June 09, 2019

Whistleblower Complained About Fraud in March 2017, But IL&FS Top Management Covered It Up: SFIO Investigation

[ By Bobby Anthony ]


The detailed Serious Fraud Investigation Office (SFIO) investigation report into the affairs of IL&S Financial Services Ltd (IFIN) has revealed a series of allegedly deliberate lapses, violations, “ever-greening” of loans, deliberate delays in recoveries and even a whistleblower complaint in 2017, which was allegedly covered up by its then top management.

The SFIO filed its charge sheet after inspecting accounts of nearly 400 entities, an extensive forensic audit, data collected from desktops and laptops seized from various IL&FS offices as well as e-mails extracted from IL&FS servers, among other sources.

An analysis of this information, as cited in the SFIO investigation report, which is part of its charge sheet submitted to the court, has revealed that a whistleblower complaint was received in March 2017.

According to the report, IFIN’s audit committee which is required to oversee the vigil mechanism at the company, failed to act despite the whistleblower’s complaint.

The IFIN management was aware about the whistleblower complaint which was received in March 2017 but the audit committee discussed it only in December 2017, the investigation report stated.

Yet, it was found that the audit committee simply chose to go by the IFIN management’s version and failed to inquire into allegations made in the whistleblower’s complaint, the report has stated.

The audit committee did not react even when there were instances of “disbursal and bullet recovery of loans” on same day or within a few days, the report revealed.

The SFIO investigation revealed that IFIN's audit committee overlooked numerous impairment indicators and in fact, actively connived with its management to present a good picture of the company's financials to prospective investors, the report stated.

IFIN’s half-yearly financial statements were found to be incorrect and they were used by rating agencies for new as well as surveillance ratings as well as used for market borrowings, the report stated.

According to the report, the company funded its own revenues for several years, was the main source of funds for IL&FS group entities.

IFIN's lending to IL&FS group companies jumped to around Rs 5,200 crore, which was 37% of the company's total loans and advances in the 2017-18 fiscal. The group had accumulated a debt burden of more than Rs 90,000 crore.

The company had converted the funds of banks and public as “profit” with fraudulent lending activities, while the “profits” were also utilized for payment of managerial remuneration as well as “dividend” to the holding company, the report stated.

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