IL&FS Fraud Case: Why Is It Called Independent India’s Biggest Financial Scandal?
The Infrastructure Leasing & Financial Services (IL&FS) group was once considered one of the most trusted institutions in India’s financial sector. It was promoted by reputed entities such as HDFC, UTI, and Central Bank of India, and later Life Insurance Corporation of India (LIC) and State Bank of India (SBI) acquired major stakes.
Yet in 2018, the sudden defaults by several IL&FS group companies exposed a massive debt crisis of nearly ₹91,000 crore. What followed was not just a corporate collapse but a financial earthquake that triggered the broader NBFC (non-banking financial company) crisis in India.
Role of Directors and Top Management
Investigations by the Serious Fraud Investigation Office (SFIO) and an interim audit by Grant Thornton revealed alarming lapses and conflicts of interest. The findings pointed at directors and senior executives who allegedly diverted funds and engaged in self-serving transactions.
Siddharth Dinesh Mehta, a promoter of Bay Capital, was simultaneously serving as a director of IL&FS Energy Development Company Ltd. Loans were sanctioned to companies linked to promoters and directors, creating a clear conflict of interest.
The audit also revealed that loan funds were often not used for the stated purposes for which they were approved.
The IL&FS board included some of the most prominent figures in corporate India, such as:
- R.C. Bhargava (Chairman, Maruti Suzuki)
- Keki Mistry (Vice-Chairman & CEO, HDFC)
- Sunil B. Mathur
- Michael Pinto
- Jaithirth “Jerry” Rao
Despite such illustrious names, the company indulged in window dressing of accounts, misleading rating agencies, and failing to maintain governance standards.
Government Intervention
As the defaults snowballed, the Central Government stepped in. Through an order of the National Company Law Tribunal (NCLT), the existing IL&FS board was dissolved. A new six-member board, headed by Uday Kotak (MD & CEO, Kotak Mahindra Bank), was appointed to stabilize the situation and work towards financial recovery.
Fallout and Consequences
- IL&FS had long-term debt of over ₹91,000 crore, with LIC (25.34%) and SBI (6.42%) among the largest stakeholders.
- The collapse severely hit investor confidence, triggered defaults by subsidiaries, and caused tremors in the capital markets.
- The crisis raised questions about the effectiveness of audit firms, credit rating agencies, and regulatory bodies that failed to detect or act on warning signs.
Why Is It Called Independent India’s Biggest Scam?
- The promoters were not small-time operators but India’s top financial institutions.
- The board was packed with highly respected corporate leaders and professionals.
- Despite AAA credit ratings and oversight by global audit firms, the company managed to conceal systemic fraud and mismanagement.
The IL&FS saga underlines how governance failures at the highest level can endanger the country’s financial stability. It serves as a cautionary tale that corporate accountability and strong regulation are not optional—they are essential pillars of the economy.
