Even as the top management of the crippled IL&FS Group continues to face the heat from multiple probe agencies and regulators like the Enforcement Directorate, Serious Fraud Investigation Office (SFIO) and, most recently, SEBI, former directors have not escaped unscathed. The buzz is that the Ministry of Corporate Affairs (MCA) will soon move the National Company Law Tribunal (NCLT) to freeze the bank accounts and properties of some of the past directors of the Group.
"The MCA is likely to request the court to extend the earlier orders to cover past directors, probably including some of the non-executive board members," a senior lawyer told The Economic Times, adding that former auditors may also be included. Once the court passes an interim order freezing the assets, only limited withdrawal of funds is allowed for the sustenance of the account holders.
In December 2018, the NCLT had restrained nine erstwhile top honchos of the IL&FS Group from mortgaging or selling their movable or immovable assets as well as jointly-held properties. The list reportedly included former managing directors and CEOs of subsidiary entities such as Ravi Parthasarathy, A.K. Saha, Hari Sankaran, G. Ramachandran and R.C. Bawa. This development came two months after the tribunal ousted IL&FS' previous board and a government-appointed board led by Kotak Mahindra Bank managing director Uday Kotak took charge.
This is not the first time that MCA is mulling such a move. Last year, the National Company Law Appellate Tribunal (NCLAT) had upheld MCA's plea to freeze the assets and properties of 70-odd directors - including independent directors - of companies belonging to Nirav Modi and Mehul Choksi in connection with the Rs 13,000 crore Punjab National Bank (PNB) scam.
The buzz last month was that IL&FS' board was evaluating the option of calling back all bonuses and benefits paid to former directors - including nominees and independent directors - of the parent company as well as IL&FS) and two group companies, IL&FS Transportation Networks India (ITNL) and IL&FS Financial Service (IFIN) for the five-year period from 2012-13 to 2017-18. The board reportedly expected to recover over Rs 10 crore from each director and as much as Rs 2 crore from each independent director per year through bonus clawback. The Group is sitting on a debt pile of over Rs 90,000 crore.
According to the daily, the taxman may also come calling soon, adding to the behemoth's woes. The income tax department had a meeting last week with its investigation division and is weighing a possible probe into suspicions that the costs of multiple IL&FS infrastructure projects was inflated.
IL&FS Rail, an arm of ITNL, has already come under the scanner and the probe may now be widened to focus on allegations that shell companies were floated to award contracts and divert funds for a commission. For instance, according to an ED complaint on IL&FS Rail, transactions made with several private firms including Silverpoint Infratech, Suryamukhi Projects, NKG Infrastructure, Ethical Constructions and Prathyusha Resources & Infrastructure were bogus.
"This would require an enquiry into the affairs and books of ITNL and various special purpose vehicles which were floated to construct infrastructure projects - that could focus on whether there were fake invoices, role of auditors and nature of documentation etc," a source told the daily. While the SFIO's first chargesheet focussed on IFIN, it is currently working on the chargesheet on ITNL, the largest arm of the IL&FS group.
Meanwhile, the bids for ITNL have been delayed further. The reconstituted IL&FS board had previously set a deadline of May 15 for finalising bids from interested parties for its 22 projects from which it expected divestment of Rs 26,000 crore. The delay stemmed from the fact that the fair value of the projects is yet to be ascertained not to mention the lack of representation and warranty extended by the board.
The investigation into the financial mismanagement at IL&FS and its many subsidiaries has also put the spotlight on the role of auditors. As per tribunal filings submitted by MCA last week, at least 22 violations of auditing standards by Deloitte Haskins & Sells and BSR & Associates - a KPMG affiliate - have been detected at IFIN, Reuters reported. While both these firms have denied wrongdoing, the government is seeking a five-year ban on them. In the meantime, senior chartered accountants in Mumbai, including a few partners of the Big 4 auditors, have formed a group to present their views before the MCA.
With agency inputs