The government on Monday said an Serious Fraud Investigation Office (SFIO) investigation has been ordered into the affairs of IL&FS and its subsidiaries. The debt-laden infrastructure financing giant was paying dividends and huge managerial pay-outs regardless of looming liquidity crisis.
In a press release, the government said it was compelled to take this extraordinary step under section 241(2) of the Companies Act, 2013 for an order to prevent further mismanagement in order to protect public interest. "The high debt stress was clearly visible in the company and its main subsidiaries for the last so many years, but was camouflaged by misrepresentation of facts," it said.
The government said that the decision to supersede the existing board was taken after careful consideration of a report received from the Regional Director, Mumbai under the Ministry of Corporate Affairs which brought out serious corporate related deficiencies in the IL&FS holding company and its subsidiaries.
"It was noted that the consolidated financial statement of IL&FS holding company and its subsidiaries, associates and joint ventures projected a picture through highly exaggerated depiction of non-current assets in the form of intangible assets amounting to over Rs 20,000 crores. Besides, bulk of revenue was in the form of receivables, around 50 per cent, was locked up in litigation and arbitration," it added.
The Centre said it is committed to ensure that IL&FS receives much needed temporary liquidity support to ensure its financial solvency with a view to maintain the financial stability in the country. It is hoped that financial institutions would be supportive for providing urgent liquidity.
"Continuance of the present Board had become prejudicial to the interests of the company and its members and this management was affecting public interest because of its adverse impact on financial stability and making capital markets so adversely affected," the government said.
IL&FS has 169 group companies, including subsidiaries, joint venture companies and associate entities. It is involved in many infrastructure projects.
"Any impairment in its ability to finance and support the infrastructure projects would be quite damaging to the overall infrastructure sector, financial markets and the economy, considering its systemically important nature," the government said.
Any more defaults by IL&FS and subsequent delays of several infrastructure projects is likely to slow down growth and affect jobs ahead of 2019 elections.
IL&FS has executed India's longest Chenani-Nashri tunnel project. This year, the infrastructure company got the contract to build Rs 6,808.69-crore Zojila tunnel providing all-weather connectivity to Ladakh region.