IFIN violated RBI norms to help Sivasankaran pay off IFCI loan: SFIO

The Serious Fraud Investigation Office (SFIO) has said the senior management of Infrastructure Leasing & Financial Services (IL&FS) violated several Reserve Bank of India (RBI) norms to help Chennai-based businessman C Sivasankaran pay off a loan taken from IFCI when he was already a defaulter of IL&FS Financial Services (IFIN), a subsidiary of IL&FS.

Sivasankaran was in the need to settle his outstanding accounts with IFCI and release his Chennai land mortgaged with the non-banking financial company (NBFC), the SFIO said in the charge sheet filed with the Special Sessions Judge (Companies Act) in Mumbai against 30 entities and individuals including IFIN, the former senior management of IL&FS, Deloitte and BSR & Associates.

Sivasankaran’s Siva group companies owed Rs 50 crore to IFCI and it was not possible for an NBFC to lend to a defaulting borrower.

The management of IL&FS then allegedly colluded with Sivasankaran to create a unique structure wherein the NBFC gave land parcels in its group entity, Hill County Properties (HCPL), to get into a development rights agreement with a Sivasankaran entity — Siva Shelters — despite Siva Shelters remaining unable to generate any revenue for IL&FS group from an earlier agreement to develop real estate.

Messages sent to Sivasankaran seeking his comment on the SFIO complaint did not elicit any response till going to press.

In an email in September 2017, Hari Sankaran, the former vice-chairman of IL&FS, directed IFIN to keep the past exposures and the present securities as separate. He directed the IFIN officials to create a structure in which the security was taken only for securitising fresh disbursals and was not to be utilised for securitising the outstanding dues of around Rs 450 crore, in blatant violation of prudential norms of an NBFC, alleged SFIO.

“This email clearly brings out the connivance between Hari Sankaran and Sivasankaran wherein to please and for the various benefits derived from Sivasankaran, Hari Sankaran is compromising the assets of the company and also is ready to give away the funds borrowed from the public to Sivasankaran,” said the complaint. Hari Sankaran was aware of the stressed and outstanding dues of Sivasankaran.

“However, he overlooked the observations of the RBI and auditors with regard to the overdue exposures of Sivasankaran. He instead directed the IFIN employees to not securitise the outstanding dues while entering into the fresh lending exercise,” it added.

The transaction was structured in a manner which was suitable to Sivasankaran and the senior management of IFIN was directed to consummate the transaction in a manner which was agreeable to Sivasankaran, it alleged.

Besides, Hari Sankaran in December 2017 asked the employees of IFIN not to start over again regarding the issues of security creation of the outstanding liabilities of Sivasankaran and continue with the fresh transactions without repeating the concerns raised earlier.

It alleged that Ravi Parthasarathy, former chairman of IL&FS, and Hari Sankaran were the two persons on whom Sivasankaran had an influence, and the duo connived with Sivasankaran and dominated the management of IFIN to conclude the transaction, which was against the interest of IFIN.

“It was even observed from an email dated February 1, 2018, by Ravi Parthasarathy to Sivasankaran that instead of protecting the interest of the company, Parthasarathy was found being apologetic to Sivasankaran for taking time for finalising the loan transaction of Rs 175 crore,” it alleged.

The decision to lend this amount to Sivasankaran was directed by Hari Sankaran and Ravi Parthasarathy, it added. The group also sold two villas to the Sivasankaran-owned company at a highly discounted price, leading to a loss to IL&FS, the charge sheet added.

The SFIO also alleged that Sivasankaran gave dud shares of Tata Teleservices as collateral to raise funds from IFIN, and as a quid pro quo arranged for foreign junkets, helicopter rides and renovation of apartments owned by top IL&FS officials overseas.

“The primary security for the loans advanced by IFIN, from December 2011 to December 2014, to Siva group was the shares held by Siva group in Tata Teleservices (an unlisted company). The security, valued at Rs 82 a share, was carried over for subsequent fresh lending till 2014. Keeping a constant quantum of shares without re-evaluating the value of such shares drastically reduced the security cover of such lending. Finally, the RBI observed that the value of such shares should be treated as nil and IFIN should provide provision for total investment in TTSL,” the complaint said.

Sivasakaran had also raised funds from Tata Capital by giving shares of Tata Teleservices. The loans worth Rs 700 crore were later written off by Tata Capital.

In 2014, while lending to Siva group, another company — Emerald Stones — was valued at Rs 59.62 crore and another loan was taken. However, no physical examination or documentation was taken for the security, the charge sheet said and IFIN relied on a letter of a chartered accountant of the borrower.

As of March 2015, the exposure of IFIN to Siva group stood at Rs 184 crore and without any adequate cover.

During December 2015, IFIN subscribed to optionally convertible debentures of Rs 190 crore of Siva group — effectively interest-free debentures. These debentures were unsecured for five years. The RBI recommended 100 per cent diminution of value on these investments upon inspection.