The Indian government investigation into financial mismanagement by the crippled infrastructure financing and development company IL&FS Group has received a boost as the National Company Law Tribunal (NCLT) is allowing the Corporate Affairs Ministry to reopen the company’s books to look for lapses by previous management.
The tribunal gave permission to the ministry to reopen the books of IL&FS Group and its subsidiaries for the past five years under Section 130 of the Companies Act, Press Trust of India reports.
The government had for the first time invoked Section 130 against any company, which empowers it to reopen a firm’s accounts after getting a court or tribunal order. It wants to check the balance sheets of IL&FS and its two listed subsidiaries, ITNL and IL&FS Financial Services, for the past five years (fiscal year 2013-FY18).
The move comes after reports by the Serious Fraud Investigation Office and Institute of Chartered Accountants of India indicated that the previous management had prepared accounts in a fraudulent and negligent manner for the last five years.
Statutory bodies including the Reserve Bank of India, the markets watchdog Securities and Exchange Board of India, and the Income Tax Department gave no objection to restating the accounts.
However, the NCLT struck down allegations made by the ministry against statutory auditors Deloitte Haskins and Sells, SRBC and Co Llp an affiliate of global audit firm EY, and BSR and Associates Llp, an affiliate of KPMG, regarding allegedly fraudulent mismanagement of accounts.
The ministry had alleged that auditors had fraudulently mismanaged IL&FS and two other group companies.
IL&FS had recently defaulted on some of its debt obligations, triggering concerns that this might lead to the collapse of the country’s financial system and markets. It has an accumulated debt of more than 910 billion rupees (US$13.02 billion).
At present, the newly appointed board, headed by noted banker Uday Kotak, is trying to sell the assets of the group and use the money to reduce debt and revive the company.
Incorporated in 1987, IL&FS has played a major role in Indian infrastructure development and financing.