IL&FS case: The latest arrests in India's largest financial scandal of 2018 are for alleged money laundering

  • Former IL&FS directors, Arun Shah and K Ramchandra were arrested by the Enforcement Directorate (ED).
  • The arrest comes after the Serious Fraud Investigations Office (SFIO) filed first chargesheet in May.
  • The arrests were made under the prevention of money laundering act (PLMA). R C Bawa and Hari Sankaran were also arrested under the same act.
The government has been moving fast to arrest financial criminals in India. As proof, the Enforcement Directorate (ED) arrested two former directors of scam-ridden Infrastructure Leasing & Financial Services (IL&FS).

The ED arrested Arun Shah and K Ramchandra on June 19, under the Prevention of Money Laundering Act (PMLA), according to reports.

Arun Shah was the Joint Managing Director of IL&FS Financial Services while K Ramchandra was the Managing Director of IL&FS Transportation Networks (ITNL).

The arrests were made after the Serious Fraud Investigations Office (SFIO) filed its first chargesheet in late May, as a special case.

“Arun Shah and K Ramachandra, former directors of IL&FS, were arrested today by the Mumbai branch of ED. Further probe is underway,” an ED official reportedly said.

This is the second set of arrests as former IL&FS CEO R C Bawa and another former director, Hari Sankaran are in judicial custody, after SFIO arrested them. Another former chairman of the company, Ravi Parthasarathy could not be taken into custody due to health reasons.

The ED registered a case in February under the Prevention of Money Laundering Act (PMLA) against 19 entities including ILFS Rail, ITNL. The registration was followed by searches conducted by the agency in Mumbai and Delhi.

The SFIO had later unearthed multiple counts of fraud and criminal conspiracy, after investigation. There were also instances of misreporting, dubious transactions, conflict of interest, and the ever-greening of loans.

Personal enrichment of top level employees was also a part of the many things that went wrong at the non-banking finance company (NBFC).

The scam surfaced in July last year as IL&FS’ debt ballooned to ₹910 billion, of which ₹570 billion are bank loans. The huge amount of money it defaulted on, has left the country's banks and other lenders reeling under a cash crunch ever since.

Government had superseded the board of IL&FS in October with a new board under Kotak Mahindra’s head Uday Kotak’s stewardship, according to reports.

This case has also landed its auditors Deloitte Haskins & Sells and BSR & Associates in trouble, for not identifying its problems. The Ministry of Corporate Affairs wants to ban both the auditors for five years, for their involvement in the scam.