The Ministry of Corporate Affairs (MCA) has hinted at the indifference of RBI on the IL&FS's financial services arm (IFIN) for not meeting the basic criteria on CRAR (Capital-to-risky Asset ratio) and NOF (Net owned Funds) and the company's auditors' taking refuge in such lack of response from the apex bank in taking action on time against the company.
A secret report of MCA notes that one of the auditors BSR had based its opinion on the discussion that the management had with RBI for reporting the CRAR as per the existing method adopted by the company despite RBI observation in inspection report from FY 2014-15.
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When there is no sufficient and appropriate basis as to report the CRAR as per the method followed by the company in light of RBI not giving any relaxation in this manner, the auditor relied on the management discussion with RBI.
The Auditor was informed "the RBI had given time up to March 2019 to meet NOF criteria and also had asked for submission of plan to achieve the same for which the company had sought time till March 2018". The company was in active discussion with RBI on the said matter
RBI had repeatedly pointed out the non-compliance with the group exposure norms and wrong calculation of NOF in its Inspection Reports from 2015 onwards. Yet no penalties were imposed during the period and IFIN was allowed to continue its operations without any corrective action.
Udayan Sen, former CEO of Deloitte and statutory auditor of IFIN, said in response to SFIO in one of his statement that "the company did not submit the roadmap as requested in the RBI letter. We did not see any further correspondence from RBI on that topic until the letter of November 1, 2017. In that letter while RBI asked the company to submit a roadmap , no time limit was indicated. In any case we did not perceive the non-submission of the roadmap until the date of adoption of financial statement as a significant non-compliance since there was a live dialogue between the company with RBI", he responded.
The RBI had given time up to March 1, 2019 to meet the minimum net owned funds criteria and even after not meeting that also no action was considered by the apex bank.
The MCA report quotes existing laws saying "non-compliance with laws and regulations that have a fundamental effect on the operations of the entity may cause the entity to cease operations or call them into question the entity's continuance as a going concern.
The company did not submit the roadmap to RBI.
The Serious Fraud Investigation Office (SFIO) chargesheet alleges that it was only in November 2017 that "the classification of group companies in order to arrive at NOF (net owned funds) and credit to risk assets ratio (CRAR) as per RBI Act was strongly conveyed to IFIN". Hence, the probe agency believes that action at the right time may have prevented ballooning of the IL&FS.
"In its inspection report on 14th September 2016 and November 1, 2017, the RBI had advised the company to submit a roadmap within two months for reducing the company's exposures in group companies and to attain the required NOF and CRAR by March 31, 2017. It has been observed that the company has not complied with this requirement", MCA observed.
BSR and Delloittee had jointly audited the books of IFIN for FY18, pertaining to the period before the IL&FS crisis first came to light in July 2018. Deloittee audited IL&FS accounts for several years.
The Regional Director, Western Region, has now been authorised to initiate proceedings under Section 140 (5) of Companies Act, 2013 before the NCLT against auditors named in the report, namely Udayan Sen, Kalpesh Mehta, Sampath Ganesh, Shrenya Baid, Rakesh Kumar Jain, Nishit Dipak Udani, Anuj Rawat, Payal Mukeshbhai Rathod, A.P. Shah, AP Shah and Associates, Deloitte Haskins and Sells LLP, BSR and Associates LLP for their role in perpetuating the fraud and seek their debarment.