SFIO Files Charge Sheet against IFIN; Names Auditors, Directors, Key Employees and Companies
Moneylife Digital Team 31 May 2019
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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