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SFIO probe has finally revealed why Jet Airways went bust

The audit has uncovered misappropriation of funds relating to provision of loans and fraudulent billing for JP Miles
Mumbai: A forensic audit commissioned by the State Bank of India (SBI) into debt-ridden Jet Airways’ books has revealed that there was a systematic effort to siphon money from the company and multiple methods were used to take out funds from Jet Airways, sources aware of the development said. The audit has uncovered misappropriation of funds relating to the provision of loans and fraudulent billing for JP Miles, a report by The Economic Times said.

Loans were given to Jet Lite even as airline made losses

“Provision has been made for Rs 3,353-crore loan given to Jet Lite over four years. Board resolution, shareholder approval for making the provision was not made available to the auditors,” the forensic audit conducted by EY says. ET has seen a copy of the report. “Loans were given to Jet Lite despite Jet Airways recording losses in fiscal year 2015 and declining profit over the years,” the report added.

Jet raised invoices that couldn’t be verified

The report also showed that invoices were not verified and therefore led to excess billing. As a consequence, fuel expenses were raised substantially for Jet even when they remained static for other airlines. The audit also revealed that invoices raised on Jet Privilege were not verified, resulting in excess billing of nearly Rs 1 crore in July-September 2015 period. Monthly invoice totalling Rs 15 crore was accounted for by Jet Airways for commercial activities without relevant documents supporting them. The audit report also showed that the airline was billed Rs 140 crore fraudulent JP miles leading to a loss of Rs 46 crore. Additionally, several other discrepancies were recorded in the miles accrued versus what the company reported.

The backdrop

The government had ordered a probe into Jet’s accounts after the airline went bust and shut down operations in April. The Ministry of Corporate Affairs had directed the Serious Frauds Investigation Office (SFIO) to start a probe under Section 212 (1) C of the Companies Act. The reported showed that “prima facie,” the company was involved in “malpractices, mismanagement through siphoning off funds… preferential and related party transactions, prejudicial to the public interest.”