The Union government has asked the board of Infrastructure Leasing and Financial Services Ltd (IL&FS) to recover excess remuneration worth Rs150 crore paid to the former directors of IL&FS Financial Services Ltd (IFIN) and IL&FS Transport Network (ITNL).
The government communication follows the submission of recast accounts by IL&FS for FY12-13 to FY17-18, which recorded losses of Rs9,600 crore instead of over Rs1,850 crore profit estimated by the management and board of IL&FS.
According to sources, around 40 directors in three holding companies of IL&FS have been identified with an excess managerial remuneration of around Rs150 crore paid between 2013 and 2018. "The company had sent letters to these directors mentioning the amount and seeking a refund."
A
report from Times of India (ToI) says the large part of the amount is to be recovered from four key directors—Ravi Parthasarthy, Arun Saha, Hari Sankaran and Ramesh Bawa - with the sum adding up to over Rs100 crore. Milind Patel, Rajesh Kotian and Vibhav Kapoor are some of the other directors, who face similar action.
"The independent directors, some of whom are big names in the corporate sector, have to refund a part of the commission paid during their tenure when the fraud was perpetuated. The list includes prominent names, such as, Maruti Suzuki chairman RC Bhargava, VBHC founder and director Jerry Rao, former HDFC chief KM Mistry, LIC's former chairman SB Mathur, retired civil servant Michael Pinto and Rina Kamath," the report says.
In June 2019, the Supreme Court allowed the serious fraud investigation office (SFIO) under the Union ministry of corporate affairs (MCA) to reopen and recast the accounts of IL&FS, IFIN and ITNL for five years starting FY12-13. The apex court passed the order on a plea filed by MCA which sought to examine the books of IL&FS, IFIN, and ITNL between FY12-13 and FY17-18.
In its order, the
bench of justice Indu Malhotra and justice MR Shah says, "...it is required to be noted and as observed hereinabove, independent to the subsequent report of the Reserve Bank of India (RBI), there is a specific finding with respect to the mismanagement and the fraudulent accounts. Therefore, subsequent report of the RBI can be taken note of, while upholding the order passed by the Tribunal under Section 130 of the Companies Act. As observed, a larger public interest has been involved and reopening of the books of accounts and recasting of financial statements of the aforesaid companies is required to be carried out in the larger public interest, to find out the real truth..."
Earlier, the Mumbai bench of the national company law tribunal (NCLT) had directed IL&FS to reopen and recast the financials of three companies, IL&FS, IFIN and ITNL. The order was confirmed by the national company law appellate tribunal (NCLAT) and the apex court.
A few days ago, the recast financials were sent to the MCA and submitted before NCLT's Mumbai bench to take on record, a spokesperson of IL&FS told the newspaper.
A source from the government told ToI that during 2017-18 alone, IL&FS' losses have now been estimated at Rs7,393 crore, compared with a profit of Rs332 crore stated earlier.
According to data shared with MCA, IFIN's losses during the five years were pegged at close to Rs5,000 crore against the earlier-reported cumulative profits of Rs1,602 crore between FY13-14 and FY17-18. In the case of ITNL, the losses for the five financial years add up to Rs1,500 crore, against profits of Rs1,486 crore reported by the earlier management, the report says.
In June 2022, audit regulator the national financial reporting authority (NFRA) found several deficiencies in the statutory audit conducted by SRBC & Co LLP, a member of EY (Ernst & Young), of IL&FS for FY17-18. The audit quality review report (AQRR) also found lapses in the audit of investments, loans and advances by SRBC & Co.
"The total value of investments shown in the standalone financial statements of IL&FS as of 31 March 2018 amounts to Rs12,320 crore, which is almost 50% of its balance sheet size. The audit firm failed to properly verify these investments in almost 80% of the cases. The deficiencies are observed in the areas of use of valuation experts, fair valuation, and impairment loss evaluation. Also, there are certain investments (Rs1,637 crore) for which no evidence of verification is available in the audit documentation. There is no evidence that the audit firm has ensured that the management had tested each investment individually for impairment," NFRA had said. (
Read: IL&FS: NFRA Pulls EY Firm SRBC & Co for Several Deficiencies in FY18 Audit)
As per books of accounts, IL&FS group's revenues were around Rs17,672 crore and it had total assets of Rs115,814 crore and total external liabilities of Rs106,543 crore. It reported a net loss of Rs1,886 crore (consolidated) and a profit of Rs584 crore (standalone) for FY17-18.
NFRA has earlier completed the audit quality review (AQR) of IL&FS' two subsidiaries—IL&FS Financial Services Ltd for FY17-18 (joint audit by Deloitte Haskins and Sells LLP and BSR and Associates LLP) and ITNL (audit by SRBC & Co) for the same financial year, on a reference from the government.
