The crisis-ridden firm owes Rs 57,000 crore of its whopping Rs 91,000-crore debt to state-owned banks.

The government will consider action against former directors of Infrastructure Leasing & Financial Services (IL&FS) if their active role in any irregularity at the debt-laden company is established by investigative agencies, official sources told FE. Meanwhile, finance and corporate affairs minister Arun Jaitley was briefed by corporate affairs secretary Injeti Srinivas on Thursday on various aspects of the IL&FS crisis.

Jaitley was briefed on the government’s move to supersede the IL&FS board and steps being initiated to prevent the contagion from spreading to the broader financial system. Sources had earlier said state-run banks, being the largest lenders, might consider the possibility of restructuring certain outstanding loans to IL&FS.

The crisis-ridden firm owes Rs 57,000 crore of its whopping Rs 91,000-crore debt to state-owned banks. “The earlier board has been superseded but former directors are not disqualified yet. So, they can continue in their respective positions in other companies. Disqualification is a serious issue. However, if the probe agencies find incriminating evidence against their complicity in any sort of fraud or wrongdoing (at IL&FS) and they are convicted of it, there will be a case for disqualification,” said an official.

Another official said if after the probe the nominee directors were to be removed, public-sector entities such as Life Insurance Corporation (LIC), Central Bank of India (CBI) and State Bank of India (SBI) which have large stakes in IL&FS could also face action. “A due process involving all relevant regulatory authorities and bodies tasked with nabbing the fraudsters will be followed to assess the roles of those involved,” this official said The Serious Fraud Investigation Office (SFIO) has initiated a probe into potential irregularities at IL&FS and subsidiaries, covering a total of 169 entities, and it will take at least a month to file a preliminary report.

“It is very clear that there was mismanagement. If there was a fraud, SFIO will decide. If the matter is related to the board, the new board will decide. Auditors’ role will be looked into. Sebi will look into CRF. We expect each regulator to look into things. The government will also look into how diligently the nominee directors perform their duties,” the official said. “The government will not spare anybody, but will also not make any foregone conclusion. It will deal with the matter with an open mind. If any wrong move is taken at this point of time, it might damage the outcome,” the official added.

The government hasn’t invoked Section 164 (read with Section 167) of the Companies Act (meant for the disqualification of directors) while superseding the earlier board of IL&FS with the approval of the National Company Law Tribunal (NCLT), said another official. The government has issued a lookout notice for former top executives of IL&FS, such as Ravi Parthasarathy, Ramesh Bawa, Hari Shankaran and K Ramchand, as the government fears they might flee the country. Parthasarathy, however, is learnt to be in London for treatment.

The charges against some of the former directors include masking the true state of the group’s financial stress, suppression and misrepresentation of key facts, siphoning off of funds via excessive executive package and gross financial mismanagement. If the probe agencies uncover that some of these were done deliberately, especially intentional misrepresentation of facts, then that action could be defined as fraud. As per Section 447 of the Companies Act, the guilty will be liable to imprisonment of up to 10 years and a fine of up to three times the amount involved, said the sources.