In a first, Govt. invokes Companies Act sec 130; asks NCLT to reopen books of IL&FS

il&fs

The government has asked National Company Law Tribunal (NCLT) to reopen the financial books of IL&FS for the past five years, under section 130 of the Companies Act.

The Ministry of Corporate Affairs (MCA) ordered the Serious Fraud Investigation Office (SFIO) to probe if any fraud was committed at the IL&FS Group. On December 3, the SFIO’s interim report to NCLT alleged that IL&FS executives, including former Chairman Ravi Parthasarathy, window-dressed financials. It also alleged “fraudulent and irresponsible conduct of key managerial and executive personnel of IL&FS in using Employee Welfare Trust as a vehicle for their personal enrichment”.

The centre has urged NCLT to appoint an independent Charted Accountant to take an intensive look into the books of IL&FS, IL&FS Financial Services, and IL&FS Transportation Network Ltd. The matter shall be taken up on January 1, 2019.

The trouble for IL&FS began in September when it came to light that IL&FS had defaulted on a short-term loan of ₹1,000 crore taken from SIDBI. At the same time, a subsidiary of IL&FS also defaulted on a ₹500 crore loan taken from the Development Finance Company.

Section 130 of the Companies Act has been invoked by the government for the first time. This law allows the reopening a firm’s financial books on the order of a court or a tribunal, it states –  “A company shall not re-open its books of account and not recast its financial statements, unless an application is made by the Central government, Income-tax authorities, SEBI, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect that:

  1.  the relevant earlier accounts were prepared in a fraudulent manner; or
  2.  the affairs of the company were mismanaged during the relevant period, casting doubt on the reliability of financial statements.”

The government is expected to file an affidavit of the notice sent to the NCLT to these bodies (RBI, SEBI, Income Tax department, and other statutory bodies) as required by the law in three days.

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