New board of IL&FS led by banker Uday Kotak addresses a press conference in Mumbai. (Photographer: Sajeet Manghat/BloombergQuint)

In A First, Government Wants To Open IL&FS Balance Sheets Again

The corporate affairs ministry on Thursday moved the National Company Law Tribunal 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 of 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 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 Securities and Exchange Board of India 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 today and will hear the matter when the court reopens on Jan. 1, 2019.

Also read: India Plans to File Petition Against IL&FS Auditors

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 submitted the SFIO interim report to the NCLT on Dec. 3.

Also read: IL&FS To Sell Education, Wealth Management Arms

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.

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:

  • The relevant earlier accounts were prepared in a fraudulent manner; or
  • 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.

Also read: NCLAT To Hear Plea Over Moratorium On Recovery Of Dues From IL&FS On Jan. 28

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, NandKishore, Malini Shankar and CS Rajan.