Mumbai: The ministry of corporate affairs (MCA) may order a probe by India’s fraud investigator after discovering instances of diversion of funds by the promoters of Jet Airways (India) Ltd, a government official said, requesting anonymity.
The Registrar of Companies (RoC)’s “preliminary inspection into the books of Jet Airways was completed earlier this week and the report was submitted to the MCA on 8 May," he added.
“MCA will take a call based on the examination of the report. The observations of Companies Act violations are serious in nature and unexplained funds trail does point to fund diversion. The report could be referred to Serious Fraud Investigation Office (SFIO) for a probe of fraud allegations," the official said.
Jet Airways did not immediately respond to an emailed questionnaire. Till the time of going to press the orders for an SFIO probe were not sent by the MCA.
Any charge of fraud will intensify woes for the grounded airline, which is struggling to find a bidder to infuse the much-needed equity.
A bidding contest to find an investor is set to end on Friday. Jet Airways suspended operations on 17 April under more than $1 billion of debt and a cash crunch. Lenders led by the State Bank of India have taken control of the airline after the resignation of its founder and chairman Naresh Goyal.
Interestingly, and coincidentally, reports alleging various misdemeanours seem to be increasing in frequency closer to the last date for submitting bids. Bidders are typically wary of investing in companies where there is a suspicion of fraud.
Even shareholders may face challenges. Shareholders of a company are not liable for business failure, but any fund diversion by promoters can deprive them of their limited liability.
The RoC’s inspection of a company’s books is similar to a preliminary fact-finding exercise and will lay the ground for further action.
The RoC investigation was initiated last August after Jet Airways deferred its Q1FY19 results. The RoC probe also followed a complaint from shareholder activist Arvind Gupta. He was also the chief complainant in the ICICI-Videocon case. In his complaint, Gupta had alleged that Jet promoters were trying to siphon off ₹5,125 crore from the books of the airline. He said the audit committee was unable to prevent the fund diversion. Jet Airways and Jet Lite brands undertook transactions with companies which were owned by the promoters in the guise of selling and distribution, Gupta alleged. The income tax department, in a report in February, alleged tax evasion of over ₹600 crore by the airlines. “There were some transactions concerning a Dubai-based entity, which were found to be of suspicious nature," an income-tax official said, also requesting anonymity. “Commissions were paid to this Dubai-based company, which were excessive in nature," he added.
Meanwhile, Gaurang Shetty, a whole-time director on Jet Airways board, has resigned.
Shetty, who is considered close to founder Naresh Goyal, had joined Jet in 1996 as general manager (marketing). He also held other senior positions, including vice-president (marketing), senior vice-president (commercial) and acting chief executive briefly in 2016. Shetty had, in a letter dated 23 April, offered his resignation, while requesting a waiver to serve his notice period under the terms of his employment. Jet said in a regulatory filing on Thursday that it had sought independent legal opinion on the matter and later accepted the resignation.
Jet Airways has seen a slew of exits of top personnel over the past few months. In April, former chief election commissioner, Nasim Zaidi, quit as non-executive and non-independent director citing “personal reasons" and “time constraints".
Gireesh Chandra Prasad from New Delhi contributed to this story.