The Serious Fraud Investigation Office (SFIO) said that former directors of IL&FS Financial Services (IFIN) allowed the NBFC to lend to Siva Group companies despite the Reserve Bank of India (RBI) having said in its inspection reports that the collateral was inadequate.
Siva Group chairman C Sivasankaran is one of the 30 individuals and entities against whom the SFIO filed its chargesheet on Thursday in the Infrastructure Leasing & Financial Services (IL&FS) default case. The investigative unit of the Ministry of Corporate Affairs recommended prosecution under Section 447 of the Companies Act for fraud and sections of the Indian Penal Code for cheating against 15 individuals and entities including nine erstwhile directors of IFIN, statutory auditors Deloitte Haskins & Sells (DHS) LLP and BSR & Associates LLP, audit partners Udayan Sen, Kalpesh Mehta and Sampath Ganesh and Sivasankaran and his group companies.
Findings of New IL&FS Board
According to people in the know, other than the SFIO, the government-appointed IL&FS board, which is probing the company and its subsidiaries, in an internal investigation has found that loans were sanctioned to Siva Group companies despite an internal noting advising that the group was facing a liquidity crunch.
“Primary security for loans advances, from December 2011 to December 2014, to Siva Group were shares held by Siva Group companies in Tata Teleservices Limited (TTSL),” said the SFIO chargesheet, which ET has seen. “The said security valued at Rs 82 per share was carried over for subsequent fresh lending up till 2014… RBI in its report observed that the value of shares of TTSL should be treated as nil and IFIN should provide provision for the total investment of TTSL.”
RBI inspection reports for FY16 and FY17 observed that the optionally convertible debentures of ?190 crore were used to fund the earlier loans given by IFIN to different Siva Group entities, it said.
“It was observed that the OCD investment is an unsecured investment for five years carrying a meagre 0.01% interest,” SFIO said. “As such the valuation of the investment was nil. This 100% diminution in value of investments was recommended by the inspection.” The SFIO said norms for Sivasankaran firms were relaxed owing to his “personal relationship” with former directors Ravi Parthasarathy and Hari Sankaran, also among the accused. Sivasankaran also extended many facilities to the accused directors. “Email exchanges studied by SFIO revealed that he allegedly arranged hospitality for Ravi Parthasarathy, Vibhav Kapoor and Hari Sankaran, including arranging private jets, helicopter, booking of resorts, arranging for interiors of their flats at Brussels and foreign travels,” the chargesheet said.
The SFIO probe further revealed that IL&FS gave its own land parcels to Siva Group companies to bail out Sivasankaran who was allegedly in need of funds to pay IFCI. “An amount of approximately ?50 crore were due to recovery by IFIN from Siva,” it said. “In such circumstances, it was not possible for an NBFC to lend to a defaulting borrower. Accordingly, with collusion of the management of the IL&FS, a unique structure was created wherein IL&FS gave its own land parcels in HCPL (Hill County Properties Ltd) for entering into a development rights agreement with a Sivasankaran entity, Siva Shelters and Construction Pvt Ltd. This was done despite the fact that in the earlier agreement with Siva Shelter, HCPL was unable to generate any revenue for IL&FS Group.”
IL&FS defaulted on repayments in September last year, triggering a crisis in the market and a liquidity squeeze that has gripped nonbanking financial companies (NBFCs). The government replaced the board of IL&FS as part of a cleanup and the SFIO has investigating wrongdoing at the company.
On loans to Siva Shelter, the probe by the IL&FS board has found that the loan was sanctioned despite the chief risk officer (CRO) advising otherwise. The CRO subsequently overwrote his adverse remark. “The CRO in his report had stated that Siva Shelter had nominal net worth and doesn’t have any experience in the development of real estate projects,” an official to the probe report said quoting the report. “He subsequently overwrote his adverse remark and recommended loan to Siva Shelter citing the relationship with Siva Group. This was unusual.”
The group doesn’t have significant ability to raise capital in the market in the view of the NPA (non-performing assets) exposure to other banks, according to the board, said the official. The RBI had recommended 100% provisioning of the outstanding loan exposure of Rs 190 crore to Siva Group as on March 2017, he said. Despite being financially strapped, IFIN wrote off the loan amount.
“In March and September 2018, loan lent by IFIN to Siva Group were written off in the books of accounts of IFIN. The amount of outstanding loan written off were Rs 190 crore,” the board probe has revealed, he said.
According to the source, as on September 30, 2018, Rs 50 crore was outstanding against the loan provided to Siva Shelter and Rs 240 crore was outstanding for Siva Group.
Source- Economic Times.