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SFIO probe now looks at role of HDFC in IL&FS mess
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SME Times News Bureau | 09 Feb, 2019
The Serious Fraud Investigation Office's (SFIO) ongoing probe into the
alleged diversion of funds and mismanagement in Infrastructure Leasing
and Financial Services (IL&FS) is now looking into the role of HDFC
Ltd in providing 'accommodative lending' to the group's Employee Welfare
Trust (EWT) that was already running high on debt.
In an interim
report, the agency has referred to a transaction during 2013-14 between
HDFC and IL&FS EWT where the trust acquired eight lakh shares of
IL&FS Ltd from HDFC for Rs 1,184.50 per share.
The report said the purchase "at such a high price" was made without conducting any valuation.
Moreover,
this transaction was undertaken during the period when the trust itself
was suffering from a fund crunch. The situation was so bad that the EWT
was not able to generate enough cash flow to service its own debt and
was taking new debts from the group companies to service the existing
obligations on a regular basis.
SFIO is now probing whether there
was any role of HDFC in the entire transaction as shares were bought by
the EWT using monies advanced as debt by the financial institution.
Sources
said the agency is looking to expand its probe and may examine former
nominee directors appointed by HDFC on the board of IL&FS to
ascertain whether there was a quid-pro-quo.
The loan of Rs 94.76
crore received by the EWT from HDFC is still outstanding in the books
of the EWT as on date, and for servicing of interest on this debt the
EWT is regularly taking debt from IL&FS or its group companies.
"The
loan taken from HDFC Ltd to finance the transaction has resulted into
interest payment of Rs 53.77 crore until June 30, 2018," said the SFIO
interim report.
The security against the loan was the shares that
they had sold to the EWT. A valuation report given by HDFC in May 2012
valued the shares at Rs 80 crore.
"Thus, they have given a
secured loan with an asset coverage of less than 100 per cent, that too
against unlisted equity shares. When the loan was repaid in the year
2015, a fresh loan of Rs 95 crore was granted within a month against the
same shares as security without a fresh valuation. Thus, it appears
that the loan given was accommodative lending departing from the normal
course of the business of housing finance company," the report said.
The
loans extended to the EWT were approved by the Committee of Directors
(CoD) of the respective IL&FS group companies which were manned from
amongst the individuals being aware that the loans were not being
repaid.
The report said that from the inception and especially
after 2006, the trustees have been dominated by nine top executives
which involve Ravi Parthasarathy, Managing Director and Chairman of
IL&FS group, Hari Sankaran, Vice Chairman and MD of subsidiaries of
IL&FS group and Arun Kumar Saha, Joint MD and Chief Executive
Officer of IL&FS Limited, among others.
In its report, SFIO
has recommended that assets of key managerial persons may be considered
for restrainment under the provisions of the Companies Act.
The
EWT was dependant on interest and dividend income from the group
companies for servicing of its debts. From 2006 onwards, as the sale
proceeds of shares were distributed amongst the select employees rather
than being used for repaying the debts, there was excess expenditure
over income reported in the income and expenditure statement of EWT and
the loans are unpaid.
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