IL&FS books, riddled with irregularities, sent to audit regulator NFRA

The Ministry of Corporate Affairs (MCA) has sent the books of Infrastructure Leasing & Financial Services (IL&FS), filled with auditing irregularities, to the newly constituted National Financial Reporting Authority (NFRA). “It will be a test case for the NFRA,” a key source in the ministry said. 

Former bureaucrat Rangachari Sridharan is the chief of the NFRA, which is responsible for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors.

The Institute of Chartered Accountants of India has also sent show-cause notices to the statutory auditors of IL&FS. 

The new management at the beleaguered infrastructure finance company has also started moving on cleaning up the mess.

IL&FS Non-Executive Chairman Uday Kotak on Wednesday met Corporate Affairs Secretary Injeti Srinivas to apprise him of the developments in the company. After the meeting, Kotak said, “We barely started a week back. We are consulting the government and making progress.”

Sources in the MCA said the government was still awaiting a complete, reliable picture of developments that led to the fiasco at IL&FS. “Fraud can’t be ruled out,” a key official said. 

The new board, the sources said, was looking for professionals to do due diligence and fact-finding in the company.

They said IL&FS needs Rs 1 billion a month for remaining afloat. The company has reached out to public sector units for settlement of dues, they said, adding settlement of dues with the NHAI would be a template for other state-owned enterprises. They said the new board was looking at rationalisation in IL&FS.  The NCLT has granted it permission to induct directors in subsidiaries and joint ventures.

IL&FS and the NHAI are likely to opt for an out-of-court settlement in a couple of highway cases entangled in arbitration, where the former went to court challenging the arbitration amount.

The National Company Law Tribunal (NCLT) gave its nod to the government’s decision to appoint a new board on October 1. The board’s first meeting was held last week.

Last month, subsidiaries of IL&FS began defaulting on loan repayments, as well as payments on inter-corporate deposits (ICDs) and commercial papers (CPs). With over 348 subsidiaries, IL&FS is alleged to have funneled money, raised either from the debt market or banks, to these as a form of equity investment and therefore created an unsustainable business structure. 

The company has a high leverage ratio, of 13 times, as total borrowings in September stood at Rs 910 billion on an equity base of only Rs 69.5 billion.

Sources in the MCA said the government was still awaiting a complete, reliable picture of developments that led to the fiasco at IL&FS. “Fraud can’t be ruled out,” a key official said. 

The new board, they said, was looking for professionals to do due diligence and fact-finding in the company. They said the new board was looking at rationalisation in IL&FS.

The NCLT has granted it permission to induct directors in subsidiaries and joint ventures.

Sources said IL&FS needs Rs 1 billion a month for remaining afloat. The company has reached out to public sector units for settlement of dues, they said, adding settlement of dues with the NHAI would be a template for other state-owned enterprises. 

IL&FS and the NHAI are likely to opt for an out-of-court settlement in a couple of highway cases entangled in arbitration, where the former went to court challenging the arbitration amount.

Setting things right
 

• IL&FS will be a test case for the National Financial Reporting Authority, which came into force on October 
• Govt does not rule out fraud in the IL&FS matter
• Firm has reached out to PSUs for settlement of dues
• New board looking at rationalisation of IL&FS