Bombay HC refuses bail to former IL&FS executive Ramchand Karunakaran

Karunakaran was arrested by the ED on June 19, 2019, in connection with the proceedings under provisions of the Prevention of Money Laundering Act, 2002.

The Bombay High Court on Thursday rejected bail application of Ramchand Karunakaran, former managing director of IL&FS Transportation Networks Ltd. (ITNL), who has been arrested by the Enforcement Directorate (ED) in connection with the money laundering investigation being conducted by the agency.

Bombay High Court. (Girish Srivastava)

Karunakaran was arrested by the ED on June 19, 2019, in connection with the proceedings under provisions of the Prevention of Money Laundering Act, 2002.

According to the ED, the committee of directors of IL&FS Financial Services Ltd. (IFIN), in connivance with promoters of IL&FS group, sanctioned loans to several group companies which were under financial stress and unable to discharge their outstanding

loans. The new loans were sanctioned to repay their earlier loans and to be utilized by the groups, otherwise than, as mentioned in the Credit Approval Memorandum, and committed schedule offences. It is further alleged that the committee did so in order to maintain the credentials of the IFIN and in lieu to continued to receive high remuneration.

Karunakaran sought bail contending that he was neither part of the committee of dire torture nor was he included in top management of the group, and therefore no accusations could be attributed to him.

Besides, he pointed out that, three members of the committee, Ravi Parthasarathy, Ramesh Bawa and Hari Sankaran were not arrested by the ED, in fact, they have been granted bail under section 88 of the Code of Criminal Procedure (CrPC) by the designated court on September 23, 2019, and sought relief for him on the ground of parity.

ED’s counsel Hiten Venegainkar opposed the bail plea pointing out that the applicant faced serious allegations. He pointed out that the forensic audit conducted by Grant Thorton has revealed that

Karunakaran was a member of the IFIN committee of directors and was this equally liable.

As regards his ground of parity, Venegainkar submitted that at least two members of the IFIN committee - Ramesh Bawa and Hari Sankaran - have been arrested by the Serious Fraud Investigation Office, which has also initiated proceedings under relevant provisions of the Companies Act, 2013 against IL&FS group.

In this backdrop, Justice Bharati Dangre refused to accept the submissions made on behalf of Karunakaran and rejected his bail plea.

“The magnitude of the offence involving the applicant is enormous and the amount involved is huge,” said the judge, while rejecting his bail plea.

The court said the effect of the conspiracy hatched by the accused, focusing on a desired result, makes it a serious economic offence. HC said the IFIN was facing a serious liquidity crisis leading to the inability to fulfil debt obligations. “Investigation has revealed that those at the helm of affairs played a hoax and in a disguised way duped the stakeholders and general public whose monies were at stake.”

The HC also noted that the investigation brought out that while the profit of the IFIN declined, the remuneration and commission etc. paid to directors increased substantially.

“This had a wide impact on the economy of the country since the IL&FS is a finance company which subdued the equity from shareholders like the LIC, HDFC, Central Bank of India and State Bank of India,” said justice Dangre, commenting upon the overall adverse impact caused by IL&FS crises.

“The default crisis in the IL&FS has adversely impacted the growth of non-banking finance companies. It has jeopardised hundreds of investors, banks and mutual funds associated with IL&FS and sparked panic among equity investors, as several NBFC faced turmoil amid a default scare,” said the court.