity, whatever it may take the shape of, happened. The applicable law at that time should apply. If the act was committed at the time when the new provisions of the Companies Act 2013 were not notified than the law prevailing then would prevail. So that is the first point I would like to make.
"NCLT is awaiting the response of the auditors to the alleged acts of misdemeanour that have been pointed out in the SFIO order and therefore it is important that the responses from each of the firm and they might be quite different because one firm was conducting that audit for a long period of time, the other firm has just come in so there might be completely different sets of ideas that will come out from the response and therefore that is another issue which will need to be considered.
"Third, it is important to look at the entire set of circumstances, pleading responses and all of that before a harsh punishment which under today’s law might visit the entire set of 4,000-5,000 lives will get affected because maybe there was an interpretation about a particular aspect which was taken by a particular person. It looks like an over punishment for 5,000 people."
TP Ostwal, managing partner at TP Ostwal and Associates
My opinion is that if the crime is committed, punishment is bound to be there. The law was changed to bring the firms into the pattern on the punishable persons because in Satyam this was a lacuna. In the case of Satyam they could not hold the PWC responsible, only the partners were held responsible that is the reason why the law under 2013 Act changed and therefore the institute could not take action against the firm so now they have started taking action against the firm by the MCA under the Companies Act."Just because an SFIO report has been issued, an 800-page report does not mean anything. There is lot of reproduction of a lot of material, one has to go into the details of the crime which is not going to be an easy job. It will be challenged in the courts, it will be litigated up to the Supreme Court and therefore the matter is not so straightforward that immediately the ban will start tomorrow.