India’s Serious Fraud Investigation Office (SFIO) has arrested a former senior executive of the stricken infrastructure financier, Infrastructure Leasing and Financial Services (IL&FS).
Hari Sankaran, 58, the former vice chairman of IL&FS, is facing allegations of "fraudulent conduct" and was remanded in custody by magistrates in Mumbai until 4 April, reports The Times of India.
IL&FS’ headquarters in Mumbai (IL&FS)
In November last year seven employees of the debt-laden company were held captive by Ethiopian workers on road projects there who said they had not been paid for five months (see Further reading below).
The SFIO said the arrest of Sankaran was needed "to ascertain the extent of fraudulent activities" and the role of others in granting of loans without proper collateral to entities that were not creditworthy.
HS Venegaonkar, SFIO special counsel, said the allegation was that Sankaran raised money from the market and used it "intentionally and unjustly to enrich their own personal close friends".
He added that some 17,000 crore rupees, or about $2.5bn, had been raised by IL&FS Financial Services in the form of bank loans, debentures, commercial paper and corporate deposits. An audit of the firm by accountant Grant Thornton last month found that a third of outstanding loans by one unit of IL&FS were either unsecured or had inadequate collateral.
IL&FS has a total debt of $13bn, and has been trying to sell its assets to repay debt after several defaults led the government to take over its management in October last year.
IL&FS was formed in 1987 by the Central Bank of India, the Housing Development Finance Corporation and Unit Trust of India to provide finance and loans for major infrastructure projects. The company has a complex structure, with 256 entities including subsidiaries and joint ventures and special purpose vehicles.