In a 1st, govt wants to re-open IL&FS group balance-sheets
Mumbai: The corporate affairs ministry Thursday moved the National Company Law Tribunal (NCLT) seeking to reopen the books of IL&FS Group and its subsidiaries for the past five years under Section 130 of the Companies Act, to ascertain financial mismanagement.
This is the first time that government has invoked the powers under Section 130 0f the new Companies Act of 2013 to reopen ledgers of a company.
The government wants to check the balance-sheets of crippled group and the two listed subsidiaries--ITNL and IL&FS Financial Services for the past years and the move comes after the Serious Fraud Investigation Office (SFIO) has found shocking details of corruption, personal enrichment and other non-transparent deals.
The court, however, refused to pass an immediate order saying it has to seek the views of the relevant statutory bodies and regulators such as the Reserve Bank, the markets watchdog Sebi and the Income Tax Department, before taking a call on the petition. The two-member bench of judges VP Singh and Ravikumar Duraisamy said they will issue the notices on Friday and will hear the matter when the court reopens on January 1, 2019. The ministry also submitted a report on the views of the Institute of Chartered Accountants on the IL&FS Group's accounts, which were audited by Deloitte, EY affiliate SRBC and KPMG affiliate BSR.
The move comes after an SFIO probe has found serious mismanagement of accounts and fraudulent transactions across the group by the past management.
The SFIO probe has uncovered serious wrongdoing by the past management of the embattled group, with instances of income misreporting, dubious transactions, conflicts of interest deals, ever-greening of loans and personal enrichment by some key employees.
The ministry had submitted the SFIO interim report to the NCLT on December 3. The government plea also wants NCLT to appoint an independent chartered accountant to take restate the accounts and revise the balance-sheets of IL&FS, IL&FS Financial Services and IL&FS Transportation Network and wants three months to do the job. The group owes over Rs 94,000 crore to lenders, mostly banks.
It can be noted that this is the first instance of government invoking Section 130 of the Companies Act, which empowers it reopen accounts only on a court/tribunal' order.
The law states that "a company shall not re-open its books of account and not recast its financial statements, unless an application is made by the Central government, income-tax authorities, Sebi, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the tribunal to the effect that i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements."
Meanwhile, the bench approved the appointment of two new directors to the board of IL&FS Financial Services.
Former bureaucrat Vijay Kumar and senior chartered accountant N Srinivasan have been appointed as non-executive directors after GN Bajpai resigned from the board within a month of government appointing him in October.
With this, there are eight non-executive directors on the IL&FS board, including chairman Uday Kotak, vice-chairman and managing director Vineet Nayyar, GC Chaturvedi, Nand Kishore, Malini Shankar and CS Rajan.