IL&FS Fraud: Mumbai Court Admits SFIO Charge Sheet in IFIN Fraud Which Names the Accused, Describes Modus Operandi

A charge sheet filed by the Serious Fraud Investigation Office (SFIO) against 30 entities in the IL&FS Financial Services Limited (IFIN) fraud case has been admitted by the sessions court of Mumbai.

Several members of the former top management of IL&FS, including Ramesh Bawa, its former managing director and CEO as well as Hari Sankaran, the former vice president of IFIN have been named in the SFIO charge sheet. Bawa and Sankaran were taken into judicial custody in April for their role in the fraud.

The charge sheet filed on May 30 has pointed out different charges against the individuals and entities mentioned in it. These include committing fraud under Section 447 and 68 of Companies Act 2013, failure of discharging duties of statutory auditors under Section 143 of the Act, as well as not giving a true and fair view of affairs in the balance sheet.

The next date of hearing is June 18, when the court will take cognizance of the matter and is expected to issue notices to all the accused parties.

The SFIO charge sheet detailed the methodology used by the top management of IFIN to defraud its investors and creditors.

According to the SFIO charge sheet, a ‘coterie’ of senior officials, including Bawa, Sankaran, Arun Saha, Vaibhav Kapoor and Ravi Parthasarathy flouted group lending norms set out by the Reserve Bank of India to avoid classifying defaulting loan accounts as non-performing assets (NPA).

In order to avoid NPA of defaulting loan facilities, the coterie lent to other companies belonging to the borrowing group for repaying the principal and/or interest of the defaulting borrowing company,” the charge sheet stated.

The charge sheet stated that process was repeated several times until the final loan facility was either written off or declared an NPA or simply went unrecognized.

Under the guise of funding vendors or contractors of IL&FS Transportation Network Limited, IFIN also substantially increased lending to its group companies, the charge sheet stated.

Lending to IFIN’s group companies stood at Rs 5,200 crore for financial year 2018, accounting for 37% of its total loans and advances.

The SFIO charge sheet has also accused audit firms Deloitte Haskins & Sells as well as BSR & Associates LLP of colluding with IL&FS officials to conceal facts and of fraudulently falsifying its books of accounts and thereby its financial statements from FY2013-14 to 2017-18.

Allegedly, these audit firms knowingly withheld crucial information, including the negative NOF and CRAR of IFIN, which directly led to losses for creditors and investors, the charge sheet said.

The SFIO continues to investigate other affairs of IL&FS which led to the company failing to service its debt obligations of over Rs 91,000 crore. The Supreme Court on Tuesday allowed the SFIO to reopen the accounts of IL&FS, IFIN and IL&FS Transport Networks for five years starting financial year 2013.

The charge sheet mentioned the name of C Sivashankaran, a businessman who allegedly offered several favors to the top management in lieu of loans which led to huge losses to the company.

It has also brought to light a Reserve Bank of India (RBI) inspection report by for financial year 2016-17 which had revealed that debentures of Rs 190 crore purchased by the IL&FS group were used to fund earlier loans given by the company to different companies belonging to Sivashankaran's Siva group.

According to the charge sheet, IL&FS kept functioning despite the RBI inspection and noted that the crisis could have been prevented if the RBI had acted.

The independent directors of IL&FS remained mute spectators despite being aware of the RBI reports, the SFIO charge sheet stated.