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Business & Finance

ILFS And Patanjali accounts Doubtful


Among other agencies, the SFIO has been investigating the affairs and books of account of
ILFS and its hundreds of subsidiary companies. In its preliminary findings, the SFIO is
reported to have found shocking details of corruption, personal enrichment of employees, non
transparent deals, gross mismanagement including misreporting of income, dubious
transactions, conflict of interest and evergreening of loans. This shady group seems to have
blatantly violated every corporate and banking law with impunity. It is a saga of frauds and
financial mismanagement, writ over all the affairs and accounting of ILFS. The ICAI too in
its preliminary findings has found a prima facia case of negligence and misconduct against
three group auditors of ILFS viz. Deloitte, KPMG and EY, members of the powerful Big
Four global accounting firms. The ICAI is reported to have initiated disciplinary proceedings
against them.

The Ministry of Corporate Affairs (MCA), based on these preliminary most incriminating
findings of the SFIO has moved a petition to the NCLT, to reopen the financial statements of
ILFS and its two subsidiaries, engaged in financial services and transportation network, for
atleast five years, to investigate their state of affairs. It has urged that NCLT to appoint an
independent Chartered Accountant, to restate and revise the financial statements of these
companies, so as to state the actual state of affairs and reveal the truth, that was deliberately
hidden. The NCLT has not received such a petition ever, even in the case of the many
bankrupt companies lined up before it and has said that it needs to hear the RBI, SEBI and
the ITD also, before such an order is issued. The company law permits such reopening of
earlier accounts if they were prepared in a fraudulent manner and the affairs of the company
were mismanaged, casting a doubt on the financial statements.

The reopening of the books of accounts of any entity and their investigation, in this manner,
generally leads to serious consequences. And that is because what was carefully hidden by
the management and was deliberately overlooked by the auditors, is revealed by the
investigation. Upon the correct statement of accounts being prepared, it leads to liability,
penalty, prosecution, under various laws including income tax, GST, company law etc. and
unsettles the financial stability of the company. It also leads to a spate of criminal cases
against the company promoter/management, as also its auditors, which is very imminent in
the case of the ILFS group too.

While the ILFS books of account are being reopened, the Delhi High Court has ordered
Patanjali to cooperate with the Income Tax Department, in the conduct of a special audit,
akin to an investigation, in its books of account, allegedly on suspicion of tax evasion. The
High Court was earlier petitioned by Patanjali, seeking to quash a special audit of its accounts
by the ITD, for accounting/tax irregularities. While the outcome of such special audit will
take some time to emerge, it is clear that when the chances of being caught look remote, the
big and powerful are the first ones to violate the law.

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Aditi Thakur