SFIO investigates window dressing of accounts

The Serious Fraud Investigation Office (SFIO) is probing the financials of the 169 group companies of debt-laden Infrastructure Leasing & Financial Services (IL&FS).

There was alleged falsification of books and window dressing of accounts, said a person privy to the investigation.

The SFIO has found misrepresentation of facts by the group subsidiaries since 2013 and is examining the accounts of all these firms for the last five years. SFIO officials on Monday questioned IL&FS executives during their visit to the firm’s Mumbai office when they took possession of credentials, documents, and other records.

Sources said the fraud office was also in the process of issuing summons to IL&FS executives and directors who had quit soon after the group started defaulting on loans and the rating agencies downgraded its debt. The fraud office said it was quizzing the risk management committee, responsible for flagging issues like credit risk and capital adequacy.

The risk management committee did not conduct a single review meeting since July 2015, despite the critical condition the company was in.

“If required, we will reach out to the people who were in IL&FS’ former risk management committee,” said a source at the SFIO. The committee was reconstituted in August 2017 under the chairmanship of Hemant Bhargava, who has since resigned from the board. The members of the committee, R C Bhargava, Michael Pinto, and Arun Saha, continue as members on the board. S Bandyopadhyay was the chairman of the committee till he resigned from the IL&FS board in April 2017.

“Surprisingly the committee has never cautioned about the crisis in the company, which is a clear violation of compliance norms under the Companies Act,” the source said. The committee’s role was to ensure governance and avert the risk arising out of borrowing and other fund deployment.

Besides risk management, the SFIO is also looking at the criminality angle in IL&FS’ projects that have been completed and those that are under way.

The fraud office is also looking at IL&FS’s non-current assets in the form of intangible assets worth ~200 billion.

Besides, the role of credit rating agencies, auditors, and independent directors is also under the radar. The fraud office suspects the connivance for underreporting of the looming liquidity crisis and other issues the company was going through.

The government on Monday had said that IL&FS continued making large dividend payouts and compensation to the management regardless of the fact that the company was facing severe liquidity crunch. Meanwhile, the fraud office has engaged its internal experts to initiate the forensic audit of books of these firms, which have been taken into custody. The fraud office is expected to submit its investigation report in a month’s time, said the person quoted earlier.