INDIA’S LEADING & FINANCIAL SCAM

INDIA’S LEADING & FINANCIAL

SCAM
Case overview
In 2018, India’s non-banking financial companies (NBFC) sector was roiled by a series of
defaults by the Infrastructure Leasing & Financial Services Limited (IL&FS) group of companies,
with Rs848,000 crore of investor wealth vanishing within a few days. Several board members
resigned, the CEO of one of its defaulting subsidiaries quit abruptly, and multiple key
management personnel were replaced. The Group was further embroiled in money-laundering
charges levelled against 14 of its directors. The high-profile scandal led to investors losing faith
in India’s NBFC sector, which was an important driver of India’s economic growth, providing an
accessible source of funding for industries such as agriculture and real estate. It also sparked
public outcry and scrutiny as to whether enough was done by all parties involved in preventing
such a massive meltdown.

The objective of this case is to facilitate a discussion of issues such as board composition;
governance of company groups; overlapping directorships on boards of related companies;
non-segregation of shareholders, management and the board; risk governance and risk
management; financial management; investment governance; remuneration; and the role of
the government, regulators, auditors and credit rating agencies.

The rise of IL&FS

Incorporated in 1987, Infrastructure Leasing & Financial Services Limited (IL&FS) was the
brainchild of the late MJ Pherwani, the Chairman of the Unit Trust of India (UTI) and the National
Housing Bank (NHB) in India.1 The company was initially advocated by the Central Bank of
India (CBI), Housing Development Finance Corporation (HDFC) and UTI, with the objective of
providing finance and loans for major infrastructure projects in India. 2 This need was pertinent
especially because the only players at that time, the Industrial Development Bank of India
(IDBI) and Industrial Credit and Investment Corporation of India Bank (ICICI), were primarily
focused on private sector projects. IL&FS was supported by government-controlled entities in
the 1980s, including the CBI, UTI and HDFC.3

Over the last two decades, the focus in India turned towards infrastructure, and Prime Minister
Narendra Modi announced a major program to develop this area. The master plan included
the construction of highways, roads, tunnels and affordable housing, as well as renewable
power generation across the country between 2014 and 2015.4 This led IL&FS to utilise its

This case was prepared by Loo Kee Jeng, Wong Kang Ming, Cher Wen Ting, Tan Claris and Beatrice Ng, and edited by Isabella Ow under the
supervision of Professor Mak Yuen Teen. The case was developed from published sources solely for class discussion and is not intended to serve
as illustrations of effective or ineffective management or governance. The interpretations and perspectives in this case are not necessarily those of
the organizations named in the case, or any of their directors or employees.

Copyright © 2020 Mak Yuen Teen and CPA Australia.

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first-mover advantage to obtain projects through direct bidding or joint ventures. Its operations
quickly spread from Spain to China, with many offices set up worldwide. Businesses ranged
from sanitation projects and multilane highways to thermal power projects and solar parks,5
under a group structure comprising at least 24 direct subsidiaries, 135 indirect subsidiaries,
six joint ventures and four associate companies since its inception.6 Its subsidiaries included
transportation network building subsidiary IL&FS Transportation Networks Limited (ITNL),
engineering and procurement company IL&FS Engineering and Construction Co Limited, and
financier IL&FS Financial Services Limited (IFIN).

Too big to fail?

Until early August 2018, IL&FS scored AAA ratings from credit rating agencies,7 mostly due to
it being central in government infrastructure plans and its impressive list of top shareholders.
This helped IL&FS to secure funding from investors but also led to high debt levels. IL&FS’
total debt amounted to approximately Rs91,000 crore at its peak, with Rs57,000 crore due to
public sector lenders. The amount which IL&FS owed banks was over 10% of the net worth of
all public sector banks in India.8

The financing came from a variety of sources, with the large majority coming from public
sector banks and individuals who invested in its non-convertible debentures. IL&FS also raised
financing from other banks, financial institutions, NBFCs, corporations, and state governments.
Its subsidiary, IFIN, would then lend these funds as start-up capital to subsidiaries which would
partner with Public Sector Units as promoters in Public-Private Partnerships (PPPs).9

The PPP model allowed IL&FS to establish a significant presence in India’s infrastructure sector,
with more than 300 subsidiaries in roads, transport, energy, maritime infrastructure, water,
and urban management. However, IL&FS subsidiaries were not just private partners in the
PPPs. Some of these subsidiaries were established to provide a range of consulting services
to projects financed by the Group, forming an intricate relationship between Group entities.10

It was a combination of IL&FS’ substantial presence, vast clout, and systemic importance as
an NBFC that aided the Group in its planning and execution of scams. IL&FS squandered
public finances by being a financial institution which also entered into PPPs, and hired its own
subsidiaries as consultants for their own projects. This gave IL&FS the capacity to borrow large
sums from public banks and channel the money into joint ventures which it created with public
sector units, to form PPPs.11

Bubble waiting to burst

The modus operandi of IL&FS was simple: aggressively bag new projects, borrow to fund
them, and divert the money to repay lenders to earlier projects. From 2014 to 2018, although
its operating profit rose by 43% from Rs5,087 crore to Rs7,267 crore, its debt level rose by
87% – from Rs48,671 crore to Rs91,091 crore. This placed its leverage ratio at 13 times, vis-à-
vis what was considered a safe level of three times. The company’s high leverage was a result
of its sizeable capital requirement across subsidiaries, with a huge interest bill of Rs7,923 crore
in March 2018, a doubling from Rs3,970 crore in 2014.12

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Problems arose when IL&FS piled up too much debt to be paid back in the short term while
revenues from its assets were skewed towards the longer term, causing an asset-liability
mismatch. The Group first sent shockwaves across the market when it postponed a US$350
million bond issuance in March 2018 due to investors demanding a higher yield.13

Under increasing pressure from the Reserve Bank of India (RBI) – India’s central bank and
regulator of India’s banking sector – to identify and deal with bad loans swiftly, India’s banks
were wary of extending and rolling over loans if the credit risks were high. As a result, IL&FS
found it more challenging to refinance its debts as they came due.14

IL&FS’ net debt to earnings before interest, tax, depreciation and amortization (EBITDA) was
approximately 11 times at the end of March 2018. The ratio measures a company’s ability to
pay debt through its operating income, and analysts considered anything above five as a red
flag. This was followed by a series of downgrades in credit ratings starting from June 2018.15

When things started going south

June 2018 marked the start of a string of events which led to IL&FS’ downward spiral.16 That
was when four out of five subsidiaries of ITNL missed payments on debt due for that month,
forcing rating agencies to assign a default rating. Debt worth more than Rs28.5 billion would
face a default rating, while the debt for five projects anticipating termination stood at more than
Rs43 billion.17 In July 2018, ITNL continued to face difficulties in making payments due on its
bonds.18 This came after a series of warnings from rating agencies of the possibility of project
termination by the special purpose vehicles (SPVs) floated by several companies. Following
that, CARE Ratings downgraded ITNL’s bank facilities and debt instruments, citing “build-up of
liquidity pressure on the Group due to delay in raising funds”.19

In September 2018, IL&FS and its subsidiaries had defaulted on loans and inter-corporate
deposits to other banks and lenders. It had earlier defaulted on inter-corporate deposits to
Small Industries Development Bank of India (SIDBI) amounting to approximately Rs450 crore.20

On 4 September 2018, it was reported that IL&FS could not repay a Rs1000 crore short term
loan from SIDBI. As a result, SIDBI requested for the resignation of Swaminathan Mallikarjun
– IL&FS’ chief general manager in the risk management department – for the bad debt.21
SIDBI also threatened to file a case against IL&FS in the National Company Law Tribunal
(NCLT) for non-repayment.22 By mid-September, IL&FS and IFIN had accumulated a combined
Rs27,000 crore of debt rated as ‘junk’ by CARE Ratings and six other Group entities had
suffered downgrades with a negative outlook on an additional Rs12,000 crore of borrowings.23

Reactions
In late September 2018, IFIN informed the stock exchanges that it had defaulted on a Rs52
crore repayment of short-term deposits and Rs104 crore term deposit. It also failed to repay
five other bank loans and associated interest, which further exacerbated its position in the
market.24

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RBI then initiated a special audit on IL&FS and met the three largest investors of IL&FS – Life
Insurance Corporation of India (LIC), Japan’s Orix Corporation, and Abu Dhabi Investment
Authority – to discuss the large-scale defaults.25 As more debt deadlines loomed closer, IL&FS’
credit rating continued to experience sharp downgrades. Credit ratings agencies ICRA and
CARE Ratings cut their scores on a number of IL&FS’ debt instruments to ‘D’ on 17 September
2018, indicating actual or imminent default.26

At IL&FS’ Annual General Meeting on 29 September 2018,27 the board of directors rushed to
pass a motion to raise Rs4,500 crore through a rights issue, to be completed by the following
month. The board also raised the borrowing limit from Rs25,000 crore 28 to Rs35,000 crore. The
company appointed Alvarez & Marsal as a specialist agency to execute the debt restructuring
plan.29 But is this a case of “too little, too late”? What contributed to its troubles?

Shareholders blindsided
Most of IL&FS’ shares were held by Indian state-owned enterprises and private companies.
The main shareholders of IL&FS included LIC with 25.34%, Japan’s Orix Corporation with
23.54% and Abu Dhabi Investment Authority with 12.56%.30 These shareholders were found
not to be involved in the wrongdoings of the company. In contrast, the manner in which the
company was structured and managed by the board of directors and its executives was highly
questionable.31

Other than the major shareholders mentioned above, IL&FS Employees Welfare Trust also
had a substantial stake of 12%.32 This was a trust fund set up by the company to provide
financial assistance to its lower-income employees. However, this trust was found to be a shell
company that comprised mainly prominent board members who used their positions in it to
bring benefit to themselves, at a cost to the IL&FS Group companies. Less than one percent
of the funds that went through the EWT was used for the welfare of needy employees. Further,
around 3.1 million shares of IL&FS were distributed to managerial personnel and employees,
who were not meant to be the original beneficiaries of the trust.33

The Serious Fraud Investigation Office (SFIO), Delhi Police and tax authorities probed into
various suspected irregularities of IL&FS. The SFIO alleged that the management of IL&FS hid
non-performing loans, falsified accounts and concealed material information for their benefit.
The top management also allegedly milked the dividends and substantial sitting fees from
artificial profits booked by IFIN.34,35

Self-service
Industry observers felt that IFIN was run by IL&FS Chairman Ravi Parthasarathy and Vice
Chairman Hari Sankaran like a “personal fiefdom”. 36 According to an SFIO official, the “top
management used IFIN as a tool for personal gain”.37

Other than having highly suspicious transactions across the Group, there were also several
instances where the board of directors and management had arguably violated their duties by
having a conflict of interests. One such instance was when Group entities rented properties from

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certain employees or their family members and paid rental fees well above the market rates. 38
Other instances include a loan of Rs28.99 crore extended to Indus Equicap Consultancy Pte
Ltd, where one of the IL&FS directors was also acting as a director.39

Emails between the Group’s former management and borrowers showed that IFIN’s officials
enjoyed additional perks. For example, in 2014, S. Sivasankaran of the Siva Group – one of the
beneficiaries of IFIN’s sophisticated transaction arrangements – arranged for a helicopter tour
and ski resort stay in Norway for Parthasarathy. Viren Ahuja of Flamingo Group also arranged
for an internship at Moet Hennessy for the daughter of IFIN’s Chief Executive Officer (CEO)
Ramesh C. Bawa.40

Too big to comprehend

The highly complex structure of IL&FS made it extremely difficult to track the accounts of each
of its subsidiaries or associates. 41 The Group was thus able to easily hide fictitious transactions
and shift profits around the various Group entities to its advantage, making it virtually impossible
to verify the authenticity of its accounts.

Furthermore, IL&FS failed to accurately disclose the number of parties related to the parent
company. In its annual report, it was disclosed that the Group had 24 direct subsidiaries, 135
indirect subsidiaries, six joint ventures and four associate companies. However, when thorough
investigations were carried out, it was found out that there were in fact 347 companies under
parent company IL&FS.42

Funds were also found to be diverted across the multiple entities in the Group. According to
the report by the SFIO, the Group seemed to operate as a single entity without any proper
segregation between legal entities and separate management.43 This unlawful manipulation of
funds was concealed by IL&FS’s highly complex business structure44 and made it extremely
difficult for auditors to uncover discrepancies within reported figures in the Group.45

Merry-go-round
Intragroup transactions which were carried out by IL&FS were significant, specifically in the
form of loans given out by its finance arm, IFIN, to other companies within the IL&FS Group,
amounting up to Rs5,728 crore, Rs5,127 crore, and Rs5,490 crore in FY2016, FY2017 and
FY2018 respectively – well above the allowable regulatory limit set by the RBI for all three
years. The fact that it provided loans above their regulatory limit also suggested that IFIN had
insufficient working capital for these years.46

Using window dressing, IFIN also raised money through non-convertible debentures and
commercial papers. It kept only the minimum necessary cash required by RBI regulations while
the remaining profits were ploughed back to IL&FS as dividends. The payment of the dividends
back to IL&FS allowed IL&FS to continue showing healthy profits on a year-on-year basis in its
books, despite the catastrophic state of its finances.47

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A few of these transactions occurred across the entire period, including loans of Rs1,500
crore and selling off assets at heavily discounted prices. The loans made to a Group company
were routed through eight other companies, deceiving the regulators. Furthermore, it was
discovered that an asset was transferred from one entity in the Group to another at a value of
Rs30.8 crore based on an independent fair valuation. However, a year later, a committee of
directors resolved to sell the same asset to a third party at Rs1 crore.48 The auditors of IL&FS
failed to report these critical findings to the board.

The accounting firm, Grant Thornton, who were the internal auditors, discovered that
transactions amounting to over Rs13,000 crore were linked to irregularities such as conflict of
interests, inadequate risk assessment and deviation from bank norms. In 29 instances, loans
that were to be disbursed were instead rerouted to repay IL&FS’ existing debt obligations
with IFIN. Additionally, Grant Thornton uncovered advances to entities linked to senior IL&FS
executives or directors, resulting in conflicts of interest.49

Rules are meant to be changed

In investigating the intragroup transactions, the related party transactions (RPT) policy of IL&FS
came under scrutiny. It was found that IFIN had repeatedly diluted its RPT policies such that it
could continue lending to fellow Group entities, yet still obtain favourable ratings. While IL&FS
had a board-approved RPT policy for lending to Group entities, it made several changes to it
between 2015 and 2017 to dilute it.50

Under IFIN’s RPT policy, there was a list of circumstances under which RPTs were considered
to be ‘exempt RPTs’, and only required approval from a committee of directors. Such ‘exempt
RPTs’, unlike ‘non-exempt RPTs’, did not need to undergo further review by the Audit
Committee or require approval from the board and/or shareholders. In May 2015, the scope
of ‘exempt RPTs’ was expanded, and then further expanded in 2017 without approval from
the board.51

Another important aspect of handling RPTs was to determine the arm’s length pricing. The
standard was for the valuation to be conducted by independent valuers. However, IL&FS
amended its policy in 2015 to prescribe that valuations should be done by an “empaneled set
of independent valuers”. These valuers were essentially selected by the company, allowing it
to “get favourable reports for the transactions’ underlying values”. This suggested an element
of conflict of interest and was not consistent with having the valuation done independently by
a third party valuer.52

In 2014, the Audit Committee had highlighted to the statutory auditors the need to review the
RPT policy of IFIN. However, this review was instead delegated to the internal auditors, and it
was not until February 2016 that the evaluation was finally completed. Meanwhile, proposed
changes to the RPT policy were readily accepted by the Audit Committee without much
deliberation prior to the completion of the review. To make matters worse, several findings of
deficiency in internal controls pointed out by the auditors in February 2016 fell on deaf ears,
and no follow-up action was taken.53

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Where was the board?

“The rest of the board [excluding Ravi Parthasarathy] exists only for decorative purposes.”
– Andy Mukherjee, a Bloomberg columnist54

IL&FS’ 15-member board consisted of a majority of non-independent members.55 Amongst

the five who were declared independent, three have been on the board for more than ten
years.56

The roles of IL&FS’ Group directors also extended to its subsidiaries, with a core group of
directors sitting on the subsidiaries’ boards. For instance, Ravi Parthasarathy was Chairman of
IL&FS Group’s board and was on IFIN’s board as well; 57 whilst Arun Kumar Saha held the roles
of joint Managing Director and CEO of IL&FS Group,58 as well as director of IFIN. Sankaran,
the Vice Chairman of the IL&FS Group board, also concurrently served as a director of IFIN.59

The IL&FS board was made up mainly of nominee directors representing the various institutional
shareholders. Major shareholders seemed to turn a blind eye in managing their investments in
the Group across the years.60 Ironically, the bulk of the information was uncovered by a probe
led by RBI. RBI itself had a nominee director, Bijender Kumar Singal, on the Group’s board.61

As the empire he built up crumbled in front of his very own eyes, Parthasarathy abruptly left
the company due to “medical reasons”62 on 21 July 2018,63 along with a handsome retirement
package.64 The public questioned the legitimacy of the reason behind his shock departure,
speculating that there was possible mismanagement.

The second shock came with Bawa’s resignation as Managing Director and CEO of IFIN on 21
September 2018.65 On 1 October 2018, the Indian Government issued lookout notices across
the country’s airports for the two, along with two other IL&FS directors, due to likelihood of
them fleeing the country. This came immediately after the government’s decision to freeze
bank accounts, credit cards and all assets of the various directors involved.66

Parthasarathy, through his lawyers, claimed that freezing his accounts was essentially “a
situation of life and death”, as the costs of his ongoing cancer treatment far exceeded the
monthly limit of monies he was allowed to use. 67 He further applied to the government to allow
him to travel for continued treatment for throat cancer at a London hospital.68

Paper tiger
Since 9 March 2015, the Nominating and Remuneration Committee (NRC) of IL&FS Group
consisted of Sunil B. Mathur as Committee Chairman; Harish Engineer (resigned with effect
from 15 September 2017), Michael Pinto, and Sankaran (joined in FY2018). 69 After Engineer’s
resignation, the NRC appointed Parthasarathy as a member.70

However, board members not officially in the NRC could influence the appointment of
independent directors.71 In an investigation undertaken by the Enforcement Directorate (ED)
against IL&FS CEO Saha (non-NRC member), it was revealed that in an email response to
Sankaran (NRC member), he requested the independent director be “non-intrusive” and

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“obedient”.72 In a separate probe conducted by the SFIO, it was also found that the pay
component was also decided by the board of directors, rather than the NRC.73

Remuneration – Up, up and away74

The annual reports of IL&FS show that the average percentage increase in managerial
remuneration was 66% from 2017 to 2018. In comparison, the average percentage increase
in the salaries of employees other than managerial personnel in the same period was 4.44%.75

In the previous four years, although the net profit of parent firm IL&FS increased from Rs210
crore in FY2015 to Rs450 crore in FY2018, the consolidated net profit of the IL&FS Group
declined steeply from Rs80 crore to a loss of Rs2,090 crore across the same period. In fact, the
Group has been posting losses for three consecutive years since FY2016. This was attributed
to the Group’s rapid expansion and inability to monetise its infrastructure assets, resulting in
its consolidated liabilities increasing from Rs68,000 crore in FY2015 to Rs99,950 crore by
FY2018. The substantial amount of debt was only supported by Rs7,400 crore of equity.76

Despite the poor performance by the IL&FS Group, neither nominee directors nor independent
directors implemented pay cuts for directors. In fact, the reverse happened.77

Parthasarathy’s total emoluments shot up by 144% in FY2018 compared to year before,

though the bulk of the increase was from retirement benefits. However, his salary component
also contributed to this increase, rising from Rs5.806 crore in FY2014 to Rs9.212 crore in
FY2018, during a period when the Group’s financials were not in good shape. Further, despite
him serving on the IL&FS board for only half of the financial year, his FY2018 salary saw a rise
from the FY2017 full-year management salary of Rs9.034 crore.78

Similarly, between FY2015 and FY2018, Sankaran’s total remuneration increased by 61% to
Rs7.76 crore, while Saha’s increased by 20% to Rs7 crore.79

Additionally, there was a performance-related pay component to the remuneration packages

which was contingent on the revenue and profit of IL&FS. Parthasarathy’s performance-related
pay as of March 2018 amounted to Rs6.24 crore despite the loss-making performance of
the Group.80 It was also further revealed that six senior management personnel were paid
an aggregate of Rs76 crore as performance-related pay from FY2014 to FY2018. IFIN also
continued to pay large commissions and sitting fees to these same individuals.81

Risk? What risk?

The role of the Risk Management Committee (RMC) is to review areas such as asset-
liability management, credit, liquidity and market risk, capital adequacy and compliance with
regulations. Since FY2015, the RMC consisted of Saha, R. C. Bhargava, Michael Pinto, and
S. Bandyopadhyay – the LIC nominee and then-managing director of LIC Pension Fund,
who resigned from the board on 3 April 2017 – and was succeeded by Hemant Bhargava,
managing director of LIC.82

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Despite its importance and the increased risks and debt levels, the RMC only met once
between FY2015 and FY2018. This can be compared to IDFC Bank, another infrastructure
finance company, where its RMC met 14 times between FY2015 and FY2018.83

When queried about the lack of RMC meetings, a former IL&FS senior director said it was
“not necessary”. He said that all the issues relating to the risks faced by the company and its
impending financial problems were on the key agenda whenever the board of directors met.84

Mis-investment
IL&FS had significant exposure in its investments, with IFIN managing most of these
investments. IL&FS’ investments totaled Rs12,775.4 crore as at 31 March 2018, but it also
made provisions of Rs158.5 crore for the diminution in the value of investments. In addition,
there were unaccounted additional provisions amounting to Rs3,491.9 crore.85

Despite the large investment amounts in IL&FS, the Group did not have a board-approved
investment policy, nor stringent guidelines to manage the investment risk across Group entities.
In addition, it was stated that business strategies of the Group were “never deliberated from
the risk perspective”, and that “credit risk and linkage with liquidity risk was never identified in
credit and investment decisions”.86

These lapses in investment risk should have been discussed by IL&FS’s Investment Review
Committee (IRC). However, this committee had not met for three years since 5 October 2015.
In the absence of IRC meetings, investment-related proposals were instead approved by
IFIN’s Committee of Directors (CoD) of six persons, namely Parthasarathy, Sankaran, Bawa,
Saha, Vibhav Kapoor, and Karunakaran Ramchand. 87 In addition, there was no proper system
implemented for monitoring the end use of funds.88

These observations point to serious lapses in the approval process for investment transactions,
which allowed huge loans to be extended to certain entities, even after the risk management
team advised against it.89 Based on a forensic audit report prepared by Grant Thornton, there
were 18 instances where the CoD approved loans totaling approximately Rs2,400 crore to
borrowers who appeared to be in potential stress, despite adverse assessments by the risk
management team. Additionally, there were another 16 cases amounting to Rs1,922 crore
where the CoD authorised loans at a negative spread or limited spread, to borrowers which
were facing liquidity issues.90

Moreover, there were up to eight instances, amounting up to Rs541 crore, where short-term
facilities at IFIN were lent out for the long-term instead. These long-term loans went ahead
despite the troubles and financial difficulties faced by the company, and no precautionary
measures were undertaken by the risk management team to mitigate the inherent risks they
were taking on.91

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The ‘yes’ men
The IL&FS crisis also called into question the role of the internal auditors who failed to notice
the problems that had been developing on IL&FS’ balance sheets for several years. The Audit
Committee (AC) ignored whistleblower complaints and RBI inspection reports, and failed to
make independent and unbiased judgments. Instead, the AC allegedly “chose to live in denial”
and were overly dependent on management viewpoints.92

In 2017, a complaint by a whistleblower was allegedly covered up by the top management of

IL&FS in collusion with the company’s independent directors.93 The whistleblower complaint
was received in March 2017, but it was only discussed by the AC nine months later in December
2017. SFIO’s investigations found that the AC, instead of inquiring into the allegations made
in the complaint, simply accepted the viewpoint of the management and did not make any
independent assessment of the allegations.94

In addition, the response of the AC to various issues such as the definition of Group companies,
calculation of the net owned funds and capital adequacy ratio were all made in tandem with
IL&FS management’s viewpoints. There was no independent verification or inspection carried
out by the AC to challenge these viewpoints.95

Most notably, in the third quarterly FY2017-2018 internal audit report, it was found that a
facility, Golden Glow Estates which had turned into a non-performing asset was a loan that
was in or close to being in default. This needed to be addressed by way of income and interest
reversals, but no such action was taken by the AC.96

Hiding in plain sight – External audit

“We are not expecting an auditor to detect a needle in a haystack, but if an elephant is in a
room, they ought to find it.”
– Injeti Srinivas, Ministry of Corporate Affairs secretary97

The external auditors were affiliates of Deloitte Haskin and Sells LLC (Deloitte), KPMG India,
and EY India Ltd. These firms covered the audits for IL&FS and its main subsidiaries – IFIN
and ITNL.98 Deloitte was the statutory auditor of IL&FS between FY2007 and FY2017, while
KPMG affiliate BSR & Associates LLP (BSR & Associates) was appointed as a joint auditor
for FY2018.99 Meanwhile, SR Batliboi & Co (SR Batliboi), an affiliate of EY, had also audited
accounts of IL&FS.100

There were a host of allegations against the auditors, from missing out on the sprawling IL&FS
Group structure and not flagging out the asset-liability mismatch on the company’s books, to
the inappropriate valuation of assets and inadequate recognition of non-performing assets.101

However, throughout the audit process, one key issue the external auditors faced was that the
prescribed regulations under the Institute of Chartered Accountants of India (ICAI) did not allow
the principal auditor to look into the audit of subsidiaries.102 In the case of IL&FS, ITNL and IFIN,
the principal auditors only audited part of the accounts and relied on the opinion of auditors of
subsidiaries. Furthermore, 35 different audit firms were engaged to audit more than 300 Group

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subsidiaries.103 This resulted in difficulties for the external auditors to identify the exact number
of subsidiaries in IL&FS, and they could not comment on the under-reporting due to the lack
of direct line of sight. In addition, the limited exposure to subsidiaries prevented auditors from
detecting diversion or misuse of funds. In spite of this, it was clear that IL&FS was experiencing
a full-blown solvency crisis. Hence, it remains questionable why the auditors did not utilise their
professional discretion to raise the relevant questions in a timely manner.104

ICAI was prompted to initiate action against BSR & Associates for professional misconduct
under the Chartered Accountants Act, 1949. 105 According to the accounting regulator, the
auditors had failed to highlight the RBI’s inspection report, which had considered IFIN as being
over-leveraged. The auditors also did not report IFIN’s negative cash flows and adverse key
financial ratios.106 Although BSR & Associates had raised queries in May 2018, at least 17 of
the company’s loan facilities were being used for evergreening – a tactic used to conceal loan
defaults by issuing new loans to help delinquent borrowers repay or pay interest on old loans
– the auditors ultimately did not highlight it in their report.107

Caught in the act

According to the SFIO, Deloitte had disregarded the RBI’s regulations, turned a blind eye to
IFIN’s evergreening of loans, and failed to cross-check any of the “tutored end-use certificates”
the company used to mislead lending banks.108

A member of the senior management in Deloitte sent an anonymous letter to the Indian
government and revealed that Deloitte was fully aware of all the irregularities going on in IL&FS.
Deloitte was paid Rs20 crore yearly for its auditing and consulting work and it was alleged
that, in return, Deloitte colluded with the IL&FS management and assisted it to cover up the
company’s accounts year after year. Deloitte was alleged to have engaged a senior tax advisor
to come up with a complex system for IL&FS to evade taxes.109

Deloitte was also said to have been awarded advisory contracts by IL&FS in exchange for
“giving a favourable view”.110

(Dis)credit rating agencies

A forensic audit conducted by Grant Thornton discovered that credit rating agencies continued
to award high credit ratings to IL&FS despite being aware of the weak financials of the Group.111

During its special audit, Grant Thornton noted that credit rating agencies had multiple concerns
for the past seven years about the operations of the IL&FS Group, but continued to assign
consistently high ratings, only reversing or downgrading them after mid-2018.112 Two of India’s
top credit rating companies, ICRA and CARE Ratings, continued to award high credit ratings
to the borrowings of IL&FS and its subsidiaries till August 2018.113 In addition, India Rating &
Research Pvt Ltd gave an excellent long-term credit rating for IL&FS even though its subsidiary,
ITNL, had already defaulted on its repayment obligations previously.114

172
These three credit rating agencies together helped the IL&FS Group to corner over two percent
of all commercial papers, one percent of all corporate debentures, and almost one percent of
all banking system loans outstanding at the country level. The Group’s aggregate borrowings
amounted close to an astounding Rs100,000 crore.115

The Enforcement Directorate – the law enforcement agency and economic intelligence agency
responsible for enforcing economic laws and fighting economic crime in India – also uncovered
that IL&FS’ senior management had interfered in the ratings review to upgrade the ratings of its
Group entities.116 They intentionally provided incorrect or incomplete information to the credit
rating agencies to avoid rating downgrades. IL&FS also paid large sums to keep ratings private
when favourable ratings were not obtained. Lastly, IL&FS management also allegedly exerted
pressure on rating agencies by threatening to approach other competitor rating agencies when
desired ratings were not given.117

A half-asleep giant
The role of the RBI was also called into question by the SFIO, which said that timely intervention
by the central bank could have led to early detection of the crisis in the IL&FS Group. The SFIO
further highlighted that IFIN – which was at the core of the investigation – was allowed to
operate despite RBI raising red flags. SFIO said that the RBI should have instead conducted
an internal probe and taken “appropriate action”.118

RBI had repeatedly pointed out non-compliance with the Group exposure norms and incorrect
calculations of net owned funds in its inspection reports from 2015 onwards. Yet, no penalties
were imposed during the period and IFIN was allowed to continue business as usual without
any corrective actions.119

RBI only took action in November 2017 by conveying the proposed necessary changes to
IFIN.120 Hence, in its charge sheet, SFIO suggested that RBI should conduct an internal inquiry
with regard to the reason for the delay and thereafter take appropriate action and implement
suitable policy measures to prevent such fraudulent activities in the future.121

The aftermath
On 15 September 2018, the government appointed former LIC Chairman, Sunil Behari Mathur,
as IL&FS Group Chairman.122 A week later, DSP Mutual Fund’s sale of Dewan Housing Finance
(DHFL) commercial papers at a high yield triggered panic in equity and bond markets.123 The
stock market crashed by 1,500 points as investors doubted the sustainability of the NBFC
business model of financing long-term lending by short-term borrowing. The IL&FS crisis
sparked vast outflows in liquid funds in September 2018. There were also fears of contagion in
mutual funds, who were major investors in NBFC commercial papers, as shadow banks faced
difficulties in raising funding.124

Although an announcement was released, the rights issue by IL&FS never materialised due
to the Indian government stepping in. On 1 October 2018, an NCLT judgment allowed the
Indian government to take steps to take control of the company and arrest the spread of the
contagion to the financial markets. The move caught investors by surprise. A new board, led

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 INDIA’S LEADING & FINANCIAL SCAM

by Kotak Mahindra Bank managing director Uday Kotak, was constituted. However, experts
commented that the new board members lack sufficient expertise in the infrastructure sector
to effectively rescue IL&FS.125

On 5 March 2019, the new government-appointed board of IL&FS charged 14 former directors
of IFIN for facilitating money laundering, sanctioning loans in violation of rules and causing
“huge financial stress and losses” to the company via the issuance of show-cause notices.126

A month later, Sankaran, former Vice Chairman of IL&FS, was arrested by SFIO for causing
wrongful loss to IL&FS, as well as on fraud charges. He was accused of abusing his powers
in IFIN through fraudulent conduct and in granting loans to entities which were not credit-
worthy or were classified as non-performing accounts, causing loss to the company and its
creditors.127

The ICAI found the statutory auditors of IL&FS and two of its subsidiaries, ITNL and IFIN to be
“prima facie guilty” of professional misconduct. These included Deloitte, BSR & Associates,
and SR Batliboi.128

Rising from the trenches

On 31 October 2018, the newly appointed Kotak-led board submitted a revival plan for the
troubled company. Apart from preparing a roadmap to revive IL&FS, the plan also acknowledged
that “the mess was a result of greed, mismanagement, and deliberate oversight”.129

In its second report, the board informed the NCLT of its plan to focus on vertical as well as
asset-level resolution. It stated that this was because it was impossible to find a remedy for the
Group with the overwhelming Rs91,000 crore debt. The resolution would involve significant
capital investment from strong and credible investors, which was not feasible given the current
situation.130

On the issue of the audit of subsidiaries, international laws have made it clear that the
principal auditor is expected to review all the subsidiaries of the company, no matter its size.
The Securities and Exchange Board of India was thus prompted to issue a circular, which
mandated that listed entities must conduct a limited review of the audit of all the entities which
accounts are to be consolidated. This would ensure that, in future, principal auditors of listed
companies have a certain degree of weight in the audit of subsidiaries.131

So…what next?
A year after the IL&FS scandal, the NBFC sector continues to struggle, especially those geared
towards lending to real estate firms.132 Defaults are continuing to occur, which is a cause for
concern for the India economy as many loans go towards construction projects which are
highly dependent on them. NBFCs which specialise in home loans have also been slow in
disbursement, leading to poor consumer sentiment. The Indian government has announced
measures to provide last-mile funding to stuck projects,133 but experts believe that capital
needs to be raised from overseas and systematic reforms are the key to tackling the root cause
of this crisis.

174
Discussion questions
1. Was the collapse of IL&FS due to its business model, poor financial management, weak
risk governance and management, poor corporate governance and/or other factors?
Evaluate their relative importance to the collapse.
2. IL&FS Group has a complex structure with many subsidiaries and other Group entities.
Discuss the challenges from the perspective of the holding company, Group entities and
directors within the Group. To whom do directors of these different entities owe duties
to in such situations? How can the Group board of directors ensure that there is good
governance throughout the Group?
3. Discuss the issues of overlapping directorships and nominee directors in the IL&FS
Group. Discuss whether the directors had adequately discharged their fiduciary duties.
4. Discuss the role of auditors in this case. What in your view can be done to avoid lapses in
audit practices?
5. Identify the key conflicts of interest involving directors, management, auditors, ratings
agencies and other key players. To what extent did they contribute to the collapse of
IL&FS? How can such conflicts be mitigated?
6. Evaluate the roles of different stakeholders in the collapse of IL&FS. Who were most
culpable? Explain.

Endnotes
1 The Telegraph. (2016, March 11). ‘Mystery’ deaths in scandals. Retrieved from https://www.telegraphindia.
com/india/mystery-deaths-in-scandals/cid/1667829
2 Parmar, B. (2018, September 28). Debt and defaults: What happened to IL&FS. Money Control. Retrieved
from https://www.moneycontrol.com/news/business/companies/debt-and-defaults-what-happened-to-ilfs-
2952381.html
3 The Economic Times. (2018, October 3). IL&FS: The crisis that has India in panic mode. Retrieved from
https://economictimes.indiatimes.com/industry/banking/finance/banking/everything -about-the-ilfs-crisis
-that-has-india-in-panic-mode/articleshow/66026024.cms?utm_source=contentofinterest&utm_medium
=text&utm_campaign=cppst
4 Reuters. (2018, September 25). IL&FS - its recent troubles and why investors should care. Retrieved from
https://energy.economictimes.indiatimes.com/news/renewable/ilfs-its-recent-troubles-and-why-investors-
should-care/65952988
5 Shukla, S., & Sinha, S. (2019, August 28). A year after IL&FS collapse: Debt, destruction and dithering. The
Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/banking/finance/ a-year
-after-ilfs-collapse-debt-destruction-and-dithering/articleshow/70868024.cms?from=mdr
6 Dey, S. (2019, March 22). IL&FS’ systemic structural flaw. Business Standard. Retrieved from https://www.
business-standard.com/article/companies/il-fs-systemic-structural-flaw-119032001078_1.html
7 Borate, N. (2019, July 2). Why credit grades given by rating firms are under lens. Livemint. Retrieved from
https://www.livemint.com/politics/policy/why-credit-grades-given-by-rating-firms-are-under-lens-1562087
147473.html

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 INDIA’S LEADING & FINANCIAL SCAM

8 Asthana, S. (2018, December 27). Flashback 2018: When IL&FS nearly sank the financial system. Money
Control. Retrieved from https://www.moneycontrol.com/news/business/economy/flashback-2018-when-ilfs-
nearly-sank-the-financial-system-3300731.html
9 Karthik, M. (2019, August 10). In the shadows of a debt crisis: A closer look at how IL&FS episode unfolded
and impacted the larger economy. Centre for Financial Accountability. Retrieved from https://www.cenfa.org/
national-financial-institutions/in-the-shadows-of-a-debt-crisis-a-closer-look-at-how-ilfs-episode-unfolded-and-
impacted-the-larger-economy/
10 Ibid.
11 Ibid.
12 Ray, S. S. (2018, October 3). IL&FS risk: Leverage rose to 13, but risk panel met just onc e in 4 years. Financial
Express. Retrieved from https://www.financialexpress.com/industry/ilfs-risk-leverage-rose-to-13-but-risk
-panel-met-just-once-in-4-years/1334839/
13 Thomson Reuters. (2018, September 25). IL&FS Crisis: Everything You Need To Know About Company’s
Recent Troubles. Retrieved from https://www.ndtv.com/business/il-fs-crisis-everything-you-need-to-know-
about-companys-recent-troubles-1922150
14 Ibid.
15 Ibid.
16 Lele, A., & Mukul, J. (2018, July 18). Three decades of Ravi Parthasarathy led to ILFS’ lateral growth. Business
Standard. Retrieved from https://www.business-standard.com/article/companies/three-decades-of-ravi
-parthasarathy-led-to-il-fs-s-lateral-growth-118072401393_1.html
17 Metro, G. (2018, July 20). ITNL runs into trouble, plans to terminate contracts for Gurgaon Metro. Business
Standard. Retrieved from https://www.business-standard.com/article/companies/itnl-runs-into-trouble-plans-
to-terminate-contracts-for-gurgaon-metro-118071901456_1.html
18 The Hindu Business Line. (2018, July 22). Debt downgraded, IL&FS road arm says facing default. Retrieved
from https://www.thehindubusinessline.com/news/debt-downgraded-ilfs-road-arm-says-facing-defaults/
article24488739.ece
19 The Hindu Business Line. (2018, September 10). CARE downgrades IL&FS debt instruments, bank facilities.
Retrieved from https://www.thehindubusinessline.com/money-and-banking/care-ratings-downgrades-ilfs-
debt-instruments-bank-facilities/article24914106.ece
20 Saxena, R. (2018, September 28). RBI Asks Shareholders To Rescue IL&FS. Bloomberg Quint. Retrieved from
https://www.bloombergquint.com/business/rbi-asks-shareholders-to-save-ilfs
21 Dalal, S. (2018, September 4). IL&FS defaults on Rs. 1,000 crore short term loan from SIDBI. MoneyLife.
Retrieved from https://www.moneylife.in/article/ilfs-defaults-on-rs1000-crore-short-term-loan-from-sidbi/
55209.html
22 CNBC. (2018, September 25). Sidbi to file case against IL&FS for non-payment of deposits, says report.
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23 Mukherjee, P., Choudhury, S., & Roy, A. (2018, September 25). Factbox: IL&FS - its recent troubles and why
investors should care. Reuters. Retrieved from https://in.reuters.com/article/india-il-fs/factbox-ilfs-its-recent-
troubles-and-why-investors-should-care-idINKCN1M51UY
24 Tendolkar, A. (2018, September 27). IL&FS Financial Services defaults on loans worth Rs. 440 crore.
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25 Saxena, R. (2018, September 28). RBI Asks Shareholders To Rescue IL&FS. Bloomberg Quint. Retrieved from
https://www.bloombergquint.com/business/rbi-asks-shareholders-to-save-ilfs
26 Antony, A., & Suresh, A. (2018, September 18). As Debt Woes Spread, India’s IL&FS Ratin gs Cut to Lowest
Levels. Bloomberg Quint. Retrieved from https://www.bloombergquint.com/business/moody-s-unit-cuts
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176
27 Saxena, R. (2018, September 30). IL&FS AGM: Three-Pronged Strategy To Return To Solvency. Bloomberg
Quint. Retrieved from https://www.bloombergquint.com/markets/ilfs-outlines-three-pronged-strategy-to
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28 Sharma, R. (2018, September 28). Red sea: Ahead of AGM, IL&FS trips up. Financial Express. Retrieved from
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29 Mehta, S. (2018, October 1). IL&FS lenders seek resolution plan before mulling more loans. The Economic
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30 Chaki, D., & Laskar, A. (2018, September 26). ADIA, Orix Corp in talks to jointly bail out IL&FS. Livemint.
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31 Rebello, J., & Sinha, S. (2018, October 2). IL&FS crisis: Shareholders await guidance from new board. The
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32 Dalal, S. (2018, October 12). IL&FS Top Management: Planned Enrichment through Employee Trust; Jobs
and Contracts for Families. Moneylife. Retrieved from https://www.moneylife.in/article/ilfs-top-management-
planned-enrichment-through-employee-trust-jobs-and-contracts-for-families/55538.html
33 Rajput, R. (2019, February 23). IL&FS employee welfare trust under ED lens. The Economic Times. Retrieved
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34 Moneylife. (2019, May 31). SFIO Files Charge Sheet against IFIN; Names Auditors, Directors, Key Employees
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35 Rai, D. (2019, July 24). Top management of insolvent IL&FS rewarded themselves as best performer. India
Today. Retrieved from https://www.indiatoday.in/diu/story/top-management-of-insolvent-il-fs-rewarded
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36 Indo-Asian News Service. (2019, June 1). Parthasarathy and Sankaran ran IL&FS as personal fiefdom.
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37 Rai, D. (2019, July 24). Top management of insolvent IL&FS rewarded themselves as best performer. India
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38 Asthana, S. (2018, November 1). Opinion | IL&FS mess a result of greed, mismanagement and deliberate
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opinion-ilfs-mess-a-result-of-greed-mismanagement-and-deliberate-oversight-3118831.html
39 Singh, S. (2019, March 5). 14 ex-directors of IL&FS get notice for laundering, fraud, payoffs. The Indian
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40 Financial Express. (2019, June 25). Former IL&FS top brass drew hefty pay as firms financial health suffered.
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41 Financial Chronicle Bureau. (2018, September 25). Complex web of subsidiaries brought IL&FS to its knees.
Retrieved from http://www.mydigitalfc.com/companies-and-markets/complex-web-subsidiaries-brought
-ilfs-its-knees
42 Asthana, S. (2018, November 1). IL&FS mess a result of greed, mismanagement and deliberate oversight.
Money Control. Retrieved from https://www.moneycontrol.com/news/business/companies/opinion-ilfs-
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43 Times of India. (2018, November 12). SFIO to probe IL&FS financial arm’s dealings with group entities.
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44 Dey, S. (2019, March 22) IL&FS’ systemic structural flaw. Business Standard. Retrieved from https://www.
business-standard.com/article/companies/il-fs-systemic-structural-flaw-119032001078_1.html
45 Upadhyay, J. P. (2019, May 21). Inside the audit lapses that led to IL&FS crisis. Livemint. Retrieved from https://
www.livemint.com/companies/news/inside-the-audit-lapses-that-led-to-il-fs-crisis-1558456079750.html
46 Bamzai, S. (2018, November 6). IL&FS: Was everyone asleep at the wheel?. Deccan Chronicle. Retrieved from
https://www.deccanchronicle.com/opinion/op-ed/061118/ilfs-was-everyone-asleep-at-the-wheel.html
47 Rai, D. (2019, July 24). Top management of insolvent IL&FS rewarded themselves as best performer. India
Today. Retrieved from https://www.indiatoday.in/diu/story/top-management-of-insolvent-il-fs-rewarded
-themselves-as-best-performer-1573102-2019-07-24
48 The Economic Times. (2018, November 2). IL&FS Financial Services exposure to group companies breaches
RBI norms in FY16-18: Board. Retrieved from https://economictimes.indiatimes.com/news/economy/policy/
ilfs-financial-services-exposure-to-group-companies-breaches-rbi-norms-in-fy16-18-board/articleshow/
66473861.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
49 Rajput, R. (2019, March 4). Grant Thornton opens first IL&FS can of worms, and its Rs 13,000 crore worth of
fishy deals. The Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/banking/
finance/grant-thornton-flags-rs-13000-crore-ilfs-dealings-as-suspect/articleshow/68248706.cms?from=mdr
50 Upadhyay, P. (2019, June 4). IL&FS Financial Services diluted policies to continue lending to group companies,
SFIO says. Bloomberg Quint. Retrieved from https://www.bloombergquint.com/law-and-policy/ilfs-financial
-services-diluted-policies-to-continue-lending-to-group-companies-sfio-says
51 Ibid.
52 Ibid.
53 Ibid.
54 Hazari, H. (2018, September 17). Behind IL&FS Default, A Board that Didn’t Bark When It Was Supposed To.
The Wire. Retrieved from https://thewire.in/business/behind-ilfs-default-a-board-that-didnt-bark-when-it-was-
supposed-to
55 The Economic Times. (2018, October 2). Here are 15 members of IL&FS board that were sacked by govt.
Retrieved from https://economictimes.indiatimes.com/markets/stocks/news/here-are-15-members-of-ilfs-
board-that-were-sacked-by-govt/articleshow/66042966.cms?utm_source=contentofinterest&utm_medium
=text&utm_campaign=cppst
56 Infrastructure Leasing & Financial Services Limited. (n.d.). Annual Report 2016-2017. Retrieved from https://
www.ilfsindia.com/media/1872/ilfs-ar-2016-17.pdf
57 Indo-Asian News Service. (2019, August 21). ED lays bare IL&FS cabal modus operandi of Rs 7,400 cr loot
and scoot (IANS Exclusive). Retrieved from https://www.outlookindia.com/newsscroll/ed-lays-bare-ilampfs
-cabal-modus-operandi-of-rs-7400-cr-loot-and-scoot-ians-exclusive/1601002
58 Panda, S. (2019, December 21). Former IL&FS directors got lucrative paychecks even as firm collapsed.
Business Standard. Retrieved from https://www.business-standard.com/article/companies/former-il-fs
-directors-got-lucrative-paychecks-even-as-firm-collapsed-119122100018_1.html
59 Indo-Asian News Service. (2019, August 21). ED lays bare IL&FS cabal modus operandi of Rs 7,400 cr loot
and scoot (IANS Exclusive). Retrieved from https://www.outlookindia.com/newsscroll/ed-lays-bare-ilampfs
-cabal-modus-operandi-of-rs-7400-cr-loot-and-scoot-ians-exclusive/1601002
60 Hazari, H. (2018, September 17). Behind IL&FS Default, A Board that Didn’t Bark When It Was Supposed To.
The Wire. Retrieved from https://thewire.in/business/behind-ilfs-default-a-board-that-didnt-bark-when-it-was-
supposed-to
61 Infrastructure Leasing & Financial Services Limited. (n.d.). Annual Report 2016-2017. Retrieved from https://
www.ilfsindia.com/media/1872/ilfs-ar-2016-17.pdf
62 The Endeavour Editorial Club. (2018, October 5). How India fended off a financial meltdown. Retrieved from
https://endeavour.home.blog/2018/10/05/how-india-fended-off-a-financial-meltdown/amp/
63 Raj, A., & Sood, V. (2018, September 26). Were LIC, HDFC aware of brewing IL&FS crisis?. Livemint.
Retrieved from https://www.livemint.com/Companies/oMCSRyBOLIdxn4qSmnYq8J/Were-LIC-HDFC-aware-
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64 Sharma, R. (2018, September 19). IL&FS clears pay hike even as it faces rating downgrade. Financial Express.
Retrieved from https://www.financialexpress.com/industry/ilfs-clears-pay-hike-even-as-it-faces-rating-down-
grade/1318401/
65 Business Today. (2018, September 22). IL&FS financial arm’s CEO Ramesh Bawa quits as company defaults
on LC payments. Retrieved from https://www.businesstoday.in/current/corporate/il-and-fs-financial-services-
ceo-ramesh-c-bawa-quits-company-defaults-on-lc-payments/story/282726.html
66 Sharma, R. (2018, November 27). Ex-IL&FS boss Ravi Parthasarathy applies for overseas travel for treatment.
Financial Express. Retrieved from https://www.financialexpress.com/industry/ex-ilfs-boss-ravi-parthasarathy-
applies-for-overseas-travel-for-treatment/1394867/
67 Vyas, M. (2019, January 16). NCLT reserves order over allowing former IL&FS directors access bank accounts.
Livemint. Retrieved from https://www.livemint.com/Companies/sW8OFvK7jSV1Nj8PehMleK/NCLT-reserves
-order-over-allowing-former-ILFS-directors-acc.html
68 Sharma, R. (2018, November 27). Ex-IL&FS boss Ravi Parthasarathy applies for overseas travel for treatment.
Financial Express. Retrieved from https://www.financialexpress.com/industry/ex-ilfs-boss-ravi-parthasarathy-
applies-for-overseas-travel-for-treatment/1394867/
69 Hazari, H. (2018, September 17). Behind IL&FS Default, A Board that Didn’t Bark When It Was Supposed To.
The Wire. Retrieved from https://thewire.in/business/behind-ilfs-default-a-board-that-didnt-bark-when-it-was-
supposed-to
70 Infrastructure Leasing & Financial Services Limited. (n.d.). Annual Report 2018. Retrieved from https://www.
ilfsindia.com/media/2022/annual-report-fy-2018.pdf
71 Indo-Asian News Service. (2019, July 19). Jailed Arun Saha centrifugal force in fixing rating agencies at IL&FS.
Moneylife. Retrieved from https://www.nationalheraldindia.com/india/jailed-arun-saha-centrifugal-force-in
-fixing-rating-agencies-at-ilandfs.
72 Ibid.
73 Financial Express. (2019, June 25). Former IL&FS top brass drew hefty pay as firm’s financial health suffered.
Retrieved from https://www.financialexpress.com/industry/former-ilfs-top-brass-drew-hefty-pay-as-firms
-financial-health-suffered/1617795/
74 Rai, D. (2019, July 24). Top management of insolvent IL&FS rewarded themselves as best performer. India
Today. Retrieved from https://www.indiatoday.in/diu/story/top-management-of-insolvent-il-fs-rewarded
-themselves-as-best-performer-1573102-2019-07-24
75 Mondal, D. (2018, October 3). IL&FS chairman Ravi Parthasarathy got 144% salary hike in FY18. Business
Today. Retrieved from https://www.businesstoday.in/current/corporate/ilfs-chairman-ravi-parthasarathy-salary-
hike-in-fy18/story/283604.html
76 Hazari, H. (2018, September 17). Behind IL&FS Default, A Board that Didn’t Bark When It Was Supposed To.
The Wire. Retrieved from https://thewire.in/business/behind-ilfs-default-a-board-that-didnt-bark-when-it-was-
supposed-to
77 Ibid.
78 Ibid.
79 Ibid.
80 Financial Express. (2019, June 25). Former IL&FS top brass drew hefty pay as firm’s financial health suffered.
Retrieved from https://www.financialexpress.com/industry/former-ilfs-top-brass-drew-hefty-pay-as-firms
-financial-health-suffered/1617795/
81 Rai, D. (2019, July 24). Top management of insolvent IL&FS rewarded themselves as best performer. India
Today. Retrieved from https://www.indiatoday.in/diu/story/top-management-of-insolvent-il-fs-rewarded-
themselves-as-best-performer-1573102-2019-07-24
82 Hazari, H. (2018, September 17). Behind IL&FS Default, A Board that Didn’t Bark When It Was Supposed To.
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83 The News Scroll. (2019, May 13). MCA wants to question ernstwhile IL&FS ’independent directors’.
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84 Gupta, S. D. (2018, October 6). IL&FS crisis: Risk panel review was not needed, says former director.
Business Standard. Retrieved from https://www.business-standard.com/article/economy-policy/il-fs-crisis-risk
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85 Indo-Asian News Service. (2019, August 21). IL&FS antics: Lending behemoth without ‘investment policy’.
The Economic Times. Retrieved from https://cfo.economictimes.indiatimes.com/news/ilfs-antics-lending
-behemoth-without-investment-policy/70764936
86 Indo-Asian News Service. (2019, August 16). Key committees in IL&FS did not meet for years: RBI. The
Economic Times. Retrieved from https://cfo.economictimes.indiatimes.com/news/key-committees-in-ilfs-did-
not-meet-for-years-rbi/70694589
87 Sinha, S. (2019, June 5). IL&FS case: Lookout circulars issued against six IFIN ex-directors. The Economic
Times. Retrieved from https://economictimes.com/industry/banking/finance/lookout-circulars-issued-against
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88 Dalal, S. (2019, August 19). IL&FS Mess: Long Delays and Confused Submissions by the Board. (n.d.).
MoneyLife. Retrieved from https://www.moneylife.in/article/ilfs-mess-long-delays-and-confused-submissions-
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89 Sinha, S. (2019, March 5). IL&FS sends show cause to former board of IL&FS Financial Service Ltd. The
Economic Times. Retrieved from http://economictimes.indiatimes.com/articleshow/68263383.cms?from=mdr
&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
90 Rukhaiyar, A. (2019, March 4). IL&FS ignored risk assessment reports while extending loans: audit. The Hindu.
Retrieved from https://www.thehindu.com/business/ilfs-ignored-risk-assessment-reports-while-extending
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91 Rajput, R. (2019, March 4). Grant Thornton opens first IL&FS can of worms, and it’s Rs 13,000 cr worth of
fishy deals. The Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/banking/
finance/grant-thornton-flags-rs-13000-crore-ilfs-dealings-as-suspect/articleshow/68248706.cms?utm_source
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92 Indo-Asian News Service. (2019, June 5). How IL&FS (IFIN) audit panel lived in denial deliberately. National
Herald. Retrieved from https://www.nationalheraldindia.com/economy/how-ilandfs-ifin-audit-panel-lived-in
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93 Asia Times. (2019, June 11). Auditors under fire over India’s IL&FS crisis. Retrieved from https://www.
asiatimes.com/2019/06/article/auditors-under-fire-over-indias-ilfs-crisis/
94 Livemint. (2019, June 9). Whistleblower sought to uncover IL&FS fraud in 2017, but top-brass covered it.
Retrieved from https://www.livemint.com/companies/news/whistleblower-sought-to-uncover-il-fs-fraud-in-
2017-but-top-brass-covered-it-1560065276527.html
95 Indo-Asian News Service. (2019, June 5). How IL&FS (IFIN) audit panel lived in denial deliberately. National
Herald. Retrieved from https://www.nationalheraldindia.com/economy/how-ilandfs-ifin-audit-panel-lived-in
-denial-deliberately
96 Ibid.
97 Upadhyay, P. (2019, May 21). Inside the audit lapses that led to IL&FS crisis. Livemint. Retrieved from https://
www.livemint.com/companies/news/inside-the-audit-lapses-that-led-to-il-fs-crisis-1558456079750.html
98 Ibid.
99 Jain, R. (2020, April 21). IL&FS Case: High Court Quashes SFIO’s Criminal Complaint Against Deloitte, BSR.
Bloomberg Quint. Retrieved from https://www.bloombergquint.com/law-and-policy/ilfs-case-high-court-
quashes-sfios-criminal-complaint-against-deloitte-bsr
100 CNBC. (2019, June 3). RBI bars auditor SR Batliboi from handling bank audits in FY20. Retrieved from https://
www.cnbctv18.com/finance/rbi-bars-auditor-sr-batliboi-from-handling-bank-audits-in-fy20-3566341.htm
101 Upadhyay, P. (2019, May 21). Inside the audit lapses that led to IL&FS crisis. Livemint. Retrieved from https://
www.livemint.com/companies/news/inside-the-audit-lapses-that-led-to-il-fs-crisis-1558456079750.html

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102 Ibid.
103 Dave, S., & Shukla, S. (2019, June 5). Serious Fraud Investigation Office lens on IL&FS auditors. The
Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/banking/finance/serious
-fraud-investigation-office-lens-on-ilfs-auditors/articleshow/69658026.cms?from=mdr
104 Upadhyay, P. (2019, May 21). Inside the audit lapses that led to IL&FS crisis. Livemint. Retrieved from https://
www.livemint.com/companies/news/inside-the-audit-lapses-that-led-to-il-fs-crisis-1558456079750.html
105 Ibid.
106 Ibid.
107 Financial Express. (2019, June 20). IL&FS scam: Audit firm noted lapses by IFIN but looked the other way.
Retrieved from https://www.financialexpress.com/industry/ilfs-scam-audit-firm-noted-lapses-by-ifin-but-
looked-the-other-way/1611741/
108 The Economic Times. (2019, June 12). IL&FS: ED summons IL&FS’s auditors in money laundering case.
Retrieved from https://economictimes.indiatimes.com/markets/stocks/news/ed-summons-ilfs-auditors-in
-money-laundering-case/articleshow/69749391.cms?from=mdr
109 Communist Ghadar Party of India. (n.d.) IL&FS Scandal and the Role of Auditors. Retrieved from http://cgpi.
org/2019/06/24/ilfs-scandal-and-the-role-of-auditors/
110 Upadhyay, P. (2019, May 21). Inside the audit lapses that led to IL&FS crisis. Livemint. Retrieved from https://
www.livemint.com/companies/news/inside-the-audit-lapses-that-led-to-il-fs-crisis-1558456079750.html
111 Business Today. (2019, July 21). IL&FS crisis: SEBI expands probe in role of credit rating agencies. Retrieved
from https://www.businesstoday.in/current/corporate/ilfs-crisis-sebi-expands-probe-in-role-of-credit-rating-
agencies/story/366369.html
112 Ibid.
113 Basu, A. (2018, October 7). IL&FS and the La-La Land that is Indian Credit Rating. The Wire. Retrieved from
https://thewire.in/business/ilfs-moodys-fitch-care-icra-rating-companies
114 Ibid.
115 Ibid.
116 Business Today. (2019, July 21). IL&FS crisis: SEBI expands probe in role of credit rating agencies. Retrieved
from https://www.businesstoday.in/current/corporate/ilfs-crisis-sebi-expands-probe-in-role-of-credit-rating-
agencies/story/366369.html
117 Rajput, R., & Sinha, S. (2019, July 22). IL&FS’s rating agencies made professional compromises, says Grant
Thornton. The Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/banking/
finance/gt-report-lists-out-issues-of-professional-compromises-by-the-cras-who-rated-ilfs/articleshow/7029
6758.cms
118 Rajput, R. (2019, June 3). RBI: SFIO says RBI could’ve acted faster on IL&FS. The Economic Times. Retrieved
from https://economictimes.indiatimes.com/industry/banking/finance/sfio-says-rbi-couldve-acted-faster-on-
ilfs/articleshow/69626233.cms?from=mdr
119 Ibid.
120 Ibid.
121 Ibid.
122 Saha, M., Mishra, L., & Saha, L. M. M. (2018, September 15). Bhargava quits as crisis-hit IL&FS appoints
Mathur as chairman. The Hindu. Retrieved from https://www.thehindu.com/business/Industry/bhargava-quits-
as-crisis-hit-ilfs-appoints-mathur-as-chairman/article24956678.ece
123 Mahesh, P. (2018, September 22). DHFL paper sale by DSP triggered panic. The Economic Times. Retrieved
from https://economictimes.indiatimes.com/markets/stocks/news/dhfl-paper-sale-by-dsp-triggered-panic/
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124 Asthana, S. (2018, December 27). Flashback 2018: When IL&FS nearly sank the financial system. Money
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nearly-sank-the-financial-system-3300731.html
125 Shah, P. (2018, October 3). Can the Centre’s white knights rescue IL&FS?. The Hindu Business Line. Retrieved
from https://www.thehindubusinessline.com/money-and-banking/can-the-centres-white-knights-rescue-ilfs/
article25105611.ece
126 Press Trust of India. (2019, March 5). IL&FS board charges former directors of money laundering and criminal
intent. The New Indian Express. Retrieved from https://www.newindianexpress.com/business/2019/mar/05/
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127 Press Trust of India. (2019, April 1). First arrest in IL&FS case, former vice chairman Sankaran in SFIO custody.
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case-former-vice-chairman-sankaran-in-sfio-custody-119040101323_1.html
128 Srivats, K. R. (2018, December 7). IL&FS crisis: CA Institute holds statutory auditors ‘prima facie guilty’. The
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129 Asthana, S. (2018, December 27). Flashback 2018: When IL&FS nearly sank the financial system. Money
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130 Press Trust of India. (2018, December 4). Group-level resolution for crisis, debt unlikely: IL&FS board. The
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131 Upadhyay, J. P. (2019, May 21). Inside the audit lapses that led to IL&FS crisis. Livemint. Retrieved from
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132 Mulye, P. (2020, June 3). A timeline of the crises that brought India’s $370 billion shadow banking sector to its
knees. Quartz India. Retrieved from https://qz.com/india/1860466/how-indias-nbfc-crisis-deepened-from-ilfs-
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133 Sharma, A. (2019, September 14). FM announces Rs 20,000 crore fund to provide last-mile funding for
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industry/fm-announces-rs-20000-crore-fund-to-provide-last-mile-funding-for-housing-projects/71125555

182