New Delhi, June 5
With the Ministry of Corporate Affairs now running point on the IL&FS case, as the tip of the spear, its investigations are revealing hitherto hidden facts which tell you how the Ravi Parthasarthy-led gild ran the shadow bank into the ground.
A brotherhood which curried favours, buying the complicity and indulging in a naked dance of fraud and chicanery leading to deep-set corruption and nepotism within the enterprise.
During the period under review, five Audit Committee Meetings were held on April 25, 2017; July 31, 2017; November 6, 2017; December 20, 2017, and January 29, 2018.
The composition and the details of attendance are as follows: Name of the Directors and No. of Audit Committee Meetings attended -- (1) Surinder Singh Kohli - Chairman -- five (2) Shubhalakshmi Panse -- five (3) Arun Saha -- five.
The duties and responsibilities of the Audit Committee are as defined under provisions of the Companies Act, 2013. Finally, the inept and inertia-ridden high profile audit committee was indicted by the Ministry of Corporate Affairs for being in bed with the management and not doing its job. In withering criticism of its functioning, MCA slammed the slack audit committee for its deliberate brain fade.
The investigation team found on the analysis of various committee meetings/agenda that the Committee was informed regarding the RBI Circular dated 21.03.2014 DNBS (PD) CC. No. 371/03.05.0w/2013-14 on accelerated provisioning on concealment by ever-greening in the meeting dated 29.04.2014.
Para 2.2. of the said circular reads as: "Accelerated provisioning : in cases where NBFC failed to report SMA status to CRILC or resort to methods with intend to conceal the actual status of the accounts or evergreen the account, NBFC will be subjected to accelerated provisioning for these accounts and/or other supervisory actions as deemed by RBI."
However, in spite of bringing out concerns regarding the deterioration of the credit portfolio, there was no quantification of the amount of adverse effect on the company's portfolio and distressed assets due to new RBI guidelines.
No questions were raised regarding lending to different entities of the same group despite the fact that disbursal and bullet recovery of loans were on the same day or within a few days in many instances, which should be a red flag to the experienced Audit Committee members.
Provision for diminution of investments
There were repeated concerns regarding the diminution in value of investments and also RBI had pointed out this issue time and again. (Minutes of the ACM dated 31-10-2014, 29-04-2014, 06-05-2015, 03-11-2015, 05-05-2016, and 28-05-2018).
The issue of diminution as mentioned in the various audit committees related to long-term investments in IL&FS Engineering and Construction Co. Limited, ITNL, Pipavav Defence and Offshore Engineering Co Limited, Electrosteel Steels Limited, Tech Mahindra Limited and Tata Steel Limited, TTSL, MCX-SX and John Energy Limited.
The investigation team noticed that in spite of the existence of a policy and RBI guidelines the committee never went further in the investments. It also failed to factor in the various information available in the public domain, especially with regard to entities like Electrosteel Limited which and according failed to bring in their expertise in the Audit meetings.
By acceding to postpone valuation by six months (two reporting quarters), the Committee concurred to defer the provision of diminution in books of accounts over two reporting quarters.
The Committee overlooked the numerous impairment indicators in contravention of the Accounting Standards and principle of prudence and conservatism while doing so.
The above diminution in value would have adversely affected the rating and borrowing program of the company. Thus, the Audit Committee actively connived with the management to misrepresent the financials of the company and the health of the company to prospective investors.
It is pertinent to mention that even the auditors have not commented upon the impairment in the investment valuations with or without testing them during the audit process and made qualifications in the half-yearly results as stated by Kalpesh Mehta in this meeting.
Further, these incorrect half-yearly financial statements were of great significance as such incorrect financial statements were being used by the rating agencies for various new rating and various surveillance ratings.
Further, these particular financials were also used for the borrowings from the market wherein such incorrect financials were used to lure the investors investing the public money.
