The Supreme Court on Tuesday allowed reopening of the books of accounts and recasting of the financial statements of debt-ridden Infrastructure Leasing & Financial Services (IL&FS) and its two other group entities for the past five years so that the Serious Fraud Investigation Office (SFIO) can investigate into the wrongdoings.
At present, IL&FS group companies, with a collective debt of over `90,000 crore as on March 2018, are going through a resolution process. The government in October last year superseded the board of IL&FS and appointed a new board with banker Uday Kotak as its executive chairman.
The government is working on a resolution plan for the ailing company.
A vacation bench comprising justices Indu Malhotra and MR Shah vacated its earlier April order that had stayed a National Company Law Appellate Tribunal (NCLAT) order on reopening of the company’s books.
Tuesday’s order came on two pleas filed by the ministry of corporate affairs and the new management of IL&FS seeking vacation of the apex court’s April 29 order that stayed the NCLAT’s decision to reopen the books of accounts and recasting of the financial statements of IL&FS, IL&FS Financial Services and IL&FS Transportation Networks for 2012-18.
The ministry had argued that the probe into the affairs of the company should continue as it was necessary to arrest the effect of mismanagement which can’t be done without reopening of the accounts.
The importance of reopening of accounts is to draw a true and fair picture of the financial position of IL&FS and its group companies, which have a significant market and public borrowings of over `91,000 crore, IL&FS had stated.
The top court’s ruling has come as a major setback for the previous management of IL&FS, including former vice-president and director Hari Sankaran, who had challenged the NCLAT’s January 31 order on the grounds it was basically ex-parte and his version was not taken into consideration. The appellate tribunal had also directed the government to appoint such person/firm as the chartered accountants to recast the accounts/financial statements of all the three companies for these five years.
Sankaran has been arrested by the SFIO during its investigation into loan defaults of IL&FS and the connected group companies.
The government further told the SC that the suspended director had failed to show how the NCLAT order had prejudiced him when the reopening of accounts was ordered on the basis of the interim SFIO report and the prima facie findings of the disciplinary committee of the Institute of Chartered Accountants of India by which the erstwhile board of directors was suspended on grounds of mismanagement itself.
SFIO, which filed its first chargesheet last week in the case before a special court in Mumbai, has accused 30 entities/individuals of various violations and offences, including of financial fraud. The former top-management members of IL&FS Financial Services, a subsidiary of IL&FS, have been charged with committing fraud with intent to injure the interest of the company, its shareholders and creditors, resulting in wrongful loss to the company.
They have been accused of forming a “coterie to control day-to-day affairs of the company and of colluding with others” in using illegal methods in violation of the RBI directions. Similar probes are underway for other group entities, including IL&FS, the parent firm.