IL&FS: Madras HC quashed state FIR; ED, SFIO cases pending

What the Record Shows

The IL&FS group's collapse produced parallel actions by three agencies, and the current position across them is mixed. On the criminal side pursued through the Tamil Nadu police, the Madras High Court, by an order pronounced on 31 August 2021, quashed the first information report registered by the Economic Offences Wing, Chennai (Crime No. 13 of 2020) against former directors of IL&FS Transportation Networks India Limited (ITNL), including the group's former chairman Ravi Parthasarathy. The complaint had been lodged by 63 Moons Technologies Ltd and other debenture holders under the Tamil Nadu Protection of Interest of Depositors (TNPID) Act and Sections 417 and 420 of the Indian Penal Code over defaults on non-convertible debentures. The court held that privately placed debentures do not constitute "deposits" under the TNPID Act and quashed the case.

Separately, the Directorate of Enforcement (ED) has run a money-laundering prosecution. Per the ED's case set out in an order of the Bombay High Court dated 29 October 2020, the agency registered ECIR/MBZO-1/2/2019 and alleged that IL&FS officials conspired to sanction loans to distressed group companies in a way that circumvented Reserve Bank of India directives. The ED alleged proceeds of crime of about Rs 27.78 crore in one strand and had provisionally attached properties worth about Rs 21.50 crore.

The Serious Fraud Investigation Office (SFIO), under the Ministry of Corporate Affairs, filed prosecution complaints against IL&FS officials and named Ravi Parthasarathy as a prime accused. Ravi Parthasarathy died in April 2022; the allegations against him were never tried, he was never convicted, and proceedings against him personally abate. A chargesheet or prosecution complaint contains allegations, not findings of guilt.

How It Worked

The group at the centre of the case was Infrastructure Leasing and Financial Services (IL&FS), a large financier of infrastructure projects whose September 2018 defaults exposed how highly leveraged the structure had become. Per the SFIO's case, the group's leadership diverted funds among group companies, extended fresh loans to already defaulting borrowers to keep them current, and engaged with credit-rating analysts to obtain what the SFIO material describes as "desired ratings", so that a heavily indebted group continued to be rated AAA and to raise long-tenor money from institutional lenders.

The lending mechanics are set out in more detail in the ED strand. Per the ED's case recorded in the Bombay High Court order, loans were sanctioned to financially distressed group companies to enable debt repayment rather than productive use, in a manner said to circumvent an RBI directive of 1 November 2017 against fresh lending to group companies, with funds routed through contractor intermediaries to disguise the exposure. The order records that a Grant Thornton forensic audit found about Rs 2,270 crore routed through 14 contractor entities to ITNL and its special-purpose vehicles, and that the group's related-party lending had reached a large share of its book.

The credential dimension is part of the record here in a way it is not in most cases. Ravi Parthasarathy, an alumnus of IIM Ahmedabad and a former banker, built an institution that raised money explicitly on the strength of blue-chip management pedigree, quasi-sovereign shareholders and a AAA rating, which is precisely what allowed it to borrow long-dated money from provident and pension funds. The pedigree was the fundraising asset. That context is stated as background to how the group raised funds, not as any finding against a man who was never tried.

Who Lost Money

The exposure in the IL&FS collapse was systemic. The group's aggregate debt at the time of its September 2018 default was later estimated in the resolution proceedings at close to Rs 1 lakh crore, held by a wide range of institutional creditors, banks and bondholders. Because IL&FS paper sat in the portfolios of provident funds, pension funds, insurers and debt mutual funds, the default rippled well beyond the group itself.

The wider harm ran through the debt-fund market. The September 2018 default is widely identified as the trigger for the non-banking finance company liquidity squeeze that followed, which affected debt mutual fund unitholders across India as the value of exposed instruments was written down. Retail investors who never bought an IL&FS bond directly were touched through the funds they held.

Recovery has been pursued not through a single restitution order but through the resolution of the group's companies under a government-superseded board. How much creditors ultimately recover depends on the sale and monetisation of assets across dozens of entities, a process that has run for years and remains incomplete.

Where It Stands Now

The current position, re-checked against the official record, is that no accused in the IL&FS matters has been convicted. The Madras High Court quashed the Chennai TNPID and IPC case on 31 August 2021. The ED's money-laundering prosecution and the SFIO's prosecution complaints remain pending against surviving accused, and bail applications in the ED matter have been contested, with the Bombay High Court rejecting one such application in October 2020 at the pre-trial stage.

Ravi Parthasarathy died in April 2022. The proceedings against him personally abate, and it must be stated plainly that the allegations against him were never adjudicated and he was never convicted. For the surviving accused, a prosecution complaint contains allegations, not findings of guilt; the accused are presumed innocent until proven guilty, and due process continues.

Alongside the criminal and regulatory tracks, the resolution of the IL&FS group under the board constituted through the National Company Law Tribunal continues, and no conviction in any of the IL&FS prosecutions could be located as of 1 August 2026.

What It Means

IL&FS is the case that reshaped how India thinks about the plumbing beneath its debt market. The practical lesson for an ordinary investor is that a top credit rating and a blue-chip name are not a guarantee, and that debt mutual funds carry the credit risk of the paper they hold. When a large issuer defaults, the effect can reach investors who never chose that issuer, through the funds and schemes that owned its bonds.

It is also a study in how slowly these matters resolve. Years after the 2018 default, the criminal prosecutions are still at trial or pre-trial stages, one state case has been quashed, the prime accused has died with the allegations against him untried, and creditor recovery is still being worked through an asset-by-asset resolution. For readers, the takeaway is to check the underlying credit quality and concentration of any debt scheme rather than relying on a rating label alone. The wider enforcement pattern is collected in the enforcement archive, alongside other market and governance matters such as the NSE co-location case and the Popular Group deposit restitution.

FAQ

Does this mean the people named are guilty?

No. A prosecution complaint or chargesheet contains allegations, not findings of guilt. The surviving accused in the ED and SFIO matters are facing proceedings that are pending, and no one has been convicted. The accused are presumed innocent until proven guilty, and due process continues.

What happened to Ravi Parthasarathy's case?

Ravi Parthasarathy, named as a prime accused by the SFIO, died in April 2022. The allegations against him were never tried and he was never convicted, and proceedings against him personally abate on his death. Separately, the Madras High Court quashed a Chennai FIR that had named him, on 31 August 2021.

Why did the Madras High Court quash the Chennai case?

By its order of 31 August 2021, the Madras High Court held that the privately placed non-convertible debentures issued by ITNL do not constitute "deposits" within the definition in the Tamil Nadu Protection of Interest of Depositors Act, so that statute did not apply, and it quashed the FIR. The ED and SFIO proceedings are separate and were not affected.

What did the ED allege?

Per the ED's case recorded by the Bombay High Court, the agency alleged that IL&FS officials conspired to sanction loans to distressed group companies in a manner that circumvented an RBI directive, alleged proceeds of crime of about Rs 27.78 crore in one strand, and had attached properties worth about Rs 21.50 crore. These are allegations pending trial.

Did the IL&FS default affect ordinary mutual fund investors?

Yes, indirectly. IL&FS paper was held by debt mutual funds, insurers and pension and provident funds, so the September 2018 default and the liquidity squeeze that followed affected the value of exposed schemes and, through them, retail unitholders who had no direct holding in the group.

Where can I read the official record?

The Madras High Court order of 31 August 2021 and the Bombay High Court order of 29 October 2020 in the IL&FS-related matters are available on the public record via Indian Kanoon.

This report is based on the Madras High Court order dated 31 August 2021 and the Bombay High Court order dated 29 October 2020 in the IL&FS-related proceedings, reviewed on 1 August 2026.