IL&FS Scam: Former Directors May Have To Pay Up; also Face SFIO Probe, Say Reports
Moneylife Digital Team 15 May 2019
The new board of scam-hit Infrastructure Leasing & Financial Services (IL&FS) is evaluating the option of calling back all bonuses and benefits paid to former directors of three group companies for the past five financial years. In addition, the Serious Fraud Investigation Office (SFIO) to likely to question IL&FS' former chairman Sunil B Mathur and independent director RC Bhargava, besides a few officials from State Bank of India (SBI), say media reports.
According to sources, IL&FS’ new management 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. 
As reported by Moneylife, an anonymous whistleblower has 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 IL&FS Financial Services Ltd (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 Uday 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, IL&FS Transportation Networks India Ltd (ITNL) and IL&FS Financial Service Ltd (IFIN) and would include all directors, including nominees and independent directors. 
A report from Economic Times says that 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. 
Separately, after questioning three auditors of fraud-hit IL&FS, a senior official from SFIO, told New Indian Express that “The agency has not given a clean chit to anyone at present. We are looking for all the possible connections and the involvement of stakeholders. In this regard, we need to question some independent directors and the former chairman of LIC. Last week we questioned some of them, and this week we will continue with the questioning."
Following the exit of Ravi Parthsarathy in September 2018, SB Mathur, who is former chairman of Life Insurance Corp of India (LIC), was made IL&FS' group chairman. LIC is the largest shareholder in IL&FS, with a 25% stake, and had its representatives on the board. 
Last week, according to the newspaper, the SFIO formally recorded statements of executives from Central Bank of India and is likely to begin questioning officials from SBI.
In April this year, the SFIO arrested Ramesh C Bawa, former chief executive (CEO) of IFIN.
The SFIO, which is probing the IL&FS fraud, had issued summons to several former senior executives of IL&FS, including Mr Bawa. As much as 90% of the loans advanced by IFIN, the lending arm of the infrastructure conglomerate IL&FS have turned bad. Interpol notices have been issued against all the key members of the management cabal that worked closely with Mr Ravi Parthasarathy, founder of IL&FS, who ruled the 346-company conglomerate with unfettered powers and pliant boards for over 25 years. 
IL&FS vice chairman, Mr Sankaran, is already in SFIO custody. However, its founder and past chairman Ravi Parthasarathy has not been touched on humanitarian grounds since he is undergoing treatment. However, red corner notices have been issued against him too and he is no longer allowed to go to London for treatment. 
As reported by Moneylife, almost 90% of the loans advanced by IFIN have turned bad underlining the deep corruption and culpability of the previous management. Of its loan book of Rs18,805 crore, Rs10,656 crore was lent to third-party borrowers and nearly Rs7,000 crore to group companies, N Sivaraman, chief operating officer at IL&FS group, has revealed.  
According to Kaushik Modak, who now heads IFIN, the company has recovered Rs931 crore since the new board led by banker Uday Kotak took over the IL&FS group.
Free Helpline
Legal Credit