Infrastructure Leasing & Financial Services (IL&FS) Scam – 2018- Rs 91,000 Crores
The massive IL&FS scam came to light in September 2018 when the IL&FS group companies began defaulting their debt obligations. To date, the IL&FS is under probe by several state agencies including SFIO.
The extent of the Fraud
The new board estimated the debt owed by the IL&FS to external creditors to be about Rs 99,354 crore. Of this, 38 percent of the overall debt – about Rs 35,382 crore – is owed to nationalised banks and another 10 percent (Rs 9,138 crore) by financial institutions.
Essentially, this is the people’s money component of the debt.
· Infrastructure Leasing & Financial Services (IL&FS) is a non-banking financial company (NBFC), or 'shadow bank'. Established over 30 years ago, the conglomerate funds infrastructure projects across India
In July 2018, the road arm of IL&FS was facing difficulty in making repayments due on its bonds. Further, in early September 2018, one of the subsidiaries of IL&FS Group was unable to repay a short-term loan of Rs. 1,000 crore taken from Small Industries Development Bank of India (SIDBI). Also, certain group companies defaulted in repayments of various short and long-term deposits, inter-corporate deposits, and commercial papers.
· IL&FS failed continuously to service its debt and the imminent possibility of a contagion effect in the financial market led the Central Government to move an application under Sections 241 and 242 of the Companies Act, 2013 before the NCLT, Mumbai Bench.
Revelation From The Investigations Post Disclosure
· The first forensic audit report of Infrastructure Leasing and Financial Services (IL&FS) found multiple instances of potentially irregular transactions involving an amount over Rs 13,000 crore, all with the knowledge of the top executives of the group companies.
The preliminary special audit by Grant Thornton covered financial transactions of 11 IL&FS group companies.
· In the report, the auditors found different types of anomalies involving potentially irregular financial transactions such as anomalies pertaining to short term borrowing being potentially utilized for long term lending, loans indirectly provided to group companies through third parties, loans at a negative spread to specific borrowers of IL&FS Financial Service Ltd (IFIN), loans sanctioned to borrowers under stress, and anomalies concerning repayment of loans and end utilisation of loans.
· The special audit noted that the loan facility which was availed by IFIN to be utilized for short term purpose was instead being potentially utilized for lending funds to borrowers for long term purposes amounted to Rs 541.40 crore. Alongside, the audit identified instances where funds that were lent to certain third parties (borrowers of IFIN) were potentially utilized by them to provide funds to certain group companies amounting Rs 2270 crore.
· Furthermore, Grant Thornton found 29 instances where loans disbursed to borrowers were apparently utilised by the group subsidiaries to repay existing debt obligations with IFIN. And there are six instances wherein the loans disbursed by IFIN to its borrowers were utilized to transfer funds to their promoters or directors.
· Pursuant to an inquiry conducted in respect of the statutory auditors of the IL&FS Group Companies, the ICAI found that there were key lapses, shortcomings, and manipulations on the financial statements by the statutory auditors of the said companies.
· It was noted that the condition of the said companies as a result of mismanagement reflects upon the statutory auditors of the said companies. The ICAI has held the statutory auditors of the said companies prima facie guilty of professional misconduct.
· MCA moved against the auditors, Deloitte Haskins and Sells as well as BSR and Associates LLP and their former auditors, under Section 140(5) of the Companies Act, for their role in “perpetuating the fraud” at IFIN, a subsidiary of IL&FS. The Ministry sought the debarment of these audit firms and their audit partners. It also sought interim attachment of their properties, including bank accounts and lockers.
Sources: News articles
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