CBI books IL&FS Transportation, Spanish subsidiary for diverting funds in Ethiopian road contract

The CBI has registered a fresh FIR against IL&FS Transportation Network Ltd and its step-down subsidiary Spain-based Elsamex SA for allegedly misappropriating credit facilities to the tune of Rs 239 crore by cheating and diverting funds, officials said on Monday.

India Exim Bank had sanctioned a credit limit of Euro 35 million to Elsamex which is also a wholly owned subsidiary of Singapore-based ITNL International Pte Ltd in 2015 for securing and executing overseas contracts.

IL&FS Transportation is already facing a CBI probe for causing a loss of over Rs 6,524 crore to a Canara Bank-led consortium.

In 2016, a consortium of Elsamex and ITNL won the bid for an Ethiopian project to design, manage and maintain the work of the Nekemte Bure Road upgrading project under an output and performance-based road contract.

The project needed disbursal of certain mobilisation advances, which were to be secured by guarantees sanctioned by Exim Bank. So, Euro 32.60 million was allocated under the credit limit of Euro 35 million earmarked for the completion of the project.

The Exim bank had issued the guarantee in favour of the Commercial Bank of Ethiopia (CBE), which gave a further guarantee to the Ethiopian Road Authority (ERA) as security of mobilisation advances paid by the Authority to the Elsamex -ITNL consortium.

“It may be noted that as the counter-guarantees were issued to essentially secure the advance payment being disbursed by ERA, the invocation of the counter-guarantees will be triggered in the event of misappropriation, misuse of fraudulent diversion of such funds,” the bank said in a complaint to the CBI which has now become a part of the FIR.

In 2018, CBE invoked the counter-guarantees and intimated the Exim Bank to honour the guarantees and make the payment.

The Exim bank told Elsamex to make the payment, but the company alleged that due or fair process had not been followed in invocating the guarantees issued by the CBE and the actions of the CBE and ERA were arbitrary. The company said it will seek legal recourse against CBE and ERA regarding the road contract.

The same year, parent group IL&FS faced severe liquidity issues and NCLT suspended its board. Meanwhile, Elsamex and IL&FS filed a suit in Ethiopia seeking reversal of counter-guarantees invocation by CBE, it said.

Elsamex is also facing insolvency proceedings in Spain.

The Union Ministry of Corporate Affairs initiated a probe against the parent group IL&FS under the Serious Fraud Investigation Office into the group’s working and its subsidiaries. However, it did not include Elsamex.

The Bank appointed BDO India to conduct a forensic audit of the Spain-based company, which showed multiple instances of diversion of funds.

Based on the complaint, the CBI has filed an FIR against Elsamex, IL&FS Transportation networks and directors of the former Ravi Parthasarthy, Mukund Sapre, Ramesh Chander Bawa, Ramchand Karunakaran, Arun Kumar Saha and Hari Sankaran under IPC sections related to criminal conspiracy, cheating and criminal misconduct besides provisions of the Prevention of Corruption Act.