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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    IL&FS Scam: ED Arrests Arun Saha and K Ramchand in Money-laundering Probe
    The Enforcement Directorate (ED) has arrested two former top officials of the Infrastructure Leasing & Financial Services Ltd (IL&FS) under its money-laundering probe into alleged financial irregularities of the crisis-hit group. This is the fourth arrest by investigating agencies in the multi-crore IL&FS scam. 
     
    A senior ED official told IANS that the agency has arrested Arun Saha, former joint director of IL&FS Financial Services (IFIN), and Karunakaran Ramchand, former managing director (MD) of IL&FS Transportation Networks (ITNL), from Mumbai. They were arrested under the Prevention of Money Laundering Act (PMLA).
     
         
    Both of them were involved in various illegal activities detrimental to IL&FS, the official said, adding that both, Mr Saha and Mr Ramchand, were involved in sanctioning and disbursement of loans without taking proper security, to borrowers who were already in financial distress and unable to pay earlier loans.
     
    The ED was probing the case based on a first information report (FIR) filed before the economic offences wing (EOW) of the Delhi Police in December last year.
     
    Earlier, in April, the Serious Fraud Investigation Office (SFIO) had arrested IL&FS' former MD and chief executive officer (CEO) Ramesh Bawa and Hari Sankaran, former vice chairman of IL&FS in connection with financial irregularities in the company. At present, Mr Bawa and Mr Sankaran are in judicial custody.
     
    Last month, the SFIO had filed its first charge-sheet against IL&FS Financial Services, one of the two major companies of IL&FS, the 347-company conglomerate that is in serious financial trouble.
     
     The criminal complaint (20 of 2019) filed before the additional special judge in Mumbai has cast the net wide with 30 respondents who include the entire board of IFIN led by Ravi Parthasarathy and all the audit firms and their key partners and C Sivasankaran, the industrialist whose loans pop-up in various disputes with the Tatas and others. 
     
    The charge-sheet alleges that C Sivasankaran was given loans without adequate collateral and, when they went bad, senior management connived with him to cause a wrongful loss to the company. Siva group founder C Sivasankaran was a close friend of Ravi Parthasarathy and Mr Shankaran—the chairman and vice chairman of IL&FS, respectively, says the charge-sheet. 
     
    Apart from failure to disclose information or follow Reserve Bank of India (RBI) guidelines, the SFIO accused Mr Bawa specifically of failing to disclose his interest in AAA Infosystems and AAAB Infrastructure Pvt Ltd, in which his wife and daughter are directors. 
     
    SFIO also accuses IFIN of devising an illegal strategy to lend money to IL&FS group companies in violation of RBI’s concentration rules. IL&FS Transportation Network, the large listed company in the IL&FS group, was allegedly one of the primary beneficiaries. 
     
    The charge-sheet accuses independent directors of being mute spectators and failing to raise appropriate governance issues at board meetings. 
     
    The charge-sheet says that a coterie of persons led by Mr Parthasarathy and comprising Mr Shankaran, Mr Saha, Vibhav Kapoor, Mr Ramchand, and Mr Bawa “were controlling the affairs and decision making in the IL&FS group as well as IFIN.”
     
    It also says that the independent directors knew the actions of this coterie in hiding bad loans and stressed assets or lending to companies that were already under corporate debt restructuring.
     
    Apart from outlining how various RBI norms and rules were breached to hide the poor financials of IL&FS group companies, the rosy picture they presented allowed the group to announce hefty dividends and this also formed the basis of the remuneration earned by senior management.
     
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    COMMENTS

    Mohan Krishnan

    2 months ago

    Financial Engineering will never die in any Country. Next blowup will be China's shadow banking of 9 Trillion USD. Deutsch Bank will soon join the party.

    SURAJIT SOM

    2 months ago

    Where is the Criminal-in- Chief ? Has he fled the country , enjoying lunch/dinner with Mama-Bhanja ?

    SFIO Files Charge Sheet against IFIN; Names Auditors, Directors, Key Employees and Companies
    The Serious Frauds Investigation Office (SFIO) filed its first charge sheet against IL&FS Financial Services, one of the two major companies of IL&FS (Infrastructure Leasing & Financial Services), the 347-company conglomerate that is in serious financial trouble. 
     
    The criminal complaint (20 of 2019) filed before the additional special judge in Mumbai has cast the net wide with 30 respondents who include the entire board of IFIN led by Ravi Parthasarathy and all the audit firms and their key partners and C Sivasankaran, the industrialist whose loans pop-up in various disputes with the Tatas and others. 
     
    The charge sheet alleges that C Sivasankaran was given loans without adequate collateral and when they went bad, senior management connived with him to cause a wrongful loss to the company. Siva group founder C Sivasankaran was a close friend of Ravi Parthasarathy and Hari Shankaran—the chairman and vice chairman of IL&FS respectively, says the charge sheet. 
     
    SFIO also accuses the auditors, BSR & Co LLP,  Deloitte Haskins & Sells (DHS) LLP and others of helping to conceal information and falsify accounts. It documents the modus operandi exposed by the Grant Thornton forensic audit of repeated round-tripping funds through a host of other companies to pretend repayment and show the accounts as being standard. It names Parsvanath Group, A2Z and ABG as companies where similar dubious practices were followed. These too have been examined in detail by Grant Thornton’s Icarus report. 
     
    Apart from failure to disclose information or follow Reserve Bank of India (RBI) guidelines, it accuses Ramesh Bawa specifically of failing to disclose his interest in AAA Infosystems and AAAB Infrastructure Pvt. Ltd., in which his wife and daughter are directors. 
     
    SFIO also accuses IFIN of devising an illegal strategy to lend money to IL&FS group companies in violation of RBI’s concentration rules. IL&FS Transportation Network, the large listed company in the IL&FS group, was allegedly one of the primary beneficiaries. 
     
    The charge sheet accuses independent directors of being mute spectators and failing to raise appropriate governance issues at board meetings. Here is the charge sheet.

    The charge sheet says that a coterie of persons led by Ravi Parthasarathy and comprising Hari Shankaran, Arun K Saha, Vibhav Kapoor, K Ramchand, Ramesh C Bawa “were controlling the affairs and decision making in the IL&FS group as well as IFIN”.

    It also says that the independent directors knew the actions of this coterie in hiding bad loans and stressed assets or lending to companies that were already under corporate debt restructuring.

    Apart from outlining how various RBI norms and rules were breached to hide the poor financials of IL&FS group companies, the rosy picture they presented allowed the group to announce hefty dividends and this also formed the basis of the remuneration earned by senior management.

    With regard to the relationship with C Sivasankaran, the charge sheet says that he organised hospitality for Ravi Parthasarathy,  Hari Shankaran and Vibhav Kapoor, including “arranging foreign travel, private jets, helicopter rides, booking of resorts and arranging the interiors of their flats at Brussels” among other things. In return, they had connived to lend to the Siva group.

    Interestingly, it says that the loans to Sivasankaran were against the shares of Tata Teleservices Ltd (which figure prominently in the dispute between the Tatas and Cyrus Mistry, the group’s former chairman who was shamefully ousted).  These shares were held at a fixed valuation of Rs82, long after the market value had dwindled until the Reserve Bank of India (RBI) in its report said that the value of the shares should be treated as NIL and provided for.

    Another shocking disclosure is how IFIN lent to the Siva group against Emerald Stones valued at Rs 59.62 crore, however this was done “without any physical examination, documentation related to value, verification of ownership, verification of premises where they were kept” etc., it was done by relying only on a chartered accountant’s letter.

    Later, IFIN also subscribed to 0.001% unsecured, optionally convertible debentures of Siva Green, a group company to the tune of Rs 190 crore for five years. This was virtually an interest free loan to the group. New loans to the Siva group were given to facilitate repayment of old loans and the security against which loans were extended was non-existent, since the Tata Teleservices shares had no market value. Para 54 of the charge sheet says that IL&FS did not write off the Tata Teleservices shares and debentures to Siva Green despite being directed to do so in the RBI inspection.

    SFIO refers to these as fraudulent transactions whose ultimate aim was also to present a rosy picture and defraud the lenders of IFIN. Para 36 and 37 of the charge sheet says that IFIN along with Ravi Parthasarathy and Hari Shankaran (the two persons on whom Sivasankaran allegedly had great influence) entered into a series of transactions to bailout and benefit Sivasankaran and his companies in a variety of transactions, including a loan of Rs175 crore.

    A shocking charge is that IFIL lent Rs 125 crore to the beleaguered Unitech Group, which was already in financial distress, only for the Unitech to repay its dues of around Rs 80 crore to Sivasankaran. According to the charge sheet statements of IFIN employees reveal that Sivasankaran dictated terms at IL&FS and worked through Ravi Parthasarathy and Hari Shankaran.

    Auditors and directors are accused of having failed to perform their statutory duties, conniving or turning a blind eye to the problem of stressed assets.

    Many other charges by the SFIO have been documented in the Project Icarus and reported in detail earlier.

     
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