Banks Seek A Deeper Forensic Audit Of Jet Airways

Lenders to Jet Airways (India) Ltd. have sought a deeper review of the grounded airline’s financials after a limited forensic audit threw up a series of anomalies.

The lenders, led by State Bank of India, have begun preliminary discussions with EY on a deeper forensic audit of Jet Airways’ books to capture any large financial irregularities, two people in the know told BloombergQuint on condition of anonymity.

According to the people quoted above, the lenders had originally sought a limited forensic audit when Jet Airways was still operational. The limited review included a check on revenue billings, costs (excluding sales and distribution) and related party transactions identified in the books of the company, BloombergQuint had reported in January.

A spokesperson from EY declined to comment on the story. SBI is yet to respond to queries sent on Wednesday. This story will be updated with the bank’s responses when received.

The initial Jet Airways forensic audit found instances of related party transactions where the company had provided more than Rs 3,000 crore in loans to JetLite, without seeking approvals from the board and shareholders. The audit also found that invoices raised by Jet Privilege were not verified, leading to excess billing.

Forensic audits typically look at items that are not covered under a statutory audit. Such audits also look at end use of funds and related party transactions that are not disclosed on the company’s books to check for any large scale diversion of funds.

Insolvency Process Underway

Jet Airways is currently undergoing insolvency proceedings at the National Company Law Tribunal (NCLT). On June 20, the Mumbai bench of the tribunal admitted Jet Airways under Insolvency and Bankruptcy Code (IBC), putting the company under a 180-day moratorium against any legal proceedings.

However, this forensic audit will be done outside the ambit of the IBC to ensure that the sale of the airline, under the court approved process, is not impacted by any financial irregularities found, the second person quoted above said.

Last year, the finance ministry had asked banks to conduct forensic audits of stressed accounts with dues above Rs 50 crore, to determine whether the stress is due to genuine business troubles or fraudulent activities.

If the deeper Jet Airways forensic audit were to find instances of diversion of funds by the previous management, the lenders could approach investigative agencies for further action, the second person quoted above said.

Jet Airways owes more than Rs 8,500 crore to its lenders, more than half of which is owed to public sector banks.

On Tuesday, the financial creditors to the company met for the first time since the airline was admitted under IBC to discuss further course of action.

The creditors decided that the resolution professional will put out an advertisement seeking expressions of interest from potential bidders by the end of this week. The creditors also decided to put a proposal for $10 million in interim funding to vote on Thursday.