SC sets aside Bombay HC order, paves way for prosecution of 2 former IL&FS Audit Firms

Allowing the appeal of the Serious Fraud Investigation Office (SFIO) and the Centre against the high court verdict, the top court also upheld the validity of Section 140(5) of the Companies Act, 2013. The provision deals with removal and resignation of auditors and imposes a five-year ban on an auditing firm that is proven to have "acted in a fraudulent manner", or to have "abetted or colluded in any fraud". “The challenge to the constitutional validity of section 140(5) of the Companies Act, 2013 fails 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, as alleged,” a bench of justices M R Shah and M M Sundresh said in its 103 page judgement.

It set aside the high court judgement which had quashed the proceedings against the audit firms under section 140(5) of the Act on the ground that the auditors had resigned.