The former vice-chairman and managing director of Infrastructure Leasing and Financial Services (IL&FS) Hari Sankaran was arrested by the Serious Fraud Investigation Office (SFIO) on Monday and remanded in police custody till April 4.
Mr. Sankaran was arrested in connection with the ongoing investigations into the affairs of IL&FS and its group entities, an official spokesperson said. “He has been arrested on the grounds that he abused his powers in IL&FS through his fraudulent conduct and in granting loans to entities which were not creditworthy or have been declared non-performing assets (NPAs) and caused wrongful loss to the company and its creditors,” the spokesperson added.
Trouble surfaced at IL&FS in the July to September quarter of 2018, when two of its subsidiaries started defaulting on repayment of loans and inter-corporate deposits to lenders. A subsequent series of defaults caused a systemic problem with many non-banking finance companies running into financial issues.
On October 1, 2018, the Central government took steps to take control of the company through a directive by NCLT and arrest spread of the contagion to the financial markets. A new board under the leadership of banker Uday Kotak was constituted. as the earlier board was deemed to have failed to discharge its duties.
At that time, the SFIO was asked to probe the procedural lapses at the firm and its subsidiaries. as the top management was believed to be involved in diverting money for ulterior motives.
The SFIO counsel Hiten Venegavkar sought Mr. Sankaran’s custody for five days “for ascertaining all the fraudulent activities carried out under him, to prevent him from influencing any witnesses and destroy the evidence, to examine him about the loan and advances approved without proper collaterals.”
The remand copy, reviewed by The Hindu, says: “SFIO examined details of the funds raised by IFIN (IL&FS Financial Service Limited) from different public sources. Approximately ₹17,000 crore has been raised by IFIN from the public through bank loans, debentures, commercial papers and corporate deposits, etc. The amount borrowed by these means has been used by IFIN to advance both short and long term loans. The company is said to have advanced 80% to 85% of the total borrowings as loans and advances.”
It was also argued that IFIN had also provided loans and advances to group companies, which have no financial capacity to service the debt. The group companies, which were given loans, were having heavy operational losses and were heavily debt-ridden. IFIN had funded the group companies to avoid the defaults of loans taken by them from banks. The quantum of loans and advances given by IFIN to the group of companies of IL&FS Limited has been continuously increasing, both in quantum as well as percentage of total borrowings.
