The National Company Law Tribunal (NCLT) has taken the unprecedented step of allowing the government to reopen and recast the accounts of debt-laden Infrastructure Leasing and Financial Services (IL&FS) group including two of its listed subsidiaries.
The NCLT has granted this permission under Section 130 of the Companies Act, which the Ministry of Corporate Affairs (MCA) had invoked on December 21 in a bid to ascertain whether there was financial management at the infrastructure conglomerate.
The government, which took control of IL&FS in October after the infrastructure financier and developer defaulted on debt payments and triggered concerns about risk in the country’s financial system, is now empowered to examine the books of the IL&FS group, which includes listed units IL&FS Transportation Networks Ltd and IL&FS Financial Services, from the financial years 2012-13 to 2017-18.
IL&FS group comprises a complex web of 348 subsidiaries, more than twice the figure of 169 that was disclosed by the company before a new board was installed in October.
The NCLT however, struck down the MCA’s allegations about fraudulent mismanagement of accounts on the part of statutory auditors Deloitte Haskins and Sells, EY affiliate SRBC and Co. and KPMG affiliate BSR and Associates.
The government’s plea came after reports from the Serious Fraud Investigation Office (SFIO) and Institute of Chartered Accountants of India (ICAI) indicated that the previous management had prepared accounts fraudulently and negligently.
The ministry also informed the NCLT that it had sent a notice to the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the income tax department, and other statutory bodies and authorities before seeking permission to reopen the accounts of IL&FS and its affiliates. None of the departments had objected, it added.
However, the interim NCLT order will not have any bearing on the ongoing proceedings by the ICAI against the auditors.
“At this stage when the ICAI enquiry is pending, no such opinion can be formed that accounts were prepared in a fraudulent manner,” said the tribunal, as per agency reports.
IL&FS and its units owe about Rs 91,000 crore, including Rs 57,000 crore to state-run banks.
In November, the new board of IL&FS, led by billionaire banker Uday Kotak, had submitted a revival plan to the National Company Law Tribunal (NCLT) that included the sale of business verticals or individual assets to pare debt.
Before that, IL&FS announced plans to sell its stake in IL&FS Investment Managers Ltd along with all its associated fund management platforms as well as IL&FS Education & Technology Services Ltd.
The move came just days after IL&FS had kicked off a process to sell its road assets. The company is also selling units IL&FS Securities Services and ISSL Settlement & Transaction Services.