Infrastructure Leasing & Financial Services (IL&FS), and its key subsidiaries like IL&FS Financial Services Ltd (IFIN), IL&FS Transportation Network Ltd (ITNL) had literally crushed the group's step down units by imposing heavy finance and fees, mostly collected upfront, making them financially unviable, reveals the submission before the National Company Law Tribunal (NCLT).
Quoting the interim report of the serious fraud investigation office (SFIO), the ministry of corporate affairs (MCA), says, "The modus operandi of IL&FS group during FY2015-2018, was to keep the holding company and its immediate subsidiaries financially viable and healthy, through an unsustainable, pyramidal funding, routing short-term funds borrowed at the holding company or the subsidiary company level to its various step-down or project subsidiaries, as the holding companies' contribution or to avoid default on these companies' borrowing."
"The holding company (IL&FS, IFIN, ITNL or other borrowing entities as the case may be) would lend the borrowed amount at an interest rate higher than the average cost of borrowing to the step down subsidiaries. Many a times, this lending to the step down subsidiaries, joint ventures and project special purpose vehicles (SPVs) was routed through other group companies in order to circumvent the Reserve Bank of India (RBI) regulation with regard to investment of funds by non-banking finance companies (NBFCs)," it added.
During the investigation, the SFIO found continuous fund raising by IFIN from the market, including debentures worth Rs3,900 crore and commercial papers worth Rs2,730 crore. In addition, IFIN also took bank loan of Rs8,500 crore and raised inter-corporate deposits of Rs980 crore. Overall, SFIO says, IFIN had sourced 75% of its funds from the public or banks.
"Investigation revealed that IFIN had advanced Rs1,630.05 crore to ITNL violating the prudential norms (credit concentration) for exposure to group companies framed by the RBI. In order to bypass these norms, the loans ultimately advanced to ITNL were layered through eight group companies of IL&FS," SFIO says.
SFIO also found that the credit appraisal memorandums (CAMs) for these loans given to above mentioned eight companies were sanctioned without any clear purpose or against a specific project in hand. "...the purpose mentioned for these loans is very generic and prima facie, should not have been sanctioned in the normal course of business. Loans were advanced to these companies despite all of these companies suffering negative net worth."
"...these companies were sustaining continued losses and were incorporated for a specific project(s) and despite this these were used as a vehicle to layer or camouflage routing the funds from IFIN to ITNL," the report reveals.
According to SFIO, this was done to project key subsidiaries of IL&FS as financially sound through the interest charges, dividend and fee based returns as well as through ever greening of loan. This allowed IL&FS and its key subsidiaries to enjoy regular dividends, interest payments and high credit ratings.
The report says, "Defaults in the group companies were avoided for the period by routing funds borrowed by key companies, which projected a financially healthy picture, thus creating an unsustainable bubble in the absence of sufficient revenue generation internally by the IL&FS group."
This also helped key management executives such as, Ravi Parthasarathy, Hari Sankaran, Arun Kumar Saha, Vibhav Kapoor, K Ramchand, Ramesh C Bawa, Pradeep Puri, S Rangarajan and Mukund Sapre and others to continue to enjoy unmitigated personal gains through high remunerations, perks and other means, such as the employee welfare trust (EWT) and untrammelled control over IL&FS group despite the stress. This control was also misused in the case of EWT to enrich employees, including especially the key individuals and to create liabilities for the group, SFIO says.
Ravi Parthasarathy was chairman and managing director (CMD) of IL&FS as well as director and member of committee of directors (CoDs) in several group companies. From October 2017 till he resigned in July this year, Mr Parthasarathy was non-executive chairman of IL&FS group.
Hari Sankaran was vice chairman and MD of IL&FS. He also was director and member of CoDs in several group companies. Mr Saha was joint MD and chief executive of IL&FS and also was director and member of CoDs as well as audit committees in several group companies.
While Mr Kapoor was the chief investment officer of IL&FS and chairman of IL&FS EWT, Mr Ramchand was the managing director (MD) of ITNL and trustee of EWT. Mr Rangarajan was the MD and CEO of IL&FS Securities, Mr Sapre was executive director of ITNL, while Bawa was the MD of IL&FS Financial Services and trustee of EWT. Mr Puri, an officer from the Indian Administrative Services (IAS) was chairman of IL&FS Water Ltd and director and member of CoD of ITNL.
During investigation, SFIO found multiple immovable properties and movable properties worth crores of rupees amassed by the top executives of IL&FS.
"Ravi Parthasarathy had declared Rs98.98 crore movable properties besides four immovable properties. Hari Sankaran had declared Rs19.04 crore movable properties and three immovable properties. Arun Saha declared Rs59.49 crore movable properties and nine immovable properties. Vibhav Kapoor declared Rs22.47 crore movable properties and two immovable properties. Ramesh Bawa declared Rs32.72 crore movable properties and five immovable properties. K Ramchand had declared four immovable properties," the SFIO report says.