New Delhi, Feb 8 (IANS): The Serious Fraud Investigation Office's (SFIO) ongoing probe into the alleged diversion of funds and mismanagement in Infrastructure Leasing and Financial Services (IL&FS) is now looking into the role of HDFC Ltd in providing 'accommodative lending' to the group's Employee Welfare Trust (EWT) that was already running high on debt.

In an interim report, the agency has referred to a transaction during 2013-14 between HDFC and IL&FS EWT where the trust acquired eight lakh shares of IL&FS Ltd from HDFC for Rs 1,184.50 per share.

The report said the purchase "at such a high price" was made without conducting any valuation.

Moreover, this transaction was undertaken during the period when the trust itself was suffering from a fund crunch. The situation was so bad that the EWT was not able to generate enough cash flow to service its own debt and was taking new debts from the group companies to service the existing obligations on a regular basis.

SFIO is now probing whether there was any role of HDFC in the entire transaction as shares were bought by the EWT using monies advanced as debt by the financial institution.

Sources said the agency is looking to expand its probe and may examine former nominee directors appointed by HDFC on the board of IL&FS to ascertain whether there was a quid-pro-quo.

The loan of Rs 94.76 crore received by the EWT from HDFC is still outstanding in the books of the EWT as on date, and for servicing of interest on this debt the EWT is regularly taking debt from IL&FS or its group companies.

"The loan taken from HDFC Ltd to finance the transaction has resulted into interest payment of Rs 53.77 crore until June 30, 2018," said the SFIO interim report.

The security against the loan was the shares that they had sold to the EWT. A valuation report given by HDFC in May 2012 valued the shares at Rs 80 crore.

"Thus, they have given a secured loan with an asset coverage of less than 100 per cent, that too against unlisted equity shares. When the loan was repaid in the year 2015, a fresh loan of Rs 95 crore was granted within a month against the same shares as security without a fresh valuation. Thus, it appears that the loan given was accommodative lending departing from the normal course of the business of housing finance company," the report said.

The loans extended to the EWT were approved by the Committee of Directors (CoD) of the respective IL&FS group companies which were manned from amongst the individuals being aware that the loans were not being repaid.

The report said that from the inception and especially after 2006, the trustees have been dominated by nine top executives which involve Ravi Parthasarathy, Managing Director and Chairman of IL&FS group, Hari Sankaran, Vice Chairman and MD of subsidiaries of IL&FS group and Arun Kumar Saha, Joint MD and Chief Executive Officer of IL&FS Limited, among others.

In its report, SFIO has recommended that assets of key managerial persons may be considered for restrainment under the provisions of the Companies Act.

The EWT was dependant on interest and dividend income from the group companies for servicing of its debts. From 2006 onwards, as the sale proceeds of shares were distributed amongst the select employees rather than being used for repaying the debts, there was excess expenditure over income reported in the income and expenditure statement of EWT and the loans are unpaid.