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SFIO smells a rat in Rs 400-crore IL&FS loan to staff trust

SFIO has said IL&FS extended loans of over Rs 400cr to the employee trust, knowing they won't be repaid.

, ET Bureau|
Updated: Dec 06, 2018, 08.23 AM IST
SFIO’s investigation revealed that key former managerial personnel had amassed multiple immovable and movable properties worth crores of rupees
The Serious Fraud Investigation Office has said Infrastructure Leasing & Financial Services (IL&FS) extended loans of over Rs 400 crore to the employee trust, knowing fully well they would not be repaid, a senior official said.

In its interim report to the corporate affairs ministry, SFIO said the IL&FS Employee Welfare Trust (EWT), an unregistered entity, was dominated by former senior directors of the company to implement their decisions and to enrich themselves at the cost of group companies.

Among these individuals were former chairman Ravi Parthasarathy, former MD Hari Sankaran, former CEO Arun Kumar Saha, former CIO Vibhav Kapoor and RC Bawa, former MD of IL&FS Financial Services, it said. They were also members of committees of directors in subsidiaries of IL&FS.

SFIO observed that the contract of the trust had been amended six times, sometimes without the approval of the IL&FS board, the settlor of the trust.

The report highlighted the “fraudulent and irresponsible conduct of key managerial and executive personnel of IL&FS in using EWT as a vehicle for their personal enrichment”.

The trust had been made into a “vehicle” to invest in securities of IL&FS and group companies with loans obtained from them, the SFIO said.

These securities were granted at very nominal prices to select management personnel or sold to third parties, with the proceeds distributed to these very management personnel, SFIO said in the report submitted to the National Company Law Tribunal in Mumbai.

EWT, with outstanding loans of Rs 500 crore, holds a 12% stake in IL&FS.

SFIO’s investigation revealed that key former managerial personnel had amassed multiple immovable and movable properties worth crores of rupees and it recommended that these assets be restrained under the Companies Act.

Parthasarathy had declared Rs 98.98 crore of movable properties, besides four immovable properties. Sankaran declared Rs 19.04 crore of movable properties and three immovable properties.

Saha declared Rs 59.49 crore of movable properties, apart from nine immovable properties. Kapoor declared Rs 22.47 crore of movable properties and two immovable properties. Bawa had Rs 32.72 crore of movable properties and five immovable properties. Former IL&FS Transportation Networks MD K Ramchand declared four immovable properties

SFIO said the modus operandi of the group during the years FY 2015-2018, prima facie, was to keep the holding company (IL&FS Ltd) and its immediate subsidiaries financially viable and healthy through an unsustainable, pyramidal funding.

Short-term funds borrowed at the holding company or subsidiary level were routed to various step-down/project subsidiaries as the holding companies’ contributions or to avoid default on these companies’ borrowings.

The loans advanced by the holding company were at an interest rate higher than the average cost of borrowing. They were routed to the stepdown subsidiaries, joint ventures and project special purpose vehicles through other group companies to circumvent Reserve Bank of India curbs on investment of funds by non-banking finance companies.

The holding company, in the process, imposed heavy finance and other fee-based costs, especially on the already stressed step-down subsidiaries, and made them further financially unviable.

Key subsidiaries of IL&FS were therefore projected as financially sound through interest charges, dividend and fee-based returns, as well as through evergreening of loans so that IL&FS and its key entities could benefit from regular dividends, interest payments and high credit ratings.
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