SFIO Files Charge Sheet against IFIN; Names Auditors, Directors, Key Employees and Companies
The Serious Frauds Investigation Office (SFIO) filed its first charge sheet against IL&FS Financial Services, one of the two major companies of IL&FS (Infrastructure Leasing & Financial Services), the 347-company conglomerate that is in serious financial trouble. 
 
The criminal complaint (20 of 2019) filed before the additional special judge in Mumbai has cast the net wide with 30 respondents who include the entire board of IFIN led by Ravi Parthasarathy and all the audit firms and their key partners and C Sivasankaran, the industrialist whose loans pop-up in various disputes with the Tatas and others. 
 
The charge sheet alleges that C Sivasankaran was given loans without adequate collateral and when they went bad, senior management connived with him to cause a wrongful loss to the company. Siva group founder C Sivasankaran was a close friend of Ravi Parthasarathy and Hari Shankaran—the chairman and vice chairman of IL&FS respectively, says the charge sheet. 
 
SFIO also accuses the auditors, BSR & Co LLP,  Deloitte Haskins & Sells (DHS) LLP and others of helping to conceal information and falsify accounts. It documents the modus operandi exposed by the Grant Thornton forensic audit of repeated round-tripping funds through a host of other companies to pretend repayment and show the accounts as being standard. It names Parsvanath Group, A2Z and ABG as companies where similar dubious practices were followed. These too have been examined in detail by Grant Thornton’s Icarus report. 
 
Apart from failure to disclose information or follow Reserve Bank of India (RBI) guidelines, it accuses Ramesh Bawa specifically of failing to disclose his interest in AAA Infosystems and AAAB Infrastructure Pvt. Ltd., in which his wife and daughter are directors. 
 
SFIO also accuses IFIN of devising an illegal strategy to lend money to IL&FS group companies in violation of RBI’s concentration rules. IL&FS Transportation Network, the large listed company in the IL&FS group, was allegedly one of the primary beneficiaries. 
 
The charge sheet accuses independent directors of being mute spectators and failing to raise appropriate governance issues at board meetings. Here is the charge sheet.

The charge sheet says that a coterie of persons led by Ravi Parthasarathy and comprising Hari Shankaran, Arun K Saha, Vibhav Kapoor, K Ramchand, Ramesh C Bawa “were controlling the affairs and decision making in the IL&FS group as well as IFIN”.

It also says that the independent directors knew the actions of this coterie in hiding bad loans and stressed assets or lending to companies that were already under corporate debt restructuring.

Apart from outlining how various RBI norms and rules were breached to hide the poor financials of IL&FS group companies, the rosy picture they presented allowed the group to announce hefty dividends and this also formed the basis of the remuneration earned by senior management.

With regard to the relationship with C Sivasankaran, the charge sheet says that he organised hospitality for Ravi Parthasarathy,  Hari Shankaran and Vibhav Kapoor, including “arranging foreign travel, private jets, helicopter rides, booking of resorts and arranging the interiors of their flats at Brussels” among other things. In return, they had connived to lend to the Siva group.

Interestingly, it says that the loans to Sivasankaran were against the shares of Tata Teleservices Ltd (which figure prominently in the dispute between the Tatas and Cyrus Mistry, the group’s former chairman who was shamefully ousted).  These shares were held at a fixed valuation of Rs82, long after the market value had dwindled until the Reserve Bank of India (RBI) in its report said that the value of the shares should be treated as NIL and provided for.

Another shocking disclosure is how IFIN lent to the Siva group against Emerald Stones valued at Rs 59.62 crore, however this was done “without any physical examination, documentation related to value, verification of ownership, verification of premises where they were kept” etc., it was done by relying only on a chartered accountant’s letter.

Later, IFIN also subscribed to 0.001% unsecured, optionally convertible debentures of Siva Green, a group company to the tune of Rs 190 crore for five years. This was virtually an interest free loan to the group. New loans to the Siva group were given to facilitate repayment of old loans and the security against which loans were extended was non-existent, since the Tata Teleservices shares had no market value. Para 54 of the charge sheet says that IL&FS did not write off the Tata Teleservices shares and debentures to Siva Green despite being directed to do so in the RBI inspection.

SFIO refers to these as fraudulent transactions whose ultimate aim was also to present a rosy picture and defraud the lenders of IFIN. Para 36 and 37 of the charge sheet says that IFIN along with Ravi Parthasarathy and Hari Shankaran (the two persons on whom Sivasankaran allegedly had great influence) entered into a series of transactions to bailout and benefit Sivasankaran and his companies in a variety of transactions, including a loan of Rs175 crore.

A shocking charge is that IFIL lent Rs 125 crore to the beleaguered Unitech Group, which was already in financial distress, only for the Unitech to repay its dues of around Rs 80 crore to Sivasankaran. According to the charge sheet statements of IFIN employees reveal that Sivasankaran dictated terms at IL&FS and worked through Ravi Parthasarathy and Hari Shankaran.

Auditors and directors are accused of having failed to perform their statutory duties, conniving or turning a blind eye to the problem of stressed assets.

Many other charges by the SFIO have been documented in the Project Icarus and reported in detail earlier.

 
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    IL&FS Scam: ED Raids Ex-directors Rajesh Kotian, Shehzaad Dalal, Manu Kochhar and Mukund Sapre
    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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    Ramesh Bawa of IL&FS Financial Services Arrested in Delhi by SFIO  
    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.
     
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    COMMENTS

    Ashok S

    2 months ago

    Well said Rajiv,in 2008 in Satyam scam PriceWaterhouseCoopers (PWC) the auditors were fines to the tune of nearly 200 crores for the loss incurred by American investors by New York Stock Exchange as ther is a provision to do so but as there is no such provision as per Indian laws against auditing firm the entire loss was observed by Indian Poor Investors.Why not Punish Delotte to the tune of 25 billion USD.

    Asheem Srivastav

    4 months ago

    Kindly let people know the impact of IL&FS scam on share market, if any

    Rajiv Gupta

    4 months ago

    IL&FS is the biggest scam in the recent times & proving to be a black hole. None of the shareholders representative ever bothered about being vigilant & stem the rot. Like Sankaran & Bawa, they were also responsible & therefore held liable & put into jail. You cannot believe that they did not dip their fingers in the pie. Therefore, all criminals should be treated alike. The rating agency should be held liable & once again those responsible should be put into jail. No scam of 1 lakh Crore magnitude can happen without the blessings of the auditors. Therefore those responsible in Deloitte should be put behind the bars. Remember the case of Rajat Gupta of Mckinsky in US, all those responsible should be behind the bars. We are not talking about layman or uneducated fools but highly qualified & well regarded officials. If they were chosen to be in that position, they are responsible for the consequences. The cheats pay for the crimes.
    Even in 2014, the GoI allowed them to issue RCPs, which is actually a hybrid & generating tax free incomes. It appears that several MNCs invested in that the pension & PF funds of the employees. The GoI is directly responsible for stopping cheating in this case because institutions like SBI & LIC of India & HDFC (one of the best) are involved. If they failed to see & assess the truth then you cannot have confidence in these institutions also! Is it really acceptable to the GoI. Therefore, the GoI needs to take the responsibility.
    What about the mother company i.e. IL&FS Ltd. What is the status of this company? Is it down the drain then why we should have a new Board. Is it to ensure that people are given false assurance of something being done but actually nothing will happen. Is this not cheating once again?
    Lastly, reportedly, the GoI is settling the liability of the International institutions because of the fear of losing faith in making investments being safe in India. Is this really, the correct thing to do? No, once again this is cheating? Why no priorities are being set to take care of the individual investors who have put in their lifetime savings into the company? Is suicide the only solution for these people? Why & how the government is least bothered?

    MIHIR AVINASH KULKARNI

    4 months ago

    There's Moneylife on one side and then there's the rest. Kudos! God bless; more power to you and Team.

    Hudaf Shaikh

    4 months ago

    Welcome step - the British Courts have not just denied bail to Nirav Modi but also thrown him in a third class jail with druggies and murderers for scamming PNB of $ 1 billion.

    Our courts should not just throw Bawa and Sankaran but entire team of directors of IL&FS for the $15 billion scam which has impacted retirement savings of millions of people.

    B. Yerram Raju

    4 months ago

    Congratulations for making bandicoots come out of the hole to go to the cell.

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