Having initiated a crackdown on a suspected coterie of fraudsters in the IL&FS case, the government’s financial fraud probe agency SFIO has recommended necessary action against the guilty auditors and also a detailed internal investigation by the RBI to identify reasons for the delay in detecting the lapses.
The Serious Fraud Investigation Office (SFIO) has also recommended a necessary action as per the Companies Act by the current management of IL&FS Financial Services (IFIN) for recovery of the losses suffered by the company due to the fraudulent conduct of the coterie, officials said.
In its first chargesheet, the SFIO has identified a nine-member coterie behind the huge financial fraud at IFIN, which it alleged connived with the statutory auditors and some independent directors to defraud the company while running it as a personal fiefdom.
The chargesheet has been filed after an extensive probe into the affairs of IFIN, a subsidiary of Infrastructure Leasing and Financial Services (IL&FS), while similar probes are underway for other group entities including the parent firm that ran into deep financial trouble last year after it was found to have amassed huge stressed loans totalling over Rs 90,000 crore.
In its three key recommendations, the SFIO has said that it was observed that RBI in its inspection reports 2015 onwards had repeatedly pointed out non-compliance to group exposure norms at IFIN, an NBFC regulated by the central bank, and also the wrong calculation of Net Owned Funds.
However, no penalties were imposed on IFIN during the period and IFIN was allowed to continue its operations without any corrective action, the probe found.
Further, only in its letter dated November 1, 2017, was the issue on classification of group companies in order to arrive at the NOF and CRAR as per RBI Act, strongly conveyed to IFIN, the investigation report pointed out, while adding that action at the right time may have prevented the ballooning of the matter.
It has recommended that the RBI should conduct an internal investigation to find the reasons for the delay and also take appropriate action. The central bank has also been asked to take necessary policy measures to prevent such fraudulent activities in future.
In its recommendation regarding the auditors, the investigation report has said that the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) should take action against the auditors as per the applicable provisions.