IL&FS Scam: ED Raids Ex-directors Rajesh Kotian, Shehzaad Dalal, Manu Kochhar and Mukund Sapre
Moneylife Digital Team 22 May 2019
The Enforcement Directorate (ED) on Wednesday carried out raids in Mumbai on residences of former directors of fraud-hit Infrastructure Leasing & Financial Services (IL&FS). The top executives whose homes were searched by ED include Rajesh Kotian, Shehzaad Dalal, Manu Kochhar and Mukund Sapre. The searches were conducted in relations with money laundering probe in the multi-crore IL&FS payment default crisis.
Mr Sapre was executive director of IL&FS Transportation Networks India Ltd (ITNL), while Mr Kotian was executive director of IL&FS Financial Services Ltd (IFIN). Mr Dalal held several positions in the IL&FS group including as chairman and chief executive officer (CEO) of IL&FS Investment Advisors LLC and MD of IL&FS Investment Managers Ltd. Mr Kochhar was group chief financial officer of IL&FS as well as director of IFIN.  
The ED had earlier done similar searches in the case in February after it had filed a criminal case under the Prevention of Money Laundering Act (PMLA).
The IL&FS has a total debt of around Rs91,000 crore and its new board led by Uday Kotak is trying to sell its assets to repay the debt. The crisis came to light in September last year after the group defaulted on few of its commercial papers.
Eventually, the government took control of the heavily indebted group in October and set up a new board to manage the company and sail it through the resolution process.
The issue has also raised doubts over the role of its top-level officials along with the credit rating agencies. Investigations are on at several fronts.
As reported by Moneylife last week, the new management of IL&FS may attempt to clawback fees to independent directors; however, they can argue that they relied on the ‘fixed’ audit reports from Deloitte. In fact, independent directors do have to rely on internal audit and statutory audit reports; so the primary action has to be against the auditor. 
An anonymous whistleblower had also alleged Deloitte has helped IL&FS fudge its accounts year after year. The whistleblower, who claims to be part of the “senior management team at Deloitte, Haskins and Sells LLP (Deloitte)” and has been “privy to several internal irregularities in providing professional services to the IL&FS group” outlined how the audit firm benefited by helping the failed group fudge its accounts year after year. (Read: Whistleblower Alleges Deloitte Has Helped IL&FS Fudge Its Accounts Year after Year)
Deloitte has audited IFIN for 10 years and remained the auditor until it completed 10 years in 2018. The audit report had absolutely no adverse findings even in 2017-18. On 3rd April, the new IL&FS management headed by banker Mr Kotak said that 90% of the loans advanced by IFIN, the lending arm of IL&FS, had turned bad.  
Coming back to clawback, which is invoked under Section 199 of the Companies Act, allows a company that is required to restate its financial statements due to fraud or non-compliance with the law to recall any excess remuneration, including stock options, given to directors for the period reviewed.
The clawback option is being evaluated for IL&FS, ITNL and IL&FS Financial Service Ltd (IFIN) and would include all directors, including nominees and independent directors. 
As per reports, IL&FS expects to recover more than Rs10 crore from each director and as much as Rs2 crore per year from each independent director of the troubled group. 
Earlier, the National Company Law Tribunal (NCLT) had approved re-opening of books of IL&FS and its group units for the five year period from 2012-13 to 2017-18 under Section 130 of the Companies Act. However, the Supreme Court while hearing a petition filed by Hari Sankaran, former vice chairman and managing director (MD) of IL&FS, had stayed the re-opening and re-casting of the books ex parte. IL&FS has approached the vacation bench of the apex court for the order to be vacated.  
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