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Supreme Court today directed the Centre to ensure proper scrutiny of all aspects of alleged financial irregularities in the Industrial Financial Corporation of India (IFCI), including serious allegations regarding investment made by and the role of its former chief Atul Kumar Rai.
A bench, headed by Chief Justice T S Thakur, said the purpose of an enquiry was to scrutinise the serious allegations made regarding investments by IFCI.
"In view of the matter and for the aforesaid reasons, we are of the view that it is necessary and proper to issue a direction both to the Union Ministry of Finance and Union Ministry of Corporate Affairs to ensure that a proper scrutiny is carried out in respect of the allegations which form the subject matter of these proceedings... Including on the basis of the inspection report of the Registrar Of Companies (ROC) dated 8 January, 2013," the bench also comprising Justice D Y Chandrachud said.
"We direct the Union Government to ensure a due and proper scrutiny into all aspects of the matter by the (i) serious frauds investigation officer, (ii) Reserve Bank of India, and (iii) Security and Exchange Board of India (SEBI).
"The scrutiny, it is needless to add, shall be conducted with due observance of norms of procedural fairness that would include an opportunity to IFCI to respond to the allegations," the bench said, adding that the Solicitor General has also not opposed a direction for further independent scrutiny.
The court passed the judgement on a PIL filed by NGO Centre for Public Interest Litigation seeking an independent probe into various alleged financial irregularities which have come into light in recent past in IFCI.
While disposing of the petition, the bench said scrutiny shall be initiated within a month from the receipt of a copy of this judgment and completed in four months thereafter.
It said that after receiving reports of the respective agencies, the Government should expeditiously determine what action was necessary to ensure compliance of law.
The petition, filed through Prashant Bhushan, had alleged also challenged Rai's appointment as the managing director and chief executive officer of the financial services major.
The bench noted that an investigation into the allegations was done by ROC which gave its report and the Department of Financial Services had forwarded it to IFCI.
Thereafter, IFCI board considered the report and came to
the conclusion essentially that there were no irregularities and the Department of Financial Services also adopted before the court that it would be sufficient in itself.
The bench, however, said "this in our view is not a satisfactory method of resolving the issues which have been raised and the serious concerns which emerge from the inspection report of ROC..."
"IFCI has a huge financial commitment to the Union Government in terms of loans, grants and guarantees. A dire financial position of IFCI led the Union Government to commit resources to raise the company from a position of serious financial distress.
"There is a vital element of public interest in ensuring that a full, fair and objective scrutiny is carried out by an independent regulatory with a view to ensure a degree of accountability. If it is found that the conduct of any of the officers or employees of IFCI led to the sustain of a loss, such conduct must be subjected to scrutiny and action in accordance with law," the bench said.
It further said the purpose of an independent regulatory is to ensure that an entity in the financial sector whose conduct is in question does not have a final or decisive voice in determining whether there has been a violation of law and if so what action is necessary.
Regarding the relief sought in the petition for removal of Rai, a 1985 Indian Economic Services officer, from the post of CEO and MD of IFCI, the court said he had since been removed from the post as a result the relief sought had been rendered infructuous.
The plea had alleged "there have been in recent past serious allegations of administrative and financial irregularities in IFCI like purchase of five per cent stake in the MCX-SX by IFCI management on a much higher price of Rs 35 per share, whereas the Union Bank of India and the Bank of India acquired the shares of the same company at Rs 10 per share."
IFCI was originally established as a statutory Corporation under Industrial Finance Corporation Act, 1948 to cater to the medium and long-term finance needs of the industrial sector but it was later converted into a company.