Forensic Auditor Grant Thornton Charges the New IL&FS Management with Denying Vital Information
On 6 May 2021, Grant Thornton’s Project Icarus submitted the forensic audit of IL&FS Engineering and Construction Company Limited (IECCL), exposing more scandals and internal collusion to cover up wrongdoing and losses, going back almost a decade to 2011-12. 
 
But the report also has thrown a bombshell. Despite a new government-appointed board of directors comprising a bunch of senior retired bureaucrats being in charge for nearly three years, it says, crucial data pertaining to the company and its business has not been shared with the forensic auditor—Grant Thornton (GT).
 
Worse, erroneous, incomplete and inadequate data were provided and, in 40-odd cases, bank statements have not been provided (statements for only 122 out of 163 bank accounts were provided).
 
GT points out that the entire top management cabal of IL&FS, starting with Ravi Parthasarathy and comprising Hari Sankaran, Arun Saha, K Ramachand, Mukund Sapre (managing director of IECCL), MD Khattar and other key managerial personnel (KMPs), frequently used external and personal email IDs for official communication. This was not made available to the forensic auditor, although a long list of emails that it came across has been published in the report. 
 
The very first page says that the report is based on approximately “40% of the data available with IECCL and provided to us.” It adds: “Further, it needs to be noted that project related data constitutes nearly 80% of the total costs incurred by IECCL and formed a critical part of our review. However, only 22% of such critical data is available with IECCL and the same is provided to us. Additionally, for none of the projects all the key information was available which provides assurance on the completeness of information, thereby reducing our ability to conduct a comprehensive analysis of projects.”
 
GT says it began asking for data on 13 June 2019; but, “despite multiple follow-up emails sent to IECCL,” it has received only 25%-30% of the data and only 22.5% of data pertaining to projects. On 7 October 2020, Naveen Agarwal, the chief financial officer (CFO), sent GT an email “stating that all the available data has been provided and no further data can be provided.” Surely, he couldn’t have done that without specific authorisation by the board of directors! 
 
So who is protecting the former management of IL&FS which burnt up so much of public money? Remember, the ministry of corporate affairs (MCA) has appointed this board of directors, comprising largely retired bureaucrats to work in public interest to recover money owed to pension funds, government institutions, bond-holders and a large number of private entities.
 
They are: chairman Uday Kotak, CS Rajan, GC Chaturvedi, Srinivasan Natarajan, Nand Kishore and Malini Shankar (mainly retired IAS officers and a former comptroller and auditor general, while the chairman is a billionaire banker).
 
This board is supported in its work by a set of very expensive lawyers, consultants and advisers who have first claim to any recovery. GT is silent about whether it raised this issue with the board of directors, the new audit committee and chairman Uday Kotak. I reached out to IL&FS’s communications department and chairman to ask why data were not made available to GT, but do not have a response at the time of writing. (This column will be updated if we do receive information).
 
Despite just 40% of the information being available, the report is quite explosive as it continues to expose the rotten dealings of the previous management clique headed by Ravi Parthasarathy (who presided over this massive conglomerate for nearly 25 years and stepped down just before its payment issues erupted in the public domain) and his cohort. The sub-text of the GT report seems to be that the team loyal to this management group, which continues to be employed by the IL&FS group companies, seems determined to bury wrongdoing, probably to cover up its own role in the dubious dealing. But who will hold the new management accountable for the failure to cooperate with the forensic audit team? 
 
Since GT has clearly been instructed (by the new board?) to submit the report with less than half the information it asked for, there appears to be a conspiracy to bury all that is inconvenient and protect those responsible for losses of over Rs40,000 crore that may never be recovered.
 
IECCL was originally Maytas Infra Limited, acquired by IL&FS in 2009 when the Satyam group collapsed in a heap of ignominy. It was renamed IECCL in 2010-11 and IL&FS, with its infrastructure expertise, was supposed to revive and expand it. But GT’s findings show that it has faced a severe liquidity crunch and ethical issues for its entire lifetime and certainly since 2011. 
 
IECCL is in the business of infrastructure development, construction and project management, including building of industrial structures, irrigation projects, canals, dams, railways, airports and power plants. The two main holding companies of the group – IL&FS and IL&FS Financial Services (IFIN)–hold about–21% of its equity. Nearly 28% is held by SBG Projects Investment Ltd (which is part of the Bin Laden Group of Saudi Arabia which is into construction) and nearly 30% by ‘others’. 
 
GT’s forensic audit, once again, reports large-scale fudging to hide financial stress and losses, cooking up audit reports, suppressing information and ignoring innumerable whistle-blower complaints that would have fixed issues. It calculates IECCL’s liabilities at Rs5,306 crore on 31 March 2018 of which “potential misrepresentation of financial statements” accounts for Rs2,685.69 crore, circular transactions for ever-greening debts at Rs1,563.18 crore and unbilled revenue at Rs727 crore (this was eventually written off). Here’s how it conducted this brazen fudging, according to GT. 
 
Auditors’ Collusion: GT notes that SR Batliboi & Associates LLP was IECCL’s statutory auditors from FY13-14 to FY16-17. Since it had completed its term, in FY17-18, BSR Associates LLP and M/s M Bhaskara Rao & Co were appointed as joint statutory auditors. The catch is that the two key partners, Amit Agarwal and Dinesh Nahata, who had handled the account in SR Batliboi, moved to BSR Associates and continued to handle the account. The forensic audit found emails between Ravi Parthasarathy and his team discussing how this would benefit the company with key audit issues. Will the new board of IL&FS report this to the National Financial Reporting Authority? 
 
Whistle-blower Complaints: GT makes the stunning disclosure that it came across multiple whistle-blower complaints in all major special purpose vehicles (SPVs) or projects, but IECCL representatives claimed that no such complaints had been received during the review period. 
 
Tax Liability: Among other things, GT notes a complete disregard for payment of statutory dues, such as GST (goods and services tax), which is a serious offence punishable with a jail term. But, clearly, the IL&FS entities, masquerading as public sector entities, believe they would be able to ‘manage’ tax authorities as well. It notes that on 31 March 2019, it had GST liability of Rs99.40 crore collected from customers, which was not deposited with the authority.
 
Liquidity Crunch: Emails between Ravi Parthasarathy, Hari Shankaran, Arun Saha and MD Khattar indicate that the IECCL was facing a liquidity crunch going back to 2011. In 2013, it was not even in a position to make statutory payments. An internal email indicated that IECCL would make a loss of Rs50 crore in the quarter ended 31 March 2015; but financial statements submitted to the Bombay Stock Exchange (BSE) showed a net profit of Rs0.85 crore post-fudging of accounts.  
 
GT has come across emails by senior management (Arun Saha and K Ramchand) detailing the exact financial jugglery that would cover up the losses. These include, transfer of land to a group company, Maytas Investment Trust, to book a Rs18 crore profit,  raising a claim on a sub-contractors (in GIFT City) and multiple book adjustments.
 
Interestingly Maytas Investment Trust (MIT) was a key vehicle for fudging data and GT says the top management of IL&FS and IECCL were “potentially aware since FY 2013 that the majority of the investments of MIT in its SPVs could not be monetized and were to be impaired. However, impairment was done by the new board of IL&FS Limited after 01 October 2018,” when it recorded an impairment of Rs259.67 crore. 
 
As in its previous audits of IL&FS companies including IFIN, the forensic audit has exposed circular transactions where loans were extended/repaid from group companies and sub-contractors to fudge the financial problems in the group. IECCL had loans of nearly Rs3,200 crore and showed a repayment of Rs2,089 crore as on 31 March 2018. This included loans from IL&FS Limited and group companies to repay existing dues and it was not disclosed in the financial statements. 
 
GT has gone on to report in detail what it calls ‘anomalies’ in the award of contracts and sub-contracting projects including to people related to management, such as Mukund Sapre’s son. What is interesting is the detailed listing of whistle-blower complaints in specific projects which were systematically ignored by the previous management and could not be verified because of absence of data. These are:
 
1. On 28 March 2012, one Shrikant Dash pointed out corruption and unethical practices by employees at the Jajpur Project at Odisha including acceptance of sub-standard material, passing false work orders for electricity supply and extorting money to clear bills.  
 
2. On 17 September 2012, a corruption complaint was received about the Odisha and West Bengal projects. 
 
3. On 31 December 2012, Chetan Krishna wrote to Ravi Parthasarathy about a bribery scam at the Hyderabad office. (Complaints before 2014 were ignored saying the whistle-blower policy came into existence in August 2014).
 
4. On 2 June 2016, S Rajesh from the internal audit department wrote to Arun Saha and an MP (member of parliament) making serious allegations about fake bills being raised, creation of fictitious accounts in the name of non-existent companies, inflation of revenue to show loss-making units as profitable and accounting for rejected claims. 
 
5. On 21 April 2016, Rajni Sharma told MD Khattar about corruption at the Patna Gaya Project including misuse of resources, seeking favours from contractors, etc. 
 
6. On 19 January 2018, one Alak Pan wrote to Pradeep Goyal about employees being involved in a procurement scam at IECCL. 
 
7. On 26 April 2018, Srinivas Rao wrote to S Ramchandran about dubious sub-contracting deals in the Polavaram Project.
 
8. On 30 May 2016, there was a complaint (from [email protected]) to MD Khattar about employees of Kolkata Metro Rail Project colluding with sub-contractors to certify wrong bills for purchase of low-quality material and maintenance of plant and machinery.
 
9. On 1 December 2017, one Arindam Mukhopadhyay wrote about unethical and improper practices in site management of the Chennai Metro Rail Project in liaison with their relatives to managing director Mukund Sapre. It was not reported to the internal whistle-blower committee. 
 
In almost every case, emails went back and forth and but, eventually, nothing happened, indicating that top management had no interest in running a clean organisation. 
 
It is three years already. How long will we keep looking into the old records of a bunch of crooks, when a new management has been put in place to effect a clean-up job? Questions now need to be raised about their motives and actions, especially now that Grant Thornton has exposed them for downright non-cooperation and stalling even a forensic audit.
 
IL&FS has sent us the following response to our query about GT's comments: "IECCL Management has provided all necessary information - documents, access and data that was possible and to the extent available - to GT with regards to completing of its forensic report. 
 
The Management has also disputed inaccurate references, calculations and conclusions by GT - with respect to their data limitation observation (wherein data 'Not applicable' are referred as 'Not provided') - which already forms part of the report.  
 
The Board has submitted the report to SFIO and ED for further investigations".
 
 

Comments
rescuearticles
2 months ago
I think the there is much more to be discovered and acknowledged also many companies such as IL & FS Technologies which tried to build LARES for Philippines and other software product & solutions which it sold to sister concern alsong with doing money laundering deals all over globe and fake employees .
Pimps and girlfriends who were also on payroll were paid exorbitant amounts while genuine working employee would be paid nothing for 6 months until they left .
These things were happening since 2005 when free money was made available to the company.

sucheta
Replied to rescuearticles comment 2 months ago
The way to get things published for now and posterity is to share specific information that can be written about. if you have it, how about sharing at [email protected] ?
cgpkumar
2 months ago
Readers of Moneylife cannot thank you enough for your persistent follow up of ILFS and its affairs as most of business press appears to have abandoned the coverage of the scandal. The hide and seek game played between the current management of ILFS and the investigating auditors gives one the impression that there is a keenness to ensure that the wrongdoers are protected. The rot must be all pervasive and given the fact that the erstwhile management of ILFS rewarded top bureaucrats in every state where the company operated with plum board positions and perks, more than a herculean effort would be required to uncover all facts. It is a moot question if the Government will strengthen the auditor's hands and bring everyone accountable to book. Tax payers in this country cannot help asking the current Board of ILFS, this question: quis custodiet ipsos custodes ?
kpushkar
2 months ago
Wow.. this in Indian version of Enron ..
Enron top boss were punished but here every thing is getting swept under carpet
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