The Serious Fraud Investigation Office (SFIO) has arrested Hari Sankaran, former chairman of Infrastructure Leasing & Financial Services (IL&FS), in connection with the ongoing investigations into the affairs of IL&FS and its group entities. This is the first arrest in the fraud-hit IL&FS scam.
Hari Sankaran has been arrested on the grounds of abusing his powers in IL&FS Financial Services Ltd (IFIN), through his fraudulent conduct and in granting loans to entities which were not creditworthy or have been declared non-performing assets and caused wrongful loss to the company and its creditors.
It may be worth noting that IL&FS Financial Services had borrowings of more than Rs17,000 crore from debt instruments and bank loans. Provident funds, pension funds, gratuity funds, mutual funds, public and private sector banks, are among those who have invested in these debt instruments.
After the arrest, he has been granted SFIO custody till 4 April 2019.
Earlier in December 2018, the ministry of corporate affairs (MCA), in its submission before the National Company Law Tribunal (NCLT), had revealed details of its finding on several instances of misreporting of income, dubious transactions, conflict of interest, ever-greening of loans and rampant personal enrichment of key employees, including Ravi Parthasarathy, Hari Sankaran, and Arun Kumar Saha, besides others.
In the interim report, the SFIO had stated,"...it is evident that IL&FS procured funds from the market through short-term instruments and invested in its group companies by way of giving long-term loans and advances, which was prejudicial to the interest of IL&FS, in terms of financial solvency. During these distressed times, IL&FS and its key subsidiaries such as IFIN and IL&FS Transportation Network Ltd (ITNL) were contained to raise short-term market funding through commercial papers or inter corporate deposits based on its bogus and fictitious but good credit rating and these short-term loans were passed to its project special purpose vehicles (SPVs) or group companies, for helping them service their debt obligations, management fully aware, thereby hid and avoided possible defaults resulting into increasing indebtedness on a standalone basis."
"This is virtually an act of fraud causing indebtness of IL&FS to over Rs91,000 crore. This indebtness is deliberate, wilful, fraudulent act of directors who were the mind controlling the affairs of IL&FS with intention to defraud creditors, who too had failed in their due diligence. An increasing level of indebtness of IL&FS, year after year, was sufficient red flat for the creditors to prevent further loans and advances. Such discriminator acts of lenders have provided long rope to the directors in control of affairs to put IL&FS in coma," the report added.
Last year, the government superseded the management of the beleaguered company, which has around Rs91,000 crore in long-term debt, through a National Company Law Tribunal (NCLT) order and appointed a six-member board led by Uday Kotak, MD and CEO of Kotak Mahindra Bank, to restore its financial solvency.