IL&FS Transportation Networks (ITNL) on Wednesday informed the stock exchanges that the National Company Law Tribunal (NCLT) has asked the income tax department, markets regulator Securities and Exchange Board of India (Sebi) and other statutory/regulatory bodies to file affidavits on January 1, 2019, after the ministry of corporate affairs (MCA) applied to the court seeking to reopen the financial statements of its parent firm, IL&FS.
The ministry filed the application earlier this month seeking to reopen the books of accounts and re-cast the financial statements of the parent firm, IL&FS, its subsidiaries IL&FS Financial Services Limited (IFIN) and IL&FS Transportation Networks (ITNL), for the previous five financial years. The ministry also wants to appoint different chartered accountants to recast the accounts/financial statements for this period.
The ministry application was made after an investigation by the Serious Fraud Investigation Office (SFIO) found large-scale irregularities in the financial statements and accounts of IL&FS. FE was the first to report on December 5 that the SFIO had found IFIN kept extending loans to several companies, some of whom had already defaulted on their repayments of earlier loans. By doing so, IFIN was able to inflate its own financial performance by ensuring that interest income was generated on the loans that had been regularised through fresh funding, which, otherwise, wouldn’t have been considered as income in its financial statements.
Moreover, a fresh interest income was generated through the disbursement of these loans. In other words, provisioning for non-performing assets (NPA) was deflated to display a strong balance sheet and healthy asset quality on all these loans. This ever-greening of loans resulted in inflated profits, suppressed provisioning and non-disclosure of possible non performing assets (NPA) in the books of IFIN. The SFIO report said that “to this extent, the financial statements were misstated to show a window-dressed picture of the financial statements”.
Separately, IL&FS also said it has appointed retired Indian Administrative Service (IAS) officer Bijay Kumar as its deputy managing director while N Srinivasan, a veteran chartered accountant, has been appointed as a non-executive director. The ministry had moved the Mumbai bench of the NCLT on December 19, seeking to appoint Kumar and Srinivasan to the new government-appointed board led by banker Uday Kotak. Kumar has replaced former Sebi chief GN Bajpai who stepped down citing personal reasons.