Others

NEW DELHI | MUMBAI: The Serious Fraud Investigation Office SFIO ) kicked off its probe into alleged financial irregularities at Infrastructure Leasing & Financial Services (IL&FS) by questioning the top management, searching the group’s offices and gathering information from its servers, a senior government official said. The agency will also question the ousted directors and former chief Ravi Parthasarathy “We are getting all books of the group, including those of subsidiaries and associated companies. The auditors of the company would also be called for questioning,” the official added.SFIO will look into books of the company for past five years. “A forensic audit will be conducted,” the official said. Another official said SFIO will look into the role of auditors, directors and shareholders in failing to fulfil fiduciary responsibilities. The group is reeling under a debt burden of Rs 91,000 crore.“We are looking into everything at this point — the way projects were implemented and the way they were not implemented, oppression and mismanagement of companies,” said the second official. “We have to see whether there is criminality and what are the violations.”Apart from the board members sacked on Monday, the agency will also question those who resigned recently amid defaults and rating downgrades. For instance, Ramesh C Bawa quit as chief executive and managing director of IL&FS Financial Services on September 21, the day it defaulted on an IDBI letter of credit that came due.Five others resigned with Bawa, four of them independent directors — Renu Challu, Shhubhalakshmi Panse, Uday Ved and SS Kohli — and non-executive board member Vibhav Kapoor. That wouldn’t absolve them of wrongdoing, said another official close to the development.“Board directors can’t be absolved of their obligations by resigning abruptly,” he said. The government on Monday ordered an investigation by SFIO into IL&FS and its subsidiaries after they failed to make repayments on time, damaging investor confidence and sparking fears of defaults by other non-banking finance companies (NBFCs) that roiled the markets.Separately, the Institute of Chartered Accountants of India (ICAI) and the National Financial Reporting Authority will start examining the role of the auditors and whether they colluded with the board to hide information. The preliminary enquiry report of the Mumbai regional director of the corporate affairs ministry has highlighted “corporate-related deficiencies” in the IL&FS holding company and its subsidiaries.It said about half of the group revenue was in the form of receivables locked up in litigation and arbitration. The report said there was a “deep-rooted mismatch in the debt equity ratio because of excessive leveraging, which has put a question mark over its ability to continue as a going concern if allowed to continue in the hands of the present management, the regional director has found in its investigation.”The ministry of corporate affairs asked the home ministry to issue lookout notices against six former IL&FS officials so they don’t leave the country. They include Parthasarathy, ousted vice-chairman Hari Sankaran, Bawa and three others, a senior government official said.While Parthasarathy is abroad, all others are said to be in India. “We have asked MHA (ministry of home affairs) to not allow these people to leave the country as it could harm the on-going investigation,” said the official. “As per our information, the notices have already been issued at all airports by the Bureau of Immigration.”The statutory auditor of IL&FS, SRBC & Co, had drawn the board’s attention to the existence of material uncertainty over the company’s ability to continue as a going concern and the management plan to raise funds, the government had told NCLT on Monday.The Companies Act is clear about the responsibilities of directors, especially independent ones, said SN Ananthasubramanian, a practicing company secretary and former president of the Institute of Company Secretaries of India (ICSI). “It also lays down succinctly the role and responsibilities of key managerial personnel, auditors and other agencies involved in the governance structure. The penalties prescribed are also steep,” he said.“From the pleadings by the government before NCLT on the need to initiate action under Section 242 of the Companies Act, it seems to be an abject governance failure at various levels. This action only reinforces the long-felt need for continuous appraisal and monitoring of performance of management by board, strict adherence to board processes, regular training programs for directors for ensuring their effectiveness.”IL&FS has a complex organisational setup — 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures and four associate companies. “The new board will have to go through all the relevant information regarding the functioning of the company and thereafter ascertain as to why the company finds itself in the position it is in,” said Simranjeet Singh, principal associate of Athena Legal.“Only thereafter can they proceed to come up with a revival plan. Further, if there is any accountability that would have to be attributed to the previous board or other key managerial persons then the same would also be ascertained after the aforementioned exercise has been carried out.”