The remand filing also listed other misdemeanours by former IL&FS board members that amounted to misuse of public money, including funding borrowers to prevent their loans from turning bad, getting personal favours in exchange for sanctioning loans and enriching themselves with hefty salaries and perks.
The Rs 175-crore loan given by IL&FS Financial Service Ltd. (IFIN), a subsidiary of IL&FS, to an entity of the Siva group was cited as one of the instances of alleged conflict of interest committed by Sankaran. Siva group chairman C Sivasankaran is said to be close to Sankaran.
The SFIO said Sankaran pushed for the loan, fully aware that the transaction would harm the company’s interests.
Investigations showed that Sivasankaran had a “close relationship” with Sankaran and Rs 175 crore was advanced despite “the resistance/observations of the team” and the fact that the company was not able to recover Rs 500 crore of an earlier loan granted to Sivasankaran group entities, according to a copy of the report filed by the SFIO in a Mumbai court on Monday.
The loans given to the Sivasankaran group were for repayment of earlier loans and interest and this had affected IFIN’s asset quality, although they were projected as fresh lending on paper, the SFIO alleged.
Email sent to Sivasankaran seeking comment on the matter remained unanswered. A special sessions court in Mumbai remanded Sankaran to SFIO custody till Thursday.
The SFIO, the investigative wing of the Ministry of Corporate Affairs, found Sankaran’s acts amounted to fraud under section 447 of the Companies Act. The act of fraudulently funding defaulting borrowers and indiscriminate lending to borrowers classified as NPAs was conducted intentionally, even after being informed and aware of the factual position, legal constraints and risks to the company.
“The said acts have been committed by Sankaran to injure the interests of the company and its creditors,” the report said.
The investigating agency alleged IFIN routinely topped up loans of borrowers to help them repay the pending dues and ensure they did not become non-performing assets.
“In several cases, the lending was done in order to repay the overdue interest amounts. Thus, in substance, the company was funding its own top line from public funds,” the remand report accessed by ET stated.
“Such lending was prejudicial to the interests of the company… the intent of the management was postponement/avoidance of recognition of the loan assets as NPAs and thereby avoid provisioning as mandated by the RBI.”
The SFIO claimed it had uncovered a quid pro quo arrangement between the borrowers and the top management of IL&Fs.
“Number of emails have been found which shows that borrowers and the top management of IL&FS were closely associated and borrowers obliged them by offering benefits in the form of free travel, stay and excursion, among others,” the SFIO alleged.
The former IL&FS board members, who are being probed, also kept their personal interests paramount.
Instead of carrying out a prudential lending exercise, they favoured and unjustly enriched their close friends, the SFIO stated. This was at the cost of funds raised from the market through commercial paper, bank loans and debt instruments in which gratuity, medical and retirement funds had invested.
The SFIO found that former directors of IL&FS, including managing director Ravi Parthasarathy, Sankaran, Arun Saha and Vibhav Kapoor, had declared movable and immovable property together worth over Rs 230 crore.
The SFIO claims IFIN also provided loans to group companies that did not have the financial capacity to service debt to avoid defaults on loans taken by them from banks.
According to an audit report by Grant Thornton, about Rs 2,270 crore lent to borrowers of IFIN with the knowledge of the erstwhile board was utilised by certain IL&FS group companies.