The Supreme Court set aside the Bombay High Court verdict which had quashed the serious fraud investigation office probe against the auditor of IL&FS Financial Services Limited, namely, BSR & Associates LLP (BSR) and Deloitte Haskins & Sells LLP, over alleged financial irregularities.

Join Now! India's Largest directory of lawyers and legal professionals

The supreme court upheld the constitutional validity of section 140(5) of the Companies Act, 2013 and it is observed and held that section 140(5) is neither discriminatory, arbitrary and/or violative of Articles 14, 19(1)(g) of the Constitution of India. 

The High Court held that once the auditor resigns as an auditor or is no more an auditor on his resignation, thereafter Section 140(5) proceedings are no longer maintainable as the petition filed by the Union of India under section 140(5) has been satisfied by the subsequent resignation of the auditor. However, the supreme court held that once the enquiry/proceedings is/are initiated under first part of section 140(5) of the Act, either suo motu by the Tribunal or on an application made to it by the Central Government or by any person concerned, it must come to its logical end and irrespective of the fact whether during such enquiry/proceedings the auditor has resigned or not, there must be a final order to be passed by the Tribunal on whether such an auditor has, in fact, directly or indirectly, acted in a fraudulent manner or not. Direction to the company to change its auditor as provided in the first part of section 140(5) is only a consequence to the finding recorded by the Tribunal that the auditor has, directly or indirectly, acted in a fraudulent manner. This is the first consequence of the final order under section 140(5) (first part). On passing the final order by the Tribunal that the auditor of a company has, directly or indirectly, acted in a fraudulent manner, the second consequence as mentioned in the second proviso to section 140(5) shall be attracted. Second proviso to section 140(5) specifically provides that on final order being passed by the NCLT, such an auditor shall not be eligible to become an auditor in any other company for a period of five years

The order of the Bombay High Court which has set aside/quashed the 212(14) by the Ministry of Corporate Affairs and the Criminal Complaint filed by the serious fraud investigation office and the IFIN SFIO Report has been quashed by the Supreme Court. Now the said Criminal Complaint CC No. 20/2019 be proceeded further by the concerned Trial Court in accordance with law and on its own merits.