IL&FS Case: NFRA bans former Deloitte head from auditing for 7 yrs, slaps Rs 25 lakh penalty

The order will be effective post Jul 31,2020.

The regulatory body has found Sen guilty of professional misconduct and not maintaining independence and quality in auditing accounts of the financial company, a Mint report said.

In its 88-page order, NFRA said Sen is guilty of professional misconduct for not pointing out material facts in financial statements, not reporting material misstatement in IL&FS accounts, and failing to exercise due-diligence amounting to gross negligence, the report said.

The watchdog also found Sen "failing to obtain sufficient information necessary for expressing an opinion, and also failing to draw attention to the deviations from acceptable audit procedures", added the Mint report.

Sen was the engagement partner of IL&FS in 2017-18.

The role of the two auditors -- Deloitte and KPMG affiliate, BSR and Co. Llp, had drawn the attention of the investigative authorities after a debt crisis surfaced in September 2018.

The financial markets had suffered a massive setback after the IL&FS crisis had left a Rs 1 lakh crore hole.

The investigative authorities had swung into action immediately and questioned the auditors in an attempt to dig deep into the folds of alleged discrepancies.

In January, NFRA issued a show cause notice for professional misconduct under section 132(4) of Companies Act 2013, which empowers it to impose monetary penalty and bar a firm from auditing.

Meanwhile, Sen's writ petition is pending in Delhi High Court. Sen had approached the court questioning NFRA's jurisdiction. On June 26, the high court ordered that the watchdog cannot give effect to its ruling till July 31.

“In this case it has been clearly shown that the independence in mind and independence in appearance of statutory auditor has been totally compromised," said NFRA, reported Mint.

Further, it said Sen should have been conscious of anything that impacted his and his firm's independence, especially because he had been the CEO of Deloitte for several years.

The NFRA pointed out that the losses incurred by IL&FS in the year 2017-18, was reported as a profit by assigning a value of Rs 184 crore to put option of TTSL shares.

There was no compliance in terms of capital to risk weighted average ratio and net owned funds, said the wathchdog. There was also consistent reduction in profits of IL&FS since March 2014 and by 2016-17 and 2017-18 there was a sharp decline in profits and cash and cash equivalents, it found.

However, Deloitte has slammed NFRA for making the order public against it even as a case questioning its jurisdiction of is pending in the Delhi High Court.

“As a professional accounting firm we are surprised and concerned that the NFRA has chosen to issue and make public an order against a former partner of the firm, in spite of the question of its jurisdiction being sub-judice and awaiting adjudication and disposal by the Hon’ble Delhi High Court," a spokesperson at Deloitte India was quoted as saying by Mint.