The fact that the management of Infrastructure Leasing and Financial Services (IL&FS) was providing a false picture of its financials is among the first leads that is being looked into by those investigating the matter in the Reserve Bank of India (RBI) and Serious Fraud Investigation Office (SFIO), two sources close to the developments, told BusinessLine .

Annual report

IL&FS, in its most-recent annual report on March 2018, had affirmed on page number 184 that “there is only a remote possibility of devolvement of any obligation on the company”, while giving an assessment of the credit-worthiness of its subsidiaries, associates and group companies with regard to facilitation of borrowings from banks.

Within months of such an assurance given by IL&FS, the parent, and its group companies, started defaulting. In just over a couple of months after such an assurance, IL&FS first defaulted on a short-term loan worth hundreds of crores from the Small Industries Development Bank of India (SIDBI).

Ravi Parthasarathy, who was at the helm of IL&FS for nearly two decades, was instrumental in creating 175 subsidiaries and 66 joint ventures and associates. The annual report of 2018 states that letter of support had been issued to three subsidiaries to ensure that their operations were not adversely affected. Experts now say that the need to issue such letter of support could have risen from the fact and knowledge that the subsidiaries could be in dire straits.

“The company (IL&FS) has carried out a detailed assessment with respect to the current status of each underlying transaction as well as of the cash flow of the projects undertaken by the group company as on March 31. Based on such assessment and confirmation obtained, there is only a remote possibility of devolvement of any obligation on the company to assist in arranging such funds,” the annual report says.

“Based on the above statement, the investigators will start questioning each and every person involved in the chain, including the bankers and auditors to ascertain how they arrived at such an assessment when the companies were simply starring at a huge default risk, which cannot be an overnight scenario. This will also bring the auditors under the scanner as they did not do enough due diligence to qualify or raise any red flag but plainly believed what the management and top officials were informing them,” said the source privy to developments.

Related Topics