IL&FS may file contempt case against nine banks for unauthorised withdrawals of about Rs 800 cr from firm's escrow accounts

The board of debt-laden IL&FS is likely to file a contempt case against nine large banks including State Bank of India, Bank of Baroda, HDFC Bank for unauthorised withdrawals of about Rs 800 crore from the firm’s escrow accounts, a media report said. Sources aware of the development told The Economic Times that the banks made “unauthorised auto-deduction from IL&FS escrow accounts” in the last six months towards debt recovery. “Unauthorised deductions affected cash flow and it is also likely to affect timelines, which is detrimental to overall resolution framework being followed by the board toward speedy resolution,” a person familiar with the matter was quoted as saying by the newspaper. In October last year, the government, in a rare move, took control of IL&FS after the company defaulted on some of its debt, triggering fears of contagion across India’s financial system. [caption id=“attachment_5251861” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] A massive scam at IL&FS came to light last year after several group entities defaulted on repayments due to a liquidity crunch. Amid the situation raising concerns about the overall financial system, the government superseded the IL&FS board. At the end of March 2018, the sprawling IL&FS group’s debt burden was estimated to be more than Rs 90,000 crore. The SFIO has filed the first chargesheet after inspecting accounts of nearly 400 entities, an extensive forensic audit, data collected from desktops and laptops seized from various IL&FS offices as well as emails extracted from IL&FS servers. Besides, RBI inspection reports, minutes of meetings, assessment reports from the government-appointed IL&FS board and other documents were also taken into consideration. Auditors of debt-laden IL&FS not only connived with the top management in their fraudulent activities, but also sought to sell them certain products and services, according to findings of the SFIO probe that show large-scale violations in their auditing activities. The Serious Fraud Investigation Office (SFIO) probe into IL&FS group firm – IL&FS Financial Services Ltd (IFIN) – has revealed serious lapses at the level of auditors, auditing committee and the then top brass of the group. Citing the investigation report, officials said the engagement team and engagement partners of Deloitte, Haskins & Sells (which served as auditor earlier) were aware about the company’s modus operandi of funding defaulting borrowers when it comes to payment of interest and principal amount. With PTI inputs