Forensic Audit Unearths Loopholes in IL&FS Books: Report

Grant Thornton’s forensic audit of Infrastructure Leasing and Financial Services (IL&FS) books found 107 instances of loan evergreening- loans given without proper collateral and management links with borrowers companies- it has been reported.

Quoting the forensic audit report, MoneyControl reported that former managing director of IL&FS Financial Services (IFIN) Ramesh Bawa did not disclose his investments in two companies, AAA Infosystem and AAAB Infrastructure, a potential non-compliance of regulations of the Companies Act, which mandates every company director to disclose their investments in other firms. The audit also found that Bawa had indirect links with Silverglades Group and Ansal Group, which were provided loans to the tune of Rs 487 crore, without seeking any securities.

It is estimated that IL&FS sanctioned loans worth Rs 3,768 crore to several entities, inside its group and other companies, without seeking securities.

The audit found that about Rs 10,264 crore worth amount was fraudulently given away to several entities through evergreen loans. The report noted, “The names of several prominent companies like Essar, DB Realty, SKIL, Gayatri Group, Siva, SREI, Kohinoor, Parsvanath and HDIL have been mentioned with regards to the evergreening process.”

Also Read: ‘IL&FS Gave Loans Without Security Cover, Adequate Collateral’

The audit found 73 instances of negative assessment in loan disbursal by IL&FS, that is, the group issued loans to several companies whose assessments were negative, including ABG International, Gayatri Group, SREI and Unitech.

“Grant Thornton found that 14 external companies had borrowed money and transferred to IL&FS group companies. SREI borrowed capital thrice and transferred it IL&FS group companies, and Sangam Group borrowed twice and transferred the money to IL&FS,” Money Control reported. The audit found 20 instances where loans worth Rs 1,827 crore were given to companies without any security from borrowers, and 17 instances of loan disbursements worth Rs 1,941 crore, where securities fell short in comparison to the sanctioned amount.

IL&FS group, which has an outstanding loan of over Rs 99,000 crore, began defaulting its debt obligations in mid-2018. When it was emerging that the Group resorted to fraudulent means in its operations, the government dissolved the IL&FS board of directors and appointed a new one with Uday Kotak as Chairman in October. Kotak’s team has taken the task of decoding the IL&FS mystery and had appointed Grant Thornton for a forensic audit of the group companies.

In an earlier audit report, titled as project Icarus, Thornton found at least 10 types of possible fraud by one entity, IL&FS Financial Services Ltd (IFIN), involving a massive Rs 13,299 crore.

Also Watch: What Does First Forensic Audit on IL&FS Reveal?

Meanwhile, IL&FS’s new board is reportedly evaluating the option of calling back all bonuses and benefits paid to former directors of three group companies from 2012-13 to 2017-18 and plans to file charges against them for accounting fraud. “IL&FS expects to recover over Rs 10 crore from each director and as much as Rs 2 crore from each independent director per year,” The Economic Times had reported.

Of the total 348 subsidiaries of the IL&FS group, 46 are either closed or struck off or divested or liquidated. And of the remaining 302 companies or entities, 169 are domestic group entities, and 133 are foreign entities. The new board had earlier categorised 70 of the 169 domestic companies of IL&FS under three categories – 22 companies as green, 10 as amber and 38 entities as red, on the basis of their debt meeting obligations. Green entities can meet all debt obligations, amber entities can meet a part of it, but the red firms can’t meet any debt obligations. While the remaining companies are yet to be categorised under these three groups, only the 22 green entities are reportedly serving their debt obligations.