Ayush Joshi and Paranjoy Guha Thakurta
For decades, the First Leasing Company of India (FLCI) projected an image of itself as a firm that was robust and healthy, reporting impressive growth and securing high credit ratings. The facade crumbled in 2013 when a Reserve Bank of India (RBI) inspection alleged that the company had falsified its financial statements to hide an asset discrepancy of approximately ₹1,676 crore. Among the victims of the so-called scam are employees of a Rajasthan government company who claim they have been waiting for years for their dues. They feel cheated that the legal system and government authorities have not done enough to redress their grievances.
After the RBI indicted FLCI, the company’s statutory auditor, V Balasubramanyan, was penalised by the Institute of Chartered Accountants of India (ICAI) for professional misconduct. He was slapped with a fine and barred from practising for two years. Still, the company’s shareholders are of the view that they have been denied justice because the alleged architects of the fraud, the company’s high-profile founders and its managing director, appear to have got away with hardly a scratch. The victims include current and former employees of the Rajasthan Vidyut Vitaran Nigam Limited (RVVNL), a state government concern engaged in electricity distribution, whose pension fund lost around ₹150 crore and who are awaiting restitution.
>> Background
Established in 1973, the FLCI counts among its founders A C Muthiah, former chairman of the Southern Petrochemical Industries Limited (SPIC) group of companies, former president of the Board of Control for Cricket in India (BCCI) and a former president of the industry lobby organisation, the Federation of Indian Chambers of Commerce and Industry (FICCI). Muthiah also served on the Prime Minister’s Advisory Council for Trade and Industry. He is, incidentally, a cousin of former Union Finance Minister and Congress Member of Parliament Palaniappan Chidambaram.
Muthiah currently heads the AM Industrial group based out of Chennai that reportedly has an annual turnover of US$1 billion with interests in fertilisers, chemicals and engineering. His father M A Chidambaram, who belonged to the royal family of Chettiar, had founded the conglomerate – it manufactured two-wheelers and aluminium.
Another founder-promoter of FLCI is Farouk Merwan Irani, who also served as the company’s managing director. He has been described as the “father” of the leasing business in India. Born in Mumbai and educated in Darjeeling, West Bengal, his supporters say he was the pioneer of equipment leasing services in India. He was arrested by the Enforcement Directorate (ED) in June 2016 for allegedly violating foreign exchange rules. By then, he had fallen out with Muthiah. Irani accused Muthiah’s associates of forging his signature and ganging up against him because he blew the whistle on their activities. Muthiah, in turn, rubbished his claims, claiming Irani had kept him in the dark and was solely responsible for what had happened as he was in charge of the day-to-day affairs of the company. More on this dispute later in the story.
Irani died on December 27, 2025, at the age of 85. A journalist, who had spoken with him for the article referred to above, put up his obituary notice on LinkedIn.
FLCI was incorporated as a non-banking financial company (NBFC), to provide financial services without holding a banking licence. Its activities were regulated by the RBI. Maharaja Jai Singh of Jaipur served as a director and chairman of the company’s statutory audit committee.
For four decades, FLCI reported impressive growth in its annual reports and consistently distributed dividends, earning the trust of investors, regulatory bodies and financial institutions. By 2013, FLCI had amassed a debt of around ₹1,200 crore that was owed to a consortium of 12 banks led by the State Bank of India. Additionally, the company held deposits totalling ₹177 crore from thousands of small investors and government pension funds of RVVNL and United India Insurance Limited.
>> RBI’s Indictment of FLCI
The first signs of trouble in the company were noticed in September 2013 when the RBI issued a strongly worded press release based on an inspection of FLCI’s books as of March 31, 2013. The RBI, which regulates NBFCs, accused the company of falsifying its books of account. The RBI imposed severe restrictions on FLCI, including prohibiting it from selling or transferring assets and declaring dividends. The company was told to stop its operations. This announcement sent FLCI’s equity share prices plummeting.
When the company submitted a revised balance sheet, the documents showed figures much lower than what had been originally reported, revealing a discrepancy of around ₹1,676 crore. Stock on hire, representing the value of company-owned assets leased to customers, was originally reported at ₹1,588.35 crore, but was later revised sharply downward to ₹305.2 crore.
The company’s net owned fund (NOF), a key RBI metric for measuring an NBFC’s financial strength, disappeared in the revised accounts. A healthy NOF demonstrates an NBFC’s capacity to absorb potential losses and maintain its operations. In the context of FLCI, the fact that their NOF disappeared implied a complete erosion of the company’s financial foundation.
>> Web of Shell Companies
The architecture of the fraud, as detailed by MoneyLife based on court documents, was a masterclass in corporate deception. At its core, the scheme involved a web of “satellite companies” or shell entities controlled by Irani but fronted by FLCI’s own employees. The process was a closed loop designed to siphon funds, starting with FLCI lending crores of its own capital to these satellite companies. These entities would then use the borrowed funds to manipulate the books by buying FLCI’s bad loans or non-performing assets (NPAs), thus purging them from the parent company’s balance sheet in an artificial way to maintain the illusion that it had a healthy loan book.
These shell firms acquired a 26 per cent stake in the parent entity, FLCI, tightening Irani’s control. For his alleged personal enrichment, the satellite companies lent money to Irani and his family members at a token interest rate of 3 per cent. This capital was then loaned back to FLCI for factoring transactions at an exorbitant interest rate of 15 per cent, creating immense, risk-free profits for the Irani family at the expense of the company. Finally, the illicit profits were laundered and cashed out. A charge-sheet filed by the ED under the Prevention of Money Laundering Act (PMLA) alleged that ₹51.27 crore, consolidated into fixed deposits at Lakshmi Vilas Bank and Karur Vysya Bank, was held in the names of members of the Irani family and trusts controlled by them.
The company’s end came swiftly after the RBI inspection, which covered the period from 2010 to 2013. On September 16, 2013, FLCI informed the stock exchanges that the RBI had frozen its operations, barring it from selling assets or conducting any new business. The fallout was immediate. The company’s statutory auditor, Balasubramanyan, resigned on October 7 and formally revoked the audit certificate for the fraudulent 2012-13 accounts. Irani too tendered his resignation as managing director the same month.
With its finances in shambles and the company unable to file its accounts, FLCI was delisted from the stock exchanges on February 28, 2018.
>> Enter the CBI
In the years since, the pursuit of justice has been slow and inconsistent. The Central Bureau of Investigation (CBI) named numerous individuals as accused persons, including Muthiah and Irani. While auditor Balasubramanyan was eventually penalised by the ICAI for professional misconduct, the principal architects have largely evaded stringent punishment.
The legal proceedings that followed yielded confounding results. In a judgment dated January 6, 2025, the Madras High Court discharged Irani’s two daughters, Farah and Lia, from the CBI case, reasoning they were ignorant of their father’s allegedly criminal activities. This stands in stark contrast to a 2021 order concerning his wife, Sherna Irani, where the court refused a discharge in a PMLA case, citing a clause relating to reversal of the burden of proof under the act.
The court noted the ED’s failure to prosecute Muthiah “merits serious consideration” and suggested that the CBI had a “pick and choose” attitude. For the victims, most notably the employees of RVVNL who saw their ₹150 crore pension fund vanish, the story was far from over, as will be narrated.
>> High Ratings Despite Irregularities
A shareholder of FLCI, Tribhuvan Raj Bhandari, a resident of Jodhpur in Rajasthan, who has petitioned the Rajasthan High Court against the company, alleges that credit rating agencies were negligent. In an interview with one of the writers of this article, he claimed: “These rating agencies would mechanically put out the best possible ratings for the company without any due diligence.”
Bhandari alleges that the company violated the SEBI (Credit Rating Agencies) Regulations, 1999, of the Securities and Exchange Board of India (SEBI), the regulator of the country’s financial markets. The high ratings to FLCI enabled it to attract investors/depositors. In his petition, Bhandari claims: “Through misrepresentations in (its) published financial statements, FLCI was in a position to seek enhancement of loans from banks and raise funds through debentures and other unsecured instruments. By … these false statements/misrepresentations, the accused…company managed to obtain a good rating from credit rating companies based on which it solicited sub-ordinated debt (unsecured debentures) from gullible investors.”
CARE Ratings consistently awarded top ratings to FLCI until 2013, and Brickwork Ratings rated FLCI at “AAA” in 2013. A few days after the RBI’s investigation report became public on 13 September 2013, CARE drastically downgraded its ratings. The same day, the RBI issued a prohibitory order.
After SEBI asked Brickwork Ratings to explain why it gave the company high ratings, it responded saying: “Brickwork Ratings would like to inform in this regard that it has neither graded the IPO (initial public offering of shares) of First Leasing Company of India Ltd nor is it in any way associated with any kind of valuation of the equity shares of the said Company. Further, it may also be appreciated that an IPO grading by a rating agency does not constitute any recommendation to buy, sell or hold the shares of the graded issue.”
In 2022, it was reported that SEBI had revoked Brickwork Ratings’ licence and ordered it to cease operations within six months, citing numerous regulatory violations. These included failure to document management meetings, lack of independent financial analysis, delayed default recognition, and conflicts of interest. A joint audit of Brickwork Ratings by SEBI and RBI was conducted in January 2020, which led to an administrative warning and the initiation of an enquiry. Brickwork obtained interim relief against implementing SEBI’s directives from the Karnataka High Court, but the Supreme Court of India upheld SEBI’s position.
SEBI’s decision was apparently influenced by the lapses in Brickwork’s ratings for several issuers, including Welspun, IDFC First, and Adani Rail. The regulator highlighted significant governance failures at Brickwork, noting that these occurred despite repeated regulatory breaches, even after warnings had been issued and penalties imposed. Brickwork, however, defended its actions, claiming the violations were minor and procedural, without compromising the company’s integrity or benefiting issuers. In 2023, SEBI’s order against Brickwork was cancelled by the Securities Appellate Tribunal.
>> Investigations and Legal Proceedings
In 2014, after a petition was filed in the Rajasthan High Court by Bhandari, he told one of the authors of the article: “The investigation was moving at a frustratingly slow pace. The matter, which had never been considered urgent or worthy of a constructive hearing by the justice delivery system, suddenly gained attention. In fear of being arrested or prosecuted, one of the accused rating agencies, along with its management (which incidentally had cross investments from FLCI), filed a petition. Since both petitions were related to the same FIR (first information report), they were clubbed together and listed.”
On August 27, 2015, two years after the first FIR was filed, the court summoned the Commissioner of Police, Jodhpur, and granted an additional four months to complete the investigation. On January 18, 2016, the court further extended the investigation period and scheduled the matter to be listed on March 10.
However, before this date, the Jodhpur police submitted its final application, dismissing the case because the case did not fall under their jurisdiction as the company’s headquarters are in Chennai. The police advised that the complaint should be raised with the concerned authorities in Chennai.
Three years after the first FIR was filed, the High Court of Rajasthan in Jaipur dismissed the petition by Bhandari and others, suggesting that their appeal be decided by the trial court in Jodhpur. The petitioner’s prayer to hand over the case to the CBI was not considered. The trial court ordered the police to investigate the complaint. The police concluded that “the irregularity committed by the company is related to banking offences, in respect of which RBI/CBI have registered separate cases and filed chargesheets in the court, which are pending in the court. Additionally, no such documents or evidence were found which could prove that any kind of fraud has been committed by the company with any particular person.”
On January 22, 2026, the court of the Munsif Magistrate (City), Jodhpur, took a strict stance regarding the delays in adjudicating the case (Number 203/2015) because of the absence of the Investigating Officer (IO). The court issued a letter to the Station House Officer of Mahamandir Police Station to ensure the IO’s presence at the next hearing. Citing a Rajasthan High Court order from May 13, 2024, the Magistrate ordered that a letter be sent to the Police Commissioner of Jodhpur.
The court directed the Commissioner to take necessary departmental action against the IO for failing to comply with court orders and to inform the court of the action taken against him. The court explicitly stated that disregard of judicial orders would not be accepted under any circumstances. A “waiting report” has been prepared and the next hearing is scheduled for March 9.
>> Forensic Audit & Scrutiny by ICICI Bank
ICICI Bank, along with 12 other banks, entered into a working capital consortium arrangement with FLCI, which was being led by the State Bank of India (SBI) in 2004. The lenders in the consortium extended a financial facility of ₹130.50 crore, which was increased to ₹165.50 crore and then to ₹296.30 crore by 2006.
ICICI Bank told the Madras High Court in its petition: “With increase in Current Assets to Rs 1606.21 crore and with the improvement in profitability to Rs 70.75 crore of the company, the working capital consortium extended further financial limits to the company in March 2011. It is pertinent to mention that Credit Rating Agency CARE maintained its rating at Highest Safety for instruments issued by the company.”
The financial facility limit was extended to ₹850 crore in 2011 and further to ₹1,152 crore in 2012 at the request of FLCI. The enhancement of the limit was based on the audited balance sheet and profit and loss account of the company, which at that time was believed to be true and fair. According to the ICICI Bank petition, “reliance was also placed on the credit ratings given by the credit rating agency as to the credibility of credit instruments of the company.”
Following the discovery of financial irregularities by the RBI and the punitive action taken by it, the consortium met the company’s managing director, Irani. At a meeting of representatives of banks that were part of the consortium on September 19, 2013, Irani apparently acknowledged that the company had been mismanaged and that its accounts did not reflect the true and fair picture.
Irani claimed in a letter sent to FLCI’s board of directors that the crisis in the company was due to a “vicious cycle of spiralling interest costs … (and) outflow of deposits” because Mercantile Credit Corporation (MMC), which had been promoted by Muthiah’s father, M A Chidambaram, went belly up. He added that the company’s financial problems were also on account of “Muthiah’s inability to contribute to rights issues… (and the) rights of first refusal given to the British government entity, Commonwealth Development Corporation. Irani further said in the reported letter that his personal shareholding in the company was only 0.30% of the total and added that he had been targeted because he became a whistleblower.
The MoneyLife report referred to mentioned that FLCI “would feature in the scoundrel showcase along with IL&FS, DHFL, Reliance Capital, LVB, PMC Bank and a plethora of other non-banking finance companies (NBFCs) where the audit miserably failed to detect blatant frauds and the boards were fully complicit in the crime.” (IL&FS stands for Infrastructure Leasing and Financial Services, DHFL for Dewan Housing and Finance Limited, LVB for Lakshmi Vilas Bank and PMC for Punjab and Maharashtra Co-operative Bank.)
The meeting held on May 27, 2013, to approve the company’s accounts also approved the reappointment of Irani as managing director for a period of five years. The company’s annual general meeting was fixed for September 18, 2013. As stated, the RBI completed the inspection of the books of the company for a period of four years from 2010 to 2013 and found serious irregularities.
According to details shared by Irani during the meeting, a shortage of capital emerged in the 1980s after Mercantile Credit Corporation (MCC), part of the M. A. Chidambaram group, ran into financial difficulties. MCC directed its public deposits to FLCI out of mutual interest, and in 1988, FLCI had to repay ₹170 crore to MCC depositors when MCC landed in trouble. Without raising capital, FLCI borrowed at high rates, weakening its financial position. In the 1990s, FLCI avoided declaring itself sick and shifted to bank borrowings due to market volatility.
Later, FLCI lost ₹65 crore in “misguided transactions” and borrowed more to cover the loss, compounding its financial troubles. The company’s asset creation was inadequate for its liabilities, leading to further bank borrowings to meet obligations. Of the ₹1,322 crore raised from banks, only ₹200 crore was used for asset creation. The data on disbursements and assets was inaccurate, with actual assets around ₹172 crore and future rentals due of ₹ 204 crore. FLCI operated through an account at the Bank of Baroda, outside the consortium.”
In 2014, a forensic audit report was placed before the consortium, which revealed the role of Irani in the financial irregularities. The report by Maharaj N R Suresh & Co reported that the company inflated its profit by ₹1,112 crore from 1999 onwards through the creation of fictitious assets, with actual asset coverage being only 14 per cent. Certain banks were specifically chosen to route bogus transactions, inflating credit summaries. Additionally, funds ranging from ₹ 60 to ₹70 crore were allegedly siphoned off by Irani. There were no proper entries for related party transactions, tax deduction at source (TDS) rules were not complied with, and the audit committee’s guidelines were not followed. MD Irani was accused of taking away 25 important files, which the board demanded be returned.
Banks were allegedly misled to provide finance on the basis of false cash flow projections. FLCI provided loans to the state government-owned Tamil Nadu Electricity Board for leasing assets, but even after the assets were foreclosed, they were not written off and remained in the company’s books. Bogus accounting entries were made and allowances paid in cash to staffers under suspicious circumstances, the forensic report added. The gap between assets and liabilities had started from 1976 and reached ₹200 crore by 1998. The company maintained three types of accounting records for different periods, and manual entries for assets and income were made irregularly, the report stated after scrutinising the company’s internal records.
An analysis of the minutes of board meetings from 2000 revealed that 85% of the discussions were about bank borrowings and opening accounts. Dividends from artificially inflated profits were paid to Irani and other promoter directors.” From 2010 onwards, the MD began withdrawing nearly all the money credited to him and received remuneration above the legal ceiling limit,” the report alleged.
ICICI Bank stated in the court petition: “The company (FLCI) has carried on business since inception only for the purpose of defrauding all the stakeholders and creditors of the company. Profits and income have been inflated over more than 15 years, and dividends have been paid out of such inflated profits to the promoter, particularly, Farouk Irani and his satellite companies and A C Muthiah and his related companies. The promoters are guilty of fraud, misfeasance and siphoning of funds of the company. This is similar to the fraud committed by Satyam, there being a ‘hole’ in the assets and revenue of the company.” (The reference in this instance is to the Hyderabad-based Satyam Computers group, earlier headed by Ramalinga Raju, indicted in a major financial fraud.)
>> Justice Awaited for Victims
As mentioned, on August 9, 2025, the disciplinary committee of the ICAI found FLCI’s statutory auditor chartered accountant V Balasubramanyan (membership number 018444), who had audited the company’s books of account between 2002 and 2013, guilty of “professional misconduct” as per the provisions of Items (7), (8), and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
The committee concluded that the auditor failed to exercise due diligence, obtain sufficient information to form an opinion, and failed to report huge discrepancies in the company’s financial records. The auditor’s defence that the fraud was “well-orchestrated” by the company management was rejected by ICAI’s disciplinary committee. It noted that the auditor had relied solely on the FLCI management’s representations without obtaining independent audit evidence and that he later withdrew his own audit reports as an “afterthought” after the RBI’s indictment. ICAI ordered that Balasubramanyan’s name be removed from its register of members for a period of two years and imposed a fine of ₹1.50 lakh to be paid within 90 days.
While the auditor has been penalised, shareholders and current and former employees of the state government-owned electricity distribution company, RVVNL, feel that justice has not been done to them and that the perpetrators of the scam have got away lightly.
To ensure accuracy and balance, on March 12, the authors emailed detailed questionnaires to the following: 1. A C Muthaiah, founder, FLCI, 2. V Balasubramanyan, former statutory auditor, FLCI; and the spokespersons of 3. CARE Ratings, 4. SBI, and 5. RVVNL Pension Fund. At the time of publication, no responses had been received. This report will be updated if and when any replies come in.
(Ayush Joshi and Paranjoy Guha Thakurta are independent journalists)
