NCLT Allows Proceedings Against Deloitte and Others in IL&FS Case

The National Company Law Tribunal (NCLT) has allowed legal proceedings to continue against audit firms such as Deloitte, BSR & Associates, and SRBC & Co in the IL&FS case. The tribunal has not said that these firms are guilty, but it has refused to remove them from the case at the initial stage.

This case is related to alleged fraud and serious governance failures at Infrastructure Leasing & Financial Services (IL&FS). In 2018, the Union government started proceedings under the Companies Act after major financial irregularities were discovered in the company and its group entities.

The tribunal said that Section 339 of the Companies Act is broad and can apply not only to company directors or insiders but also to third parties, including auditors, if they were knowingly involved in fraudulent conduct.

At the same time, the NCLT clarified that liability is not automatic. Simply being appointed as an auditor does not make a firm responsible for fraud. There must be clear evidence showing that the auditors knowingly participated in or helped facilitate fraudulent activities. The tribunal remarked that auditors are considered “watchdogs”, but a watchdog cannot claim immunity if it consciously ignores wrongdoing.

The government argued that the role of each party should be examined based on findings from investigative agencies like the Serious Fraud Investigation Office (SFIO). The tribunal agreed, stating that there can be no blanket exclusion of auditors at the beginning of such cases. Their involvement must be assessed based on financial records, documents, and other evidence.

Legal experts say this ruling increases the legal exposure of the audit firms involved because they will now have to defend themselves in detailed proceedings. However, the question of their actual liability will depend entirely on whether evidence proves knowing involvement or collusion, rather than mere negligence.