The Serious Frauds Investigation Office (SFIO) is understood to have arrested Ramesh C Bawa, former chief executive (CEO) of IL&FS Financial Services (IFIN), who had switched off his phone and vanished after the Supreme Court of India dismissed his petition challenging the SFIO’s powers to arrest him.
Sources in the know told us that Mr Bawa was holed up with a friend and tracked down towards midnight by questioning his family members.
Moneylife was the only publication to report that Mr Bawa had gone missing and had switched off his phone. As we reported on 11th April, Mr Bawa lives at Greater Kailash Part 1 in New Delhi. On enquiring at his home landline number, we were told that he was not at home. The person who answered the call, passed the phone to ‘madam’ , who we assume was his wife. She informed us that she was unaware of Mr Bawa’s whereabouts and that she had no idea if he had plans for any other legal action. When Moneylife tried calling Mr Bawa on his mobile number, it was indeed switched off.
Sources say the agency will now follow the laid down procedure and he may be brought to Mumbai for further questioning.
The SFIO, which is probing the Infrastructure Leasing and Financial Services Ltd (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 Hari Sankaran, is already in SFIO custody. However, the founder and past chairman Ravi Parthasarathy has not been touched on humanitarian grounds since he is undergoing treatment. However red cornor 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.
Even as the Supreme Court has dismissed a petition filed by Ramesh C Bawa, former chief executive officer (CEO) of IL&FS Financial Services (IFIN), the man himself appears to have given investigation agencies like the Serious Fraud Investigation Office (SFIO) and the Enforcement Directorate (ED) the slip.
According to sources, Mr Bawa has stopped using his old mobile number and is not traceable. Sources close to Infrastructure Leasing & Financial Services (IL&FS) told us that he had changed his SIM card.
When Moneylife tried calling Mr Bawa on his mobile number, it was, indeed, switched off. Mr Bawa lives at Greater Kailash Part 1 in New Delhi. On enquiring at his home landline number, we were told that he was not at home. The person who answered the call, passed the phone to ‘madam’, who we assume was his wife. She informed us that she was unaware of Mr Bawa’s whereabouts and that she had no idea if he had plans for any other legal action.
However, it is surprising that the SFIO and other government agencies, that are investigating the fraud, have lost track of him. Highly placed sources tell us that there are frantic attempts to track him down at various places where he is known to have assets, including Chandigarh and Pithampur.
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 Ravi Parthasarathy, founder of IL&FS, who ruled the 346 company conglomerate with unfettered powers and pliant boards for over 25 years.
Corporate observers are also stunned that the government seems to be treating those associated with IL&FS with kid gloves, especially when ordinary investors in mutual funds have begun to bear the brunt of investments made in IL&FS companies.
So far, only the former vice-chairman Hari Sankaran, has been arrested, that too only last month. His arrest saw Mr Bawa hiring some of the most expensive lawyers in the country to challenge the SFIO’s powers to arrest and to get protection for himself from the courts. However, his plea was not entertained either by the Bombay High Court or the Supreme Court.
On Wednesday, a bench headed by Chief Justice Ranjan Gogoi told senior counsel Mukul Rohatgi, "We are sorry to deny you any relief in the matter. Petition to be dismissed." Mr Rohatgi, the counsel for Mr Bawa told the Court that his client fears arrest in the case, as "SFIO proceedings under Companies Act was completely illegal".
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.
An anonymous 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 (Infrastructure Leasing & Financial Services) group” has written to us outlining how the audit firm benefited by helping the failed group fudge its accounts year after year.
In fact, Deloitte ensured a clean chit to IL&FS even when the Reserve Bank of India (RBI) claims to have red flagged a few issues and asked it to reduce its outstanding debt. It is another matter that IL&FS did nothing. The whistleblower says, “The extent of the scam is mind boggling” and hopes that investigation agencies would question members of the audit team, thereby giving him a chance to disclose how the “the senior management at Deloitte is aware of the financial mismanagement and impropriety by the IL&FS group” and actively helped fudge facts.
Deloitte has an internal reporting system; but the whistleblower says, “I have no faith in the current leadership and, hence, am consciously not resorting to our internal whistle-blowing mechanism.” He goes on to provide a few details which need to be understood in the context of what we already know about its relationship with IL&FS.
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 reporthad 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.
1. Deloitte was a beneficiary of IL&FS’s ‘unmitigated growth’ over the decade in multiple ways. It enjoyed a ‘preferred advisor role’ and was awarded several advisory contracts on a ‘single sourced basis’ at ‘substantially high fees’ as compensation.
2. When audit findings would not show IL&FS in a ‘favourable light’ and Deloitte had to take a position, the auditor conveniently relied on “management explanations and comfort letters by compromising on its independent opinion.” At times, IL&FS’s top management would meet and “coerce Deloitte partners for a more favourable position or watered down position.” This was in addition to the ‘watering down of views’ that already happened internally at Deloitte, in the first instance.
3. Over the years, says the whistleblower, this led the entire audit becoming “susceptible to legacy positions and compounded the financial misreporting.” In many cases “the language of the management response was agreed before hand by Deloitte to close its internal reviews.”
4. The whistleblower claims that, in the past three years, Deloitte discovered enough facts that would have qualified the report. However, a specific audit partner (name withheld by Moneylife) would hold close-door meetings with IL&FS’s senior management and find ways to ‘manage’ these by relying on management explanations and opinions.
The whistleblower goes on to outline how Deloitte benefited from these compromises.
“As a compensation,” for accommodating IL&FS in audit “it was agreed that the group will remunerate Deloitte by way of consulting and advisory fees.” Deloitte Consulting, a separate legal entity was paid crores of rupees under the guise of a ‘strategy study for diversification’. He also says, “Deloitte charged a very large sum of fees to recommend creating a more complex financial services business and grow its already stressed books.”
The audit partner allegedly worked with the consulting entity partner to ensure that Deloitte earned a whopping Rs20 crore annually from the IL&FS group as a reward for ‘managing’ its audit. The ‘round-tripping’ of loans, which was disclosed in detail by a forensic audit ordered by the new management at IL&FS, was not only well known to Deloitte’s senior partners, but they also “helped to identify new businesses to cover round-tripping.”
According to the whistleblower, Deloitte employed a senior tax adviser (name withheld by Moneylife) at a very high salary “to ensure that he would continue to earn high revenues for Deloitte.” He helped design complex tax structures that would meet the ‘eye of the law’ while Deloitte would be protect itself through management explanations.
How To Unearth
Worryingly, the whistleblower says that since the collapse of IL&FS, the team at Deloitte has been “involved in a massive cover up and creating paper trail.” He goes on to suggest how investigators can unearth the involvement of Deloitte’s top brass.
Accessing internal mails of select persons and checking their e-calendars for meetings that were not officially minuted.
Confirming internal revenue targets for fees earned from IL&FS group. Checking non-audit and consulting fees billed by Deloitte from IL&FS group, its associates and especially its joint venture partners.
Questioning audit team members dealing with IL&FS.
The question is: Is the government really serious about a clean-up? So far, everybody connected has been treated with kid gloves. The government-appointed board of IL&FS commissioned Grant Thornton to conduct a forensic audit of IFIN (Project Icarus) which came up with a shocking interim report detailing outright fraud, mismanagement of funds, capricious actions and total disregard for regulators and regulation by the previous management. It also narrowed down the responsibility to the committee of directors (CoD) comprising: founder and former chairman Ravi Parthasarathy, former vice-chairman Hari Shankaran, director Arun Saha and IFIN’s former managing director, Ramesh C Bawa. Even this has not led to any decisive action other than issuing a few show-cause notices. What is worse, some very close friends of this cabal have been appointed by the government to head the new management.
The Institute of Chartered Accountants of India is also investigating the role of all auditors and its interim report has already accused them of acting in a ‘fraudulent and negligent’ manner. The Deloitte whistleblower has only confirmed that this was the result of a deliberate nexus with the auditor and for financial benefit.
Moneylife wrote to Deloitte’s India CEO (chief executive officer) Punit Ranjen for his comments. A PR (public relations) agency for the audit firm sent us this reply on behalf of Deloitte.
“Deloitte strongly disagrees with the issues raised in your mail and these seem to be an attempt to malign the reputation of the firm. The statements made are incorrect and misleading. As you are aware, there are ongoing investigations by regulators and agencies. Further, given our responsibility to maintain client confidentiality, we are regrettably constrained from providing you with the information you have sought. However, we wish to emphasise that our work has been conducted in accordance with prescribed standards and regulations.”
We shared the whistleblower’s letter with Claire Hassett, managing director, Deloitte Global Communications who, in turn, appears to have shared it with senior management in India. There has been no further response from Deloitte.
We have also shared the whistleblower’s letter with Uday Kotak, now the chairman of IL&FS, and with an official of the Serious Frauds Investigation Office (SFIO), which is investigating IL&FS, as well as other Central government agencies.
The independence of rating agencies and statutory auditors is critical to keep a check on malpractices of borrowers. If rating agencies and auditors were not derelict in their duty, the shenanigans of IL&FS would have been discovered much earlier. The loss to lenders could be well in excess of Rs30,000 crore. More importantly, if the checks & balances in a system—provided by ratings, audits and inspections (by the RBI in this case) fail—then all investment decisions become like a lottery. If that is the basis on which we are forced to invest, why has the government spent so much money on creating five giant regulatory organisations for the financial sector alone?
Unless those responsible for allowing the IL&FS mismanagement to continue for years are booked, what kind of message are we sending to investors and the people?