2019 (1) TMI 1575 - Tri - Companies Law

Re-opening of the Books of account and re-casting thereof - Appointing such person/firm of Chartered Accountants to recast the accounts/financial statements - HELD THAT - We cannot hold that alleged accounts of the companies were prepared in a fraudulent manner, because investigation is still pending. In our earlier order dated 1.10.2018 on the basis of prima facie report that the affairs of the company were mismanaged during the relevant period and that the affairs of the company and subsidiary companies were being mismanaged during the relevant period as contemplated under Section (1) and (2). Therefore, we need not examine or express any opinion on the allegations made against the auditors in this Petition, at this stage. The Union of India, without prejudice, is not pressing any allegation at this stage. We allow this petition filed under Section 130 of the Companies Act, 2013 for re-opening the books of accounts and recasting the financial statements of Infrastructure Leasing Financial Services Limited (R1), IL FS Financial Services Limited (R2) and IL FS Transportation Networks Limited (R3) for the past five financial years , viz. from Financial Year 2012-13 to Financial Year 2017-2018 - We further issue directions to Central Government to appoint such person/firm as the Chartered Accountants to recast the accounts/financial statements of all the three companies, i.e. Infrastructure Leasing Financial Services Limited (R1), IL FS Financial Services Limited (R2) and IL FS Transportation Networks Limited (R3) for the past five financial years, viz. from Financial Year 2012-13 to Financial Year 2017-2018. Petition disposed off.

Summary

Issues:
1. Re-opening and re-casting of the books of account and financial statements for past five financial years.
2. Appointment of Chartered Accountants for recasting the accounts.
3. Compliance with Section 130 of the Companies Act, 2013.
4. Role and objections raised by auditors and directors.
5. Consideration of reports by SFIO and ICAI.

Analysis:
1. The petition sought permission under Section 130(1) of the Companies Act, 2013 for re-opening and re-casting the books of account and financial statements of three companies for the past five financial years. The Union of India filed the petition against the companies, citing the need for recasting based on reports from ICAI and SFIO regarding fraudulent preparation of accounts and mismanagement during the relevant period.
2. The court considered the provisions of Section 130(1) which require notice to regulatory bodies and authorities before passing such an order. Notices were served, and SEBI did not object to the re-opening and recasting of accounts for the listed companies. The court emphasized that auditors only audit accounts and do not prepare them, hence the allegations against auditors for fraudulent preparation were deemed premature.
3. The court reviewed the reports from SFIO and ICAI which highlighted fraudulent conduct and mismanagement by key personnel, leading to the decision to allow the petition for re-opening and recasting of accounts. The court directed the Central Government to appoint Chartered Accountants for the task and clarified that the order would not impact ongoing proceedings before ICAI or the main company petition under Sections 241-242 of the Companies Act, 2013.
4. Auditors and directors raised objections, arguing against passing an order under Section 130 without conclusive evidence of fraudulent preparation of accounts. The court acknowledged the ongoing investigation and refrained from making any adverse remarks against the auditors at this stage, allowing the petition without prejudice to the rights of all parties involved.
5. The decision was based on the preconditions set out in Section 130(1) of the Companies Act, 2013, which require evidence of fraudulent preparation of accounts or mismanagement to order re-opening and recasting. The court's ruling was in line with the need for further investigation and the reports provided by SFIO and ICAI, ensuring compliance with legal procedures and safeguards.