Sacked directors of Infrastructure Leasing and Financial Services Ltd (IL&FS) will have to face questions on negligence, diversion of funds, failed risk management and misrepresentation of facts that are viewed seriously under the Companies Act. They will also need to explain charges of mismanaging the infrastructure lender that is threatening the stability of the financial system.
A statement issued on Monday by the corporate affairs ministry and its petition filed before the National Company Law Tribunal blamed the erstwhile directors for a host of failures at IL&FS which affected the markets and the financial system, though it is for the Serious Fraud Investigation Office (SFIO) to dig out facts and initiate prosecution.
The charges against these directors include siphoning off of funds through excessive executive pay, financial mismanagement, misrepresentation of true state of the group’s financial fragility, suppression of material information, misrepresentation of facts to camouflage debt stress and exaggerated depiction of non-current assets. Some of these failings, if found to be done intentionally such as making a false statement, could get covered under definition of fraud which makes a defaulter liable to imprisonment of up to 10 years and a fine of up to three times the amount involved, as per section 447 of the Companies Act.