Despite its progressively deteriorating financial condition, IL&FS Financial Services’ (IFIN) Nomination and Remuneration Committee (NRC) “always decided on the proposals of the management of the company to dole out incentives, in garb of retention of the talent,” the Serious Fraud Investigation Office (SFIO) has said in its chargesheet filed in the case involving IFIN.
It added that the Committee of IFIN failed to discharge its duties of determining performance-related pay (PRP) of employees and evaluating the performance of the Board of Directors of the company. Despite the worsening financial performance of IFIN over the years, the key managerial personnel kept getting salary hikes and incentives, the fraud office stated in its chargesheet.
During various committee meetings from 2010 to 2018, the Committee never decided upon the quantum of performance related pay. Instead, the same was decided by the board, in violation of the company own rule book.
“The NRC committee by virtue of its constitution and the brief assigned to it as per the Company, RBI, Companies Act, was required to decide upon the appointment of the key management persons of the company, and to take decision on the remuneration to be paid to these employees. It was also required to decide on the performance related pay of the employees. Further the NRC Committee was required to evaluate the performance of the Board of Directors,” the SFIO said.
“However, from the various committee meetings from 2010 to 2018, it is noticed that the committee never had the opportunity to decide upon the quantum of the PRP and the personnel to whom the PRP was payable.
“The same was decided by the Board and was only informed to the committee for noting … the PRP proposal were never discussed in the meeting (and) the Committee never evaluated the performance of the Board in any critical manner,” it said.
The massive loan default by IL&FS group and its subsidiary firms starting last September rattled financial markets, prompting the government to supersede its board and ordering SFIO investigation into the matter.
The IL&FS group liabilities are more than Rs 90,000 crore to banks, mutual funds and finance companies among others. After the IL&FS group started defaulting on its debt, financial sector entities including NBFCs, mutual funds, corporate-focused lenders have faced liquidity challenges.
IFIN alone had borrowings of around Rs 17,500 crore through debt instruments and bank loans.
The investigation team of the SFIO found that apart from the NRC committee, IFIN also had a an Employee’s Handbook and Director’s Handbook detailing a policy with regard to the salary and perks admissible to an employee of the company.
But “the (NRC) committee failed to discharge the duties assigned to it under the regulatory framework in so much so that without properly evaluating the performance of the individuals they were agreeing to the incentives and the PRP payable to these individuals”, the SFIO said, adding that the Committee agreed to management proposals of doling out incentives without making an independent assessment.