Exclusive: IL&FS Subsidiary NTADCL Dragged to the Appellate Tribunal; AIDQUA Steps Up the Pressure on Tirupur Water Project Woes
On 11th July, Mauritius-based AIDQUA Holdings, which has a 27.89% stake in New Tirupur Area Development Corporation (NTADCL), filed an intervention petition before the National Company Law Appellate Tribunal (NCLAT). 
The failed Infrastructure Leasing & Financial Services (IL&FS) had promoted NTADCL to bring water to Tirupur. AIDQUA has pleaded that the new, government-appointed management of IL&FS, led by Uday Kotak, ensure that its rights and shareholding is protected. The new board has done a good job of ignoring AIDQUA so far.   
Who and what is ADIQUA? Well, it has stellar record of being the first to figure out the dubious ways of IL&FS’s founder Ravi Parthasarathy. At a time when everybody is asking why regulators, lenders, investors, rating agencies and statutory auditors missed all the red flags on IL&FS’s fudging of books, mis-governance and manipulation of ratings, AIDQUA has literally been at war with Ravi Parthasarathy and his coterie, precisely over issues of mis-governance, accounting jugglery and worse. 
Over the past decade, it has taken its concerns to the Reserve Bank of India (RBI), company law board (CLB), ministry of corporate affairs (MCA), the Madras High Court (HC) and the Supreme Court (SC). It also appealed to Uday Kotak-led board through a letter dated 11th June. Nothing has worked. 
NTADCL was planned 30 years ago as India’s first water privatisation project that would bring water to the prosperous, hosiery-exporting town of Tirupur in Tamil Nadu (TN). As the state reels from a water crisis today, this project provides a case study on how, and why, compromised officers of the state’s Indian Administrative Service (IAS), have let the state down. 
IL&FS has a direct shareholding of 11.68% in NTADCL and also through the Tamil Nadu Water Investment Company Ltd’s (TWICL) 32.54% shareholding. TWICL is a joint venture between IL&FS and the TN government. Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC) and Mahindra & Mahindra (M&M) were the other shareholders. 
Though IL&FS had a larger shareholding in TWICL, the chairman and managing director were senior IAS officials, creating the impression of a government holding company. And, after the initial few years (when Ravi Parthasarathy was chairman), the pattern was repeated at NTADCL. This is probably how this private entity persuaded the Congress-led government to provide a sovereign guarantee on loans from Asian Development Bank and KfW of Germany. 
AIDQUA’s intervention essentially seeks to block a proposed sale of IL&FS’s shares in NTADCL and TWICL, alleging that this move would be in violation of the articles of association (AoA) in view of a pending petition in SC over the shareholding. As part of the effort to salvage some value from IL&FS, these two entities have been marked ‘green’ indicating that there is hope of finding buyers and recovering some money from their sale. 
The dispute with AIDQUA dates back to 2011, when Ravi Parthasarathy and company, under the pretext of a corporate debt restructuring (CDR), had attempted to forcibly reduce AIDQUA’s shareholding  ‘in a manifestly illegal manner’ alleges the petition, by allotting additional shares to TWICL, IL&FS and the TN government. 
AIDQUA had already fallen out with the management when it discovered and raised serious objections to Ravi Parthasarathy fudging accounts and hiding details of a loan from USAID, keeping the money in an escrow account, and unilaterally retaining Rs15 crore from the loan as cost of arranging the loan. 
Moneylife has exclusively published several articles about the AIDQUA’s long battle to draw the attention of the government, the courts and the Reserve Bank of India to the mis-governance, accounting jugglery and worse at NTADCL, without success. At one time, the AIDQUA representative on the NTADCL board was threatened with jail and slapped with a defamation suit for objecting to IL&FS’s scandalous actions. The defamation suit was successfully contested. 
What makes this battle outrageous is that every IAS officer on NTADCL and TWICL has actively supported the shady ways of the IL&FS cabal. Many of these bureaucrats have been gratified in multiple ways and some have relatives employed by IL&FS or its 348 group entities. 
AIDQUA challenged NTADCL’s attempt to steamroll the CDR and forcibly reduce its stake. The CLB, on hearing the matter, went ahead and allowed the CDR; but it “made clear that the implementation of the scheme shall not affect the special rights enjoyed by AIDQUA” nor could NTADCL amend the AoA without permission from the board.  
AIDQUA appealed against CLB’s order before the Madras High Court. The HC was not convinced about CLB’s order but didn’t overturn it, despite making some scathing comments about the Tirupur water project, its implementation, as well as the TN government. 
In 2014, AIDQUA also filed a special leave petition in SC, challenging the attempt to allot additional share to IL&FS. It also appealed to RBI; but that fell on deaf ears. Had anyone listened, the IL&FS debacle and the non-banking financial sector crisis would have been averted.
As the case drags on, SC has repeatedly granted interim protection to AIDQUA from various coercive actions by NTADCL board in 2014 and 2015. In 2016, there was a move to change the balance of the board by appointing additional directors. In 2017, AIDQUA was sought to be cornered through ‘an invalid board meeting’ that didn’t have appropriate quorum in accordance with the AoA. 
According to AIDQUA, the meeting attempted to “brazenly taking away Rs. 60.0 crores from NTADCL’s coffers without authority to settle an ongoing dispute with a third party on behalf of the promoter’s obligation.” This was in violation of SC orders. 
Remember, it is public sector banks (PSBs) and senior IAS officers who were in cahoots with the shady IL&FS management in all these tricks. The matter continues to drag and hearings are repeatedly postponed in SC, despite being listed for hearings in July 2018, August 2018 and September 2018. 
Things changed dramatically after September 2018, when IL&FS began to default and the Parthasarathy crony club was sacked and a new board headed by Uday Kotak appointed. In October 2018, MCA moved the NCALT against IL&FS and its 348 group entities. But nothing changed at the Tirupur companies, except for Parthasarathy’s cronies being replaced. 
Curiously, though, the new board seems unclear about the definition of ‘independent directors’, despite Uday Kotak having headed a corporate governance committee. The TN bureaucrats still call the shots and NTDACL doesn’t even have a full-time managing director, in violation of MCA rules. But that is a story for another day. 
Here is what AIDQUA’s petition says about actions under the new management at IL&FS: “As is evident, conveniently, surreptitiously and maliciously, ILFS has failed to apprise this Hon’ble Tribunal of the pendency of the proceedings before the Hon’ble Supreme Court in the Civil Appeal, where the very question of the sanctity and validity of its and TWICL’s (and that of others’) shareholding in NTADCL is under challenge. ILFS is attempting to sell/transfer shares whose allotment itself is illegal and under challenge before the Hon’ble Supreme Court.”
Incidentally, AIDQUA has long been seeking and exit from NTADCL. In December 2012, when it had asked for an exit price of Rs32.38 per share, based on the shareholders’ agreement, or Rs33.99 based on the concession agreement. But IL&FS under Mr Parthasarathy, with support from TN bureaucrats, was probably looking to throw them out without a penny. 
Why would the Uday Kotak-led board ignore AIDQUA’s rightful claims, when it is faced with the humungous task of salvaging some value from almost 350 entities that Ravi Parthasarathy was recklessly allowed to build? Maybe IL&FS believes that the insolvency process will also ignore AIDQUA’s rights, because shareholders stand to lose first. But that will hardly be conducive to a sale or encourage participation from global investors who are expected to help in the restructuring process. It also makes a mockery of the lone institutional investor who had attempted to expose the IL&FS management when every regulator and lender had failed. IL&FS and its crony IAS officers have ensured that India’s domestic infrastructure players and financing options are dead.

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