Corporate India facing multiple probes over the past three months

Fraud related to off-balance sheet operations, foreign exchange transactions, deposit accounts and cyber-activity has also been in focus
Over the past three months, probes by investigative and tax agencies have encompassed a vast range of corporate India. 

That includes rating agencies and even the top accounting firms which set right the books of others. Observers say a slew of frauds that got unveiled in the recent past have made the probe agencies pro-active, widening the ambit of their investigations.

The Enforcement Directorate (ED), Central Bureau of Investigation (CBI) and Serious Fraud Investigation Office (SFIO) are looking hard at the role of top management in multiple sectors. The latest is the financial fraud at Infrastructure Leasing and Financial Services (IL&FS). The SFIO is probing and recently arrested former company seniors. It also got after the senior management of three of the four top accounting firms in the past month. The ED booked a money laundering case in the matter.

This case raised questions on not only the governance practices at India Inc but also the effectiveness of credit rating agencies. It was only after one of the group companies defaulted that these agencies cut the ratings of IL&FS to junk status, from the earlier rating of triple-A, in no time. 

About 300-plus IL&FS subsidiaries and its managements have come under a scanner and so have their respective auditors. SFIO has questioned an audit partner at BSR in Delhi, the latter being the Indian audit arm of KPMG, one of the big four among global consultants, and one of the three auditors of IL&FS, including an EY affiliate, SRBC. Last week, the agency had probed top officials of Deloitte Haskins.

The ministry of corporate affairs (MCA) is now contemplating action against these entities, especially the audit firms. The Securities and Exchange Board of India (Sebi) has initiated adjudication proceedings against the rating agencies in the matter. 

Then, there is the case of Jet Airways, struggling to survive. The MCA is learnt to have found some transactions in the account books which it deems worthy of detailed investigation. Early this year, the registrar of companies (RoC) at Mumbai had initiated inspection of the account books of Jet, almost eight months after the MCA directed it to probe allegations that the now grounded airline siphoned off money. 

Last year, too, the airline was being searched by the income tax department over its transaction with Dubai-based entities. 

Fraud related to off-balance sheet operations, foreign exchange transactions, deposit accounts and cyber-activity has also been in focus. Several bankers are facing serious allegations. The Rs 3,250-crore ICICI Bank-Videocon loan controversy is one of these cases. CBI had registered a case against the bank’s former chief, Chanda Kochhar, her husband and his companies, beside the Videocon group. It also named ex-chiefs Sandeep Bakhshi, Zarin Daruwala and KV Kamath, for being on committees that sanctioned the loans. 

Later, the ED filed a money laundering case against Kochhar and others named in the CBI report. It is now probing the allegation on multiple firms having been created by the Kochhars to receive ‘kickback’ payments. Both husband and wife have been summoned next week for recording of statements.

This case had also put many other corporate groups and their loan accounts under investigation. Essar group executive were questioned; some premises were searched. “We are looking at the loan accounts of at least six corporates whose loans were sanctioned by ICICI. This includes the Essar group, Videocon group, JP Associates and Bhushan Power & Steel,” said an official in the know. 

Another fraud that shook the system was at Punjab National Bank, involving diamond merchant Nirav Modi and his uncle, Mehul Choksi. Fraudulent letters of undertakings for Rs 14,000 crore were issued by the state-run bank. The ED and CBI are probing, with an extradition request for Modi with the UK government. The ED has registered a money laundering case against Bhushan Power & Steel, its promoter and directors for allegedly siphoning off bank loans amounting to Rs 2,348 crore. And, the CBI has booked the heads of two public sector banks, a former head of IDBI Bank, former Aircel promoter C Sivasankaran, his son and companies controlled by him in connection with a Rs 600-crore loan fraud.

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