Chennai EOW arrests Ravi Parthasarathy, kingpin of 1 lakh cr fraud

The Chennai Police Economic Offenses Wing (EOW) announced on Friday that it had arrested Ravi Parthasarathy, the former chairman of Infrastructure Leasing & Financial Services (IL&FS), in connection with the Rs 1 lakh crore scam, which triggered a liquidity crisis in the financial services market in 2018.

EOW DSP Prakash Babu confirmed IANS that Parthasarthy was arrested and taken into custody for 15 days. He added that his bail hearing will be heard on Monday.

Parthasarthy, the fulcrum, mastermind and chief architect of the Rs 1 lakh crore IL&FS scam, has been arrested by the EOW in connection with Crime No. 13 of 2020, dated September 20, 2020, said the Chennai Police EOW in a statement.

The accused, Ravi Parthasarathy, is the former chairman and CEO of the entire IL&FS group. The IL&FS group, which consists of more than 350 group companies, has been used as a vehicle to commit fraud by the then leadership of the IL&FS group which was headed by then President and CEO Ravi Parthasarathy, ”said EOW.

EOW said the FIR was registered as part of the complaint filed by 63 moons Technologies Ltd, which lost a sum of Rs 200 crore. Complaints from various other applicants were also received by the EOW.

The request for early bail filed by the accused Parthasarathy in Crl OP 2007 of 2021 was also rejected by the Madras High Court. Aggrieved depositors and investors of IL & FS Transportation Networks India Ltd (ITNL) can forward their claims to EOW, he added.

What is IL&FS scam

The IL&FS scam came to light in 2018 after several group entities defaulted on repayment due to serious liquidity issues.

IL&FS, a leading finance and infrastructure construction company, is a “shadow bank” or non-bank finance company that provides services similar to traditional commercial banks.

Parthasarathy, said to be a close confidant of former finance minister P Chidambaram, is accused of fraud with intent to harm the interests of the company, its shareholders and its lenders, causing undue loss to the company .

Under his leadership, problems arose at IL&FS during the July-September 2018 quarter, when two of its subsidiaries began to default on loans and business-to-business deposits to lenders.

The subsequent series of defaults caused a systemic problem with many non-bank financial corporations (NBFCs) facing financial problems.

NCLT Directive

On October 1, 2018, the central government took action to take control of Infrastructure Leasing & Financial Services Limited (IL&FS) through a directive from the National Company Law Tribunal (NCLT) and stop the spread of contagion to financial markets. A new board of directors under the leadership of banker Uday Kotak was formed, with the previous board deemed to have failed in its obligations.

The Government of India (GoI) in its petition mentioned that “Ravi Parthasarathy and his team were responsible for the public’s negligence, incompetence and deception by presenting rosy financial statements. IL&FS camouflaged its financial statements by hiding a serious mismatch between its cash flows and payment obligations. It also hid a complete lack of liquidity and glaring unfavorable financial ratios.

Parthasarathy, who headed IL & FS for over 25 years, is accused of organizing one of the world’s biggest financial frauds and systematically driving a financial institution juggernaut to financial ruin.

Besides the first investigative body, the Serious Fraud Investigation Office (SFIO), the Reserve Bank of India, the Ministry of Commercial Affairs (Union of India), the Registrar of Companies (RoC), the National Company Law Tribunal (NCLT) , Mumbai, as well as Grant Thornton’s forensic report made unfavorable conclusions against him.

The Republic of Canada has observed mismanagement and compromises in corporate governance standards, while there is another FIR registered by EOW-New Delhi against Parthasarathy and Hari Sankaran under various sections of the ‘IPC.

IF&FS Employee Welfare Trust used to commit fraud

In one of the more damaging findings, the GoI petition stated: “IL&FS had created a trust known as the Employee Welfare Trust which was used as an instrument to enrich its directors to the detriment of the company. This trust was used to perpetrate fraud on IL&FS and its affiliates. The trust owned 12% of IL & FS Limited. Ravi Parthasarathy and some other senior IL&FS executives were the primary beneficiaries of the trust.

The RBI report, which she submitted on March 22, 2019, pointed out that the major role in the commission of the fraud and financial irregularity was played by Parthasarathy during her tenure as chairman of the group.

The report highlighted the indiscriminate sanctioning of loans, disregard for RBI standards, fraudulent transactions on certain accounts, showing an inflated number of subsidiaries, conflicts of interest and the concentration of power in the hands of a few, including Parthasarathy.

The SFIO complaint, dated May 30, 2019, named Parthasarathy as the main accused. The report mentioned that Parthasarathy was the main decision-maker of the IL&FS group and used the group as his stronghold.

Being the president of the IL&FS group and director of its various subsidiaries, the coterie led by Parthasarathy abused its position and embezzled funds from the companies of its group.

It can be noted that the NCLT-Mumbai order to recast the accounts of the IL&FS group was challenged by Parthasarathy in the Supreme Court, which upheld the GoI decision.

Grant Thornton’s forensic audit also revealed a host of illegal practices, credit rating agency bribery and other fraudulent practices, clearly indicating the involvement of then-IL&FS group chairman Parthasarathy .

(With IANS inputs)

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