Centre moves NCLT to reopen IL&FS’S books
MUMBAI: The ministry of corporate affairs (MCA) on Friday approached the National Company Law Tribunal (NCLT) seeking to reopen the financial statements of Infrastructure Leasing and Financial Services Ltd (IL&FS) and two of its units after two initial probes found evidence of financial mismanagement. The two units are IL&FS Financial Services Ltd and IL&FS Transportation Networks Ltd (ITNL).
The ministry’s decision to approach the tribunal comes after primary investigations by the Serious Fraud and Investigations Office (SFIO) and Institute of Chartered Accountants of India (ICAI) found financial mismanagement in the affairs of the companies and alleged fraudulent transactions.
Sanjay Shorey, director of legal prosecution at the MCA, said during the arguments that the ministry wants to reopen accounts going back five years.
The MCA is seeking to reopen the accounts under Section 130 of the Companies Act. The law allows for reopening of accounts on a court order if the earlier accounts were prepared in a fraudulent manner and affairs of the company were mismanaged, casting a doubt on the reliability of the financial statements.
The government urged the NCLT to appoint an independent chartered accountant to take a closer look at the accounts and revise the balance sheets of IL&FS and its two units.
The implications of reopening of accounts are manifold, according to Ashish K Singh, founder of law firm Capstone Legal.
“Firstly, it can have a cascadfresh ing effect on the current accounts as well because any change in the past years would definitely impact the present accounts. Secondly, recalculation can lead to changed tax implications especially with respect to income tax. Reassessment of tax would follow the reopening of accounts. This is a remedy which should be used sparingly as it can immensely affect the financial stability of any company,” said Singh.
The petition also made a reference to ICAI’S findings related to Deloitte Haskin and Sells’ audit of IL&FS and ITNL and BSR and Associates’ audit of IL&FS Financial Services, SRBC & Co.’s audit of ITNL and IL&FS. BSR is an affiliate of KPMG and SRBC is an affiliate of EY Ltd.