A special court has remanded former chairman of IL&FS group and non independent director of ITNL Ravi Ramaswami Parthasarathy to a three-day police custody in the Rs 1 lakh crore Infrastructure Leasing and Finance Services (IL&FS) scam, which triggered a liquidity crisis in the financial services market in 2018. In the court of the special judge under The Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act, 1997, the Economic Offences Wing (EOW) of Chennai Police said the custodial interrogation may reveal various crucial facts which are in his exclusive domain, being the key managerial personnel directly involved and in-charge of the affairs of IL&FS scam and active conspirator in this entire case.
In its remand note, the EOW called it a "mammoth scam", and that the remand was the need of the hour. Seeking remand from the court of the Special Judge under Sections 420, 409, 120B r/w 109 IPC, the EOW termed the case as "â€¦one of the biggest economic frauds in the history of our country". "The IL&FS group has defaulted in payments to various creditors through a calculated fraud and the total default caused to the entire creditors is approximately a mind-boggling figure of 1 lakh crore," the remand note by the EOW added.
The presiding officer noted that Parthasarathy was not subjected to police interrogation, and that records show that more than 20 persons are involved in the case.
"The investigation in this case is at the initial stage. The nature of the case absolutely requires the custodial interrogation of the accused for an effective, proper and deep investigation by the police. The circumstances and nature of the case shows that without custodial interrogation of the accused, the probe cannot be done effectively by the police," the court said.
"Considering the nature, gravity, seriousness and magnitude of the case, this court is of view that police custody has to be ordered in the interest of justice in order to facilitate the Investigating Agency to effectively investigate the case further," the special judge said while granting a three-day police remand of the accused from June 16.
The Economic Offences Wing of Chennai police (EOW-Chennai) had arrested Parathasarathy, the seventh accused in the case, from Mumbai on June 9 on the basis of a complaint filed by 63 moons Technologies Limited. On June 14, Ravi Parthasarthy was sent to judicial custody for 15 days. Parthasarathy, who is said to be a close confidante of former Finance Minister P Chidambaram, is accused of using IL&FS, which consists of more than 350 group companies, as a vehicle to perpetrate a huge fraud, floating non-convertible debentures (NCD) to collect deposits from investors offering the lure of high returns and siphoning of illegally several hundred crores of rupees.
The remand note by the EOW pointed out that the Union of India had to intervene since the activities of the IL&FS group affected the interests of the economy of India. It said the companies were set up as a vehicle of fraud and innocent depositors were cheated and their livelihood taken away by virtue of the fraud committed by Parthasarathy, who it termed "Kingpin and Mastermind".
Ravi Parthasarathy became the chairman of the board of directors of IL&FS group in 2004. He served as the president and CEO of IL&FS group since 1989, thus clearly establishing that he was at the helm of affairs of the IL&FS group for over 30 years since its inception. Since then, Parthasarathy had been controlling the arm and mind of the IL&FS group and he was responsible for managing its day to day affairs and played a major role in the scam.
The First Investigation Report (FIR) was filed by 63 moons to recover its Rs 200 crore investment in NCDs states that in or around 2018, IL&FS group defaulted in their financial debt/obligations and has been defaulting since then, which busted the activities of IL&FS Group and its key managerial persons, including Ravi Parthasarathy. The company itself had admitted the massive liability of Rs 91,000 crore towards various investors and creditors.
The Serious Fraud Investigating Officer (SFIO) has named Ravi Parthasarathy as the prime accused and mentioned him as the key decision-maker in the IL&FS group, who used the group as his fiefdom. Being chairman of IL&FS group and director of its various subsidiaries, it noted, the coterie led by Parthasarathy abused its position and diverted funds of its group companies.
In one of the most damaging findings, the Government of India petition mentioned, "IL&FS had created a trust known as the Employee Welfare Trust which was used as an instrument to enrich its directors at the cost of the company. The trust was used to perpetrate fraud on IL&FS ad its group companies. The trust owned 12% of IL&FS Limited. Ravi Parthasarathy and certain other senior IL&FS personnel were major beneficiaries of the Trust."
The RBI report underlined that the major role in perpetrating the fraud and financial irregularity was played by Parthasarathy during his tenure as Group Chairman. The report noted indiscriminate sanctioning of loans, diverting of funds, flouting of RBI norms, fraudulent transactions to certain accounts, showing inflated numbers of subsidiaries, conflict of interest and concentration of power in the hands of few, which included Ravi Parthasarathy and his coterie.
In 2019, the NCLT-Mumbai had taken note of key findings of the SFIO interim report about the manner in which the IL&FS Group conducted its affairs contrary to public interest. It observed that the Committee of Directors (COD) from among the now suspended Board of Directors of IL&FS Group abused their powers. Through various acts, including circuitous transactions increased the debt burden across the IL&FS Group.
The Union of India had filed Company Petition No. 3638 of 2018 under Sections 241 and 242 of the Companies Act seeking suspension of the Board of Directors of IL&FS under section 242(2)(k) of the Companies Act. In the Petition, the Union of India inter alia stated as, Ravi Parthasarthy and his team were responsible for the negligence, incompetency and misleading the public by presenting rosy financial statements. "IL&FS was camouflaging its financial statements by hiding severe mismatch between its cash flows and payment obligations. It was also hiding total lack of liquidity and glaring adverse financial ratios," the petition added.