ED lays bare IL&FS cabal modus operandi of Rs 7,400 cr loot and scoot
The Enforcement Directorate charge sheet against IL&FS and the cabal which ran it gives the full scope and extent of the malfeasance and all pervasive rot.
 
Pertinently, it refers to the closed user group individually and by name and provides details on their conduct. The conclusion is that it was pretty much a circus with Ravi Parthasarthy as the ringmaster or even King as the rest of the crew played courtiers.
 
In what used to be a virtual command performance more or less every day, the courtiers used to play to the gallery and try and please the Emperor. The ED applying PMLA has indicted each and every member of the claque for contravention of the Money Laundering Act. 
 
The scathing denouement of the modus operandi states: The accused named in connivance and collusion with each other, indulged in initially locating and identifying dubious companies which claimed to have been engaged in infrastructure development and later issuing fictitious purchase orders for non-existent works.
 
The forte of such companies lay only in providing accommodation entries in the form of bogus billing including bogus share capital and advancing unsecured loans to the beneficiary in lieu of commission or kickbacks. 
 
The via media was the use of bogus entities being awarded bogus contracts and thereafter invoices were raised by those companies, layering was done through accounts and cash was taken and handed back. 
 
This was a common thread in the work orders issued to these bogus companies, as nearly all the work orders were issued to either resettle the shopkeepers or for road repairs or possibly road widening and the accused collectively siphoned off Rs 7,400 crore. 
 
THE ACCUSED CABAL 
 
Ravi Parthasarathy, Chairman of ILFS and one of the members of Committee of Directors of IFIN, was one of the senior-most officers of ILFS as well as of IFIN.
 
He was the Chairman of Industrial Leasing and Housing Finance Ltd. (IL&FS) and one of the members of Committee of Directors of IFIN. He had played very crucial role in sanctioning huge loans by committing scheduled offence to M/s SIVA Group. His personal relation with C. Sivasankaran is also evident from the copies of e-mail collected during the course of investigation and from the statements of officials of IFIN recorded u/s 50(2)&(3) of PMLA, 2002, which is sufficient to prove his collusion and connivance with C. Sivasankaran while sanctioning loans to various Siva Group Companies by committing Scheduled Offence. 
 
The said facts were also reiterated by Ramesh Bawa and Hari Sankaran during the course of their statement recorded u/s 50 (2) & (3) of PMLA, 2002. By doing so, he has not only knowingly assisted M/s Siva group in committing offence of money laundering, but also received huge remuneration apart from salary, during the period when ILFS and IFIN were going through serious liquidity problem. 
 
The amount received by him is part of the proceeds of crime in terms of Section 2 (1) (u) of the Act, which was thereafter laundered and projected by him as untainted. Hence in terms of Section 3 read with Section 70 of PMLA, 2002, Ravi Parthasarathy has committed the offence of money laundering.
 
Ramesh Bawa, Managing Director and one of the members of Committee of Directors of IFIN: Being Managing Director of IFIN, he is responsible all types of financial sanction. It is evident from the statement given by him as well as from the statement of officials of IFIN, Chairman of Audit Committee, Chief Rating Officers and copies of e-mail collected during the course of investigation that he not only failed to discharge his duty with due diligence while sanctioning loans to M/s Siva Group and to those entities for financing to ITNL in spite of restriction imposed by RBI (as detailed in above paras), but also he knowingly assisted in sanctioning loans to M/s SIVA Group (for rest of Groups, investigation is under progress) by committing scheduled offence and hence knowingly assisted M/s SIVA group in committing the offence of Money Laundering. 
 
He has also received huge remuneration (Deputation cost & PRP) apart from salary, during the period when ILFS and IFIN were going through serious liquidity problem. He received deputation cost for his roles and responsibilities in IFIN which was increased suddenly in F.Y. ending on March 31, 2017. The amount received by them is part of the proceeds of crime in terms of Section 2 (1)(u) of the Act which was thereafter laundered and projected by him as untainted. Hence in terms of Section 3 read with Section 70 of PMLA, 2002, Ramesh Bawa has committed the offence of Money Laundering.
 
Arun Kumar Saha, Jt. Managing Director of ILFS and one of the members of Committee of Directors of IFIN: Arun Kumar Saha had been a non-
 
executive director and one of the members of Committee of Directors. Audit Committee and Member of Risk Management Committee which was constituted pursuant to the RBI Regulations, to oversee, identify and evaluate internal and external risks associated with the business operations of the Company, to ensure compliance with statutory regulations and internal guidelines. 
 
In addition, thereto, RMC was periodically reviewing the stress testing scenario in line with what had been prescribed by the RBI towards commercial banks with the objective of an early adoption wherein his role as a member was to participate in the proceedings of the RMC. Further he was also the Chairman of Asset Liability Management Committee wherein his role was to review asset liability profile, maturity
 
mismatches and other parameters which was a requirement under the RBI guidelines. 
 
Apart from that, Arun Kumar Saha was one of the members of Audit Committee and also one of the committee of Directors in ITNL. Arun Kumar Saha had been holding responsible position in IL&FS and as well as in IFIN. From the statement of the IFIN officials namely Ashesh Dutta, Vibhav Kapoor and Milind Patel, it is absolutely clear that the CoD had played key role in sanctioning the loan in IFIN. He was fully aware of the facts that loans were sanctioned to the companies viz.
 
M/s SIVA Group, M/s. ABG Group, M/s SKIL Group, which are financially stressed and not capable to repay. 
 
In spite of that they continued to sanction huge loans to the said financially stressed groups to settle their earlier loans and to prevent them from being NPA and thus knowingly assisted in evergreening of funds from IFIN to SIVA Group and M/s ABG Group (for rest of the groups investigation is under progress). 
 
During the course of statement, on being asked if he accepted that he had right to raise objections but he never did in approving loans by other members of CoDs.
 
He has assisted knowingly in financing financially stressed companies. His assistance to SIVA Group is also evident from the copies of e-mail collected during the course of investigation and from the statements of officials of IFIN recorded u/s 50(2)&(3) of PMLA, 2002, which is sufficient to prove his collusion and connivance with C. Sivasankaran while sanctioning loans to various Siva Group Companies by committing scheduled offence. Arun Kumar Saha was the Chairman of Hill County Properties Ltd.
 
From the letter received from IFIN it is revealed that Hill County Properties Ltd. sold two Villas to one of the Group companies of SIVA group namely Utoo Cabs at a very low price and so far, Utoo cabs has made partial payment. Registry of the said properties are yet not executed. The said facts is also reiterated by Ramesh Bawa and Hari Sankaran during their course of statement recorded u/s 50 (2)&(3) of PMLA, 2002.
 
From the documents submitted by IFIN it is also clear that the Committee of Directors of IFIN sanctioned loans to the parties to the tune of Rs 2,270 crore, for further financing to ITNL and its Special Purpose Vehicles. The entire loans were sanctioned by committing the scheduled offence, to the companies mentioned above. 
 
The loans thus sanctioned by committing the scheduled offence were first transferred to the bank accounts of entities mentioned above and subsequently those entities transferred the entire sum to the bank account of ITNL and ITNL utilized the same for repaying its loan with IFIN as well as for its Special Purpose Vehicles. Ultimately the entire loans remained unpaid to IFIN.
 
Apart from that, it is also evident from the statement of S.S. Kohli that Audit Committee was never projected the actual financial picture and it is pertinent to note that Arun Kumar Saha was one of the members of Audit Committee of IFIN and in spite of that he did not take any initiative.
 
He was one of the members of Risk Management Committee. 
 
In the case of M/s ABG Group the collateral securities in the form of shares of M/s ABG Cement were released and subsequently again mortgaged for loan in the different company of the same Group. Arun Kumar Saha, being the member of various prime committees of IFIN, at no point objected to such transactions which is also evident from his statement that although he had power to object, but he never did.
 
During the course of statement Chief Rating Officers have also accepted that they were being pressurized by Arun Saha and Ravi Parathasarathy and Ramesh Bawa for favourable ratings. The rating officer of ICRA who was conducting rating of IFIN has clearly stated that the rating of IFIN would have been different if those facts were disclosed to them. Therefore, by not declaring the actual position before rating agencies and by creating pressure for high ratings, the members of Cod of IFIN maintained high rating under the parentage of IL&FS.
 
Arun Saha was aware of the stressed asset portfolio, the modus operandi used for granting loans to group companies of existing defaulting
 
borrowers in order to prevent their being classified as NPA. He did not ensure adequate disclosure or reporting of the facts brought out in the reports of RBI for the years 2016-17 and 2017-18. He connived with the management and overlooked the numerous impairment indicators by agreeing with the decisions of management to differ the provision of diminution in books of accounts. These particular financials were also used for borrowing from market, wherein such incorrect financials were used to lure the investors investing the public money.
 
In view of the above it is absolutely clear that Arun Kumar Saha has knowingly assisted in the offence of money laundering to M/s SIVA Group (for rest of groups, investigation under PMLA, 2002 is under process and will be submitted in the supplementary Prosecution Complaint). 
 
At the same time by doing so and projecting the same as genuine, the committee of Directors of IFIN maintained credentials of IFIN and their remuneration increased sharply in spite of declining financials of IFIN. Hence in terms of Section 3 read with Section 70 of
 
PMLA, 2002, Arun Kumar Saha has committed the offence of money laundering.
 
Hari Sankaran, one of the members of Committee of Directors of IFIN: He was one of the senior most Officer of ILFS as well as of IFIN, like Ravi Parthasarathy. He had played very crucial role in sanctioning huge loans by committing scheduled offence, to M/s SIVA Group. His personal relation with C. Sivasankaran is also evident from the copies of e-mail collected during the course of investigation and from the statements of officials of IFIN recorded u/s 50(2)&(3) of PMLA, 2002, which is sufficient to prove his collusion and connivance with C. Sivasankaran while sanctioning loans to various Siva Group companies, by committing Scheduled Offence. From the statement given u/s 50(2)&(3) of PMLA, 2002, he admitted that there was nothing wrong in financing to those companies. 
 
Further, he stated about those third parties to whom loans were sanctioned for further financing to ITNL, as third party companies that were also undertaking construction of on-going ITNL projects, which is absolutely wrong.
 
From the submission made by those third parties, it is absolutely clear that those companies had nothing to do with ITNL. Therefore, Hari Sankaran has not only knowingly assisted M/s Siva group in committing offence of money laundering, but also received huge remuneration apart from salary, during the period when ILFS and IFIN were going through serious liquidity problem. 
 
The amount received by them is part of the proceeds of crime in terms of Section 2 (1)(u) of the Act which was thereafter laundered and projected by them as untainted. Hence in terms of Section 3 read with Section 70 of PMLA, 2002, Hari Sankaran has committed the offence of money laundering.
 
Ramchand Karunakaran: He was the Managing Director of ITNL and one of the members of Committee of Directors of IFIN (for infrastructure projects). IFIN had the sole mandate to do debt and equity syndication for ITNL. ITNL would provide to IFIN requirements for projects and for ITNL itself. 
 
During the course of investigation, it appeared that RBI in its Inspection Report dated November 1, 2017, had advised IFIN to run down its
 
exposures to group companies with no fresh lending (Annexure--). In spite of that, ITNL managed to receive fund from IFIN. 
 
Investigation has revealed that for the aforesaid loans sanctioned to various entities namely M/s Prakash Constrowell Ltd., Attivo Economic Zone Pvt. Ltd, Kalyan Sangam Business Credit Ltd., Sahaj - e - Village, Giridhan Projects Pvt. Ltd., Vistar Financers Pvt. Ltd., Wavell Investments Pvt. Ltd., Ramchand Karunakaran had given Letter of Assurance dated March 29, 2018 on behalf of ITNL. Further during the course of statement CFO of M/s GHV Group has stated that they had meetings with K. Ramchand for obtaining fund from IFIN in M/s GHV Hotels Ltd. which is running in loss for the last few years, which was entirely to be transferred to ITNL. 
 
During the recording of his statement on June 3, u/s 50 (2) and (3) of PMLA, 2002, Ramchand admitted that monies were routed to ITNL and SPVs by IFIN through third parties viz. Beigh Construction and New India Structure. However, he feigned ignorance on why the money was routed to ITNL through these entities. 
 
Furthermore, during recording of his statement on June 19, Ramchand completely retracted from his admission made on June 3 and claimed that he was not aware of any such transactions altogether.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    CSR: Corporate Social Responsibility or Corporate Social Compulsion?
    India is probably the only country to have enacted corporate social responsibility (CSR) into a law. The world over CSR is all about business models and not philanthropy. It is internal and not external. It is only in India that it has been made external. Section 135 of the Companies Act, 2013 (“Act, 2013”) talks about spending 2% of the average net profits of the company in social activities as mentioned in Schedule VII of the Act, 2013. Earlier the Section was a “comply or explain” (COREX) provision, wherein non-spending of the CSR amount was required to be reported by the company in the board’s report of the company. 
     
    In the United Nations and Europe, much attention has been devoted to defining CSR. The definition of CSR includes the following: guidelines, codes of conduct, or pledges encompassing positive corporate action across dimensions such as economic, social and environmental value creation, stakeholder relations and voluntariness). Among the most globally influential CSR guidelines or standards are the Organisation for Economic Co-operation and Development (OECD) Guidelines for multinational enterprises and the goals embodied in the United Nations Global Compact. 
     
    The OECD Guidelines, though intended to provide voluntary principles and standards, have been recognized by OECD “adhering countries” as well as other countries, as “recommendations jointly addressed by governments to multinational enterprises”. However, the guidelines are not intended to be legally binding or enforceable. The provisions of CSR have developed in the United Nations and Europe as a concept that is aimed at “business beyond compliance with the law and beyond shareholder wealth maximization”, which means that it is a voluntary compliance by businesses.
     
    With the Companies (Amendment) Act, 2019, (Act 2019) enacted on 31 July 2019, the amendments have gone to the extent of converting a corex provision into a punishable obligation. 
     
    Not only this, while the rest of the law has removed custodial punishment and replaced the same with penalties, Section 135 provides for 3 years’ imprisonment or with rigorous fine or both
     
    Although the provisions have not been enforced currently, there are grey areas which are worth discussion by the ministry in due course of time. 
     
    Requirement under the Law after the Amendment
     
    The revised Section 135 of the Act, 2013 requires the following:
     
    a) Transfer of the unspent CSR amount to a Fund as specified in Schedule VII --Such as the Prime Minister’s National Relief Fund, Clean Ganga Fund etc. where it does not relate to any on-going projects within 6 months from the end of the financial year.
     
    b) Transfer of the unspent CSR amount to Unspent Corporate Social Responsibility Account where it belongs to an on-going project, within 30 days of the end of the financial year.
     
    Further, such amount is to be spent in the next 3 financial years, failing which the same shall be transferred to a Fund as mentioned in Schedule VII of the Act, 2013 after the end of the 3 financial years.
     
    Transfer of Unspent CSR Amount to a Fund
     
    The recent amendment to Section 135(5) of the Act, 2013 incorporating the “comply or be penalized” rule that requires the company to transfer the entire unspent CSR amount to a specified fund, means that once the financial year has ended, the company is straightaway  obligated to transfer all the unspent CSR amount, except the ones which are being utilized for ongoing projects, to the Fund. Naturally, that would mean that all unspent CSR amount will switch from the company’s control to the Fund’s control which will be then utilized by the government in a centralized manner. 
     
    Transfer of the Amount Getting Utilized in On-going Projects to Unspent CSR Account 
     
    Section 135(6) of the Act, 2013 has been newly inserted to provide that where there are on-going projects in the company as per the conditions specified, the company needs to transfer the unspent amount in a special account to be opened by the company, named as “unspent corporate social responsibility account” within 30 days from the end of the financial year. Further, even after transferring the amount to the unspent corporate social responsibility account, the company needs to make sure about its spending within a period of 3 financial years, failing which it will be transferred to a fund as mentioned in Schedule VII of the Act, 2013 within the next 30 days from the date of completion of the 3rd financial year.
     
    Impact of the Amendment and Grey Areas Left
     
    The amended section says that there will be certain conditions prescribed, on the fulfilment of which a project shall be regarded as an on-going project. One will be able to determine a project as an on-going project, only once the rules are in place. Further, since the company is anyway required to spend the unspent amount in the next three financial years, whether that would mean that the maximum period for an on-going project will be 3 financial years upon which the amount will be transferred to the specified fund? Here, we may take an example of real estate projects such as building of a hospital or a school, where the expected time for completion of the project might be beyond 3 years depending on its size and the project cost. 
     
    However, this may not be surely the intent as the law cannot compel to complete projects within 3 years where the expected time for completing it goes beyond 3 years. 
     
    Whether Committed Disbursement Would Mean the Project Is ‘On-Going’?
     
    There might be situations where a company has agreed for disbursement of an amount before the end of the financial year; however, due to practical difficulties, the actual disbursement has not been made or the project for which the disbursement has been committed has not started or initiated. In the former case, companies might be in a hassle-free situation as all they will be required to do is to identify projects and fix up an amount for spending towards it. On the contrary, where the latter is the case, and the project has not started, it will not be correct to regard the same as “on-going”. So, there might be several situations for considering a project as “on-going”, some of the illustrative ones are the following:
     
    a. Where the company has identified projects and has committed a disbursement towards it but the actual disbursement is not made.
     
    b. Where the company has identified projects and made the disbursement but the project has not started.
     
    c. Where the company has identified projects, made the disbursement and the project has just commenced.
     
    However, the actual meaning of “on-going” will be clear only once the rules are in place.
     
    Difficulties In Case of Implementation through Trust or Implementing Agencies 
     
    Another major issue which the companies will face is companies spending the CSR amount through trusts or implementing agencies. Several companies have group-wide channelizing agencies where all the group companies transfer a lump-sum amount to the trust which in turn spend the amount into different CSR activities. Generally, the funds are co-mingled. Since, a trust is nothing but a conduit of channelizing funds, merely transferring the money to the trust is surely not the intent of law. Accordingly, any amount remaining unspent with the trust should be transferred either to the unspent corporate social responsibility account or to the Fund. Further, where the company does not have group-wise conduit in the form of a trust, the company makes CSR spending through implementing agencies, for example, the non-government organisations (NGOs). In case of spending through implementing agencies, companies do not have any control over the implementing agency. All that is required by the companies is to periodically monitor the spending by the implementing agency. 
     
    With the implementation of the new provision, such practice also needs to be reviewed.   
     
    Opening of Unspent Corporate Social Responsibility Account
     
    The new provision provides no clarity on whether a company is required to open “Unspent Corporate Social Responsibility Account” project-wise or whether there will be a single account managed for all on-going projects. 
     
    Penal Provisions
     
    With the switch from the corex to a “comply or be penalized” provision, any non-compliance with the new requirements of law would invite the following penalties: 
    i. Company to pay a fine of Rs50,000 - Rs25 lakh 
     
    ii. Every officer to pay a fine of Rs50,000- Rs5 lakh or imprisonment of up to 3 years, or both.
     
    Conclusion
     
    The provisions seem to be strictly levied on all companies but shall require a lot of clarity for its practical implementation. Till such time as the rules are in place and the amendment is made effective, the companies may plan accordingly in order to comply with the provision.
      
    To read the highlights on Companies (Amendment) Act, 2019, click here

    To read our other articles on corporate laws, click here
     
    (The writer is manager in corporate law division at Vinod Kothari & Co)
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    COMMENTS

    Rajneesh Agarwal

    1 month ago

    in the era of globalisation and stiff competition the cos should focus on their business and csr should be done by the govt which is collecting full taxes anyway

    Bhushan Dewan

    1 month ago

    India's tax to GDP ratio is a pitiable [email protected]% while it's [email protected]% in Europe and about 40% in USA. Also significant chunk of tax collections are on account of indirect taxes from common man. So businesses need not complain if they have to spend 2% on socioeconomic development of the society. Businesses have to disabuse their minds of the idea that they exist only for maximizing profits for promoters & shareholders, and for paying obscene annual salary like Rs 60 crores per year to the top boss.

    Bhushan Dewan

    1 month ago

    Ko

    Ramesh Poapt

    1 month ago

    without any law, co.s should contribute more.
    there are co.s where they spend a lot- in India and globally.
    blessings/pleasure recd will be much more than the amt spent.

    Arumugaraja

    1 month ago

    Forcing someone to donate is immoral.

    Govt Removes Requirement of Debenture Redemption Reserve Norm for listed companies, NBFCs
    The government on Monday removed the requirement of 'Debenture Redemption Reserve' (DRR) for listed companies, non-banking financial companies (NBFCs) and housing finance companies (HFCs).
     
    A statement by the Corporate Affairs Ministry said that the decision has been taken in pursuance of the budget announcements for 2019-20 by Finance and Corporate Affairs Minister Nirmala Sitharaman and the government's objectives of providing greater "ease of doing business" to companies in the country, as part of its 100 Days Action Plan.
     
    "The Ministry of Corporate Affairs has amended the Companies (Share Capital and Debentures) Rules by removing Debenture Redemption Reserve requirement for Listed Companies, NCFCs and HFCs," it said.
     
    Through the amendments, the provisions relating to creation of DRR have been revised with the objective of "removing the requirement for creation of a DRR of 25 per cent of the value of outstanding debentures in respect of listed companies, NBFCs registered with the RBI and for HFCs registered with National Housing Bank (NHB) both for public issue as well as private placements," said the statement.
     
    The amendment would also aims to reduce DRR for unlisted companies from the present level of 25 per cent to 10 per cent of the outstanding debentures.
     
    Earlier, listed companies had to create a DRR for both public issue as well as private placement of debentures, while NBFCs and HFCs had to create DRR only when they opted for public issue of debentures.
     
    "It (the latest amendment) is aimed at creating a level-playing field between NBFCs, HFCs and listed companies on the one hand and also between them and Banking Companies & All India Financial Institutions on the other, which are already exempted from DRR," it said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    User

    COMMENTS

    Ramesh Poapt

    1 month ago

    bad one indeed!

    vikram chinmulgund

    1 month ago

    Debt without liability to pay - Awesome Idea of Chaiwalla. Modi govt. slogans / schemes have been gradually undoing all the reforms brought in by P.V. Narsimha rao + Manmohan Singh in the 90's. The effect on the economy is obvious now. India is now considering offering bonds internationally which is the same as begging other countries for money against an IOU. Instead of fixing the problem which means admitting policy errors the Modi govt. is just covering the issue with more paper money. First demonetization and now throw away the new currency into a black hole of debt without liability. Begging bowl to IMF is next.

    Ashit Kothi

    1 month ago

    WHAT IS 'EASE OF DOING BUSINESS' - RECKLESS BORROWING WITHOUT ANY REPAYMENT INTENTION. IT IS MISPLACED STEP.

    Ask Banking segment to pass on the benefit of reduction in rates to Corporate / Retail Borrowers. Bring down the actual (real) cost of capital. Delays in various permission, issue and renewal of various licenses, delay in resolving any financial disputes increase the cost of capital as resolution of issues take indefinate time.

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