Context:
This large and popular airline company, which had seen good times, discovered that the truth does not remain hidden for very long. When numbers do not add up, and the future of the airline is a matter of doubt with the auditors, irregularities surface with gay abandon. Could the Audit Committee have seen the writing on the wall, and could the high profile Board have behaved in a less subservient fashion?

• In May 2018, Joint Auditors of a large airline opined that due to a huge fourth-quarter loss of over INR 1,000 crores, the “appropriateness of assumption of going concerned” for the Company depended on its ability to raise necessary funds, among other factors.
• The Auditors’ report for the previous two FYs had stated under Emphasis of Matter that the appropriateness of assumption of going concern was dependent upon realisation of the various initiatives undertaken by the Holding Company and/or the Holding Company’s ability to raise requisite finance/generate cash flows in future to meet its obligations, including financial support to its subsidiary companies.
• The notes in the financial statements stated that the Company had incurred a loss during the year and had negative net worth as at the close of FY that may create uncertainties.
• However, various initiatives undertaken by the Company in relation to saving cost, optimizing revenue management opportunities and enhancing ancillary revenues were expected to result in improved operating performance. Further, the Company’s continued thrust to improve operational efficiency and initiatives to raise funds were expected to result in sustainable cash flows, addressing any uncertainties. Accordingly, the financial statements continued to be prepared on a going concern basis, which contemplated realization of assets and settlement of liabilities in the normal course of business, including financial support to its subsidiaries.
• In August, 2018, the Audit Committee (AC) did not recommend to the Board, the financial results of the first quarter of 2018, since closure of certain matters was pending.
• The Chair of AC later resigned. Post adverse comments, especially at the Annual General Meeting (AGM), the Company gave an explanation to the Stock Exchanges that the term of the AC Chair expired at the conclusion of the AGM.
• A number of issues surfaced thereafter with respect to the Company.
  1. It was alleged that the founder and the Chairperson had siphoned away INR 5,279 crores from the Company, and its wholly owned subsidiary, for personal gains, at the cost of minority shareholders, through several related party transactions (RPTs) between these two companies, and his private companies incorporated in India as well as outside India.
  2. He had also allegedly indulged in window dressing of financials through manipulative means like change in method of depreciation and lease back transactions etc.
  3. A whistleblower, wrote to Ministry of Finance, SEBI, RBI and the Chief Vigilance Commission, complaining about irregularities. He questioned the AC’s inability to “prevent the promoters from siphoning off INR 5,125 crores from the companies”.
• Several events transpired, such as resignation of promoters, Directors, including Nominee Directors, and Key Managerial Personnel (KMPs), and subsequent halt of operations.
• In parallel,
  1. There was initiation of preliminary enquiry by the Ministry of Corporate Affairs (MCA) on the suspicion of siphoning off funds.
  2. Inspection by Income-tax department to examine whether there was any falsification of the account books, siphoning of funds, and issue of suspicious bogus expenses booked to group entities.
  3. Non-payment of salaries to the employees.
  4. Forensic audit of the books to examine the feasibility of restructuring its debts and identify potential red flags in accounts.
• The Company finally went for Corporate Insolvency Resolution Process.