The principal bench of National Company Law Tribunal (NCLT) has allowed Infrastructure Leasing and Financial Services (IL&FS) to sell its entire 50% stake in Gujarat International Finance Tec-City Co Ltd (GIFT City) to the state government. Interestingly, the Gujarat government, in its modified share purchase agreement (SPA) has clarified that the representation and prosecution under taken by IL&FS in a petition filed by Dr DC Anjaria in Gujarat High Court would be at the cost of the crisis-hit group. More about the case later.
Crisis-ridden IL&FS and the state government through Gujarat Urban Development Co Ltd hold equal stake in GIFT City, a joint venture. Notwithstanding the liability of GIFT City, the Gujarat government has agreed to pay positive equity value of 100% IL&FS stake in GIFT City, by which the positive equity value of over Rs32.70 crore will come to IL&FS.
On 21 November 2019, RSBA Advisors submitted its valuation report to the new board of IL&FS estimating the negative equity value at (-)1520.2 to (-)1600.2 and negative enterprise value at (-)~ 652.2 for GIFT City. Factors taken into consideration by RSBA for valuation of GIFT City are: progress slower than expected off take of developmental rights; non-contiguous nature of land parcels; complexities in developing certain parcels of land; requirement of further capital and macroeconomic trends.
GIFT City was one of the green entities labelled by the new board of IL&FS. The new board has categorised IL&FS group entities into three categories, red, amber and green, based on the '12-month cash flow-based solvency test' (testing period). In companies where there is no payment default or overdue subsisting currently and cash-flows generated by them in testing period from their operations (and available cash balances) are sufficient to meet all the payment obligations of the respective entities and do not rely upon other entities in the IL&FS group for any financial support to service their debt obligations, they are classified as 'green' entities.
In its order, NCLAT says that IL&FS had submitted that the sale resolution has been conducted to ensure a fair resolution upholding the key principles of the value maximisation, commercial viability and financial stability for all stakeholders.
IL&FS also submitted, in order to facilitate and implement the sale or resolution process of GIFTCL, an amount of Rs61.84 lakh is excluded as resolution process costs incurred for meeting various expenditures, other applicable taxes from the sale proceeds of its shareholding in GIFTCL to the state government.
"In view of the relief sought by the applicant, this bench hereby approved that sale of shares of GIFTCL held by IL&FS to governor of state of Gujarat/Gujarat Urban Development Co Ltd shall be free and clear from all encumbrances, liens, security interest and third party claims (including any statutory or tax claims) upon receipt of sale consideration from GUDC," the bench said.
That sale consideration payable to IL&FS excluding resolution process costs shall be credited into a designated escrow account intimated to the infrastructure lending group and such funds shall be maintained as interest bearing fixed deposits.
The National Company Law Appellate Tribunal (NCLAT) had permitted green entities to continue in accordance with the resolution framework subject to the supervision of the Justice (Retd.) DK Jain. Since GIFTCL has been classified as a 'Green' entity, IL&FS has commenced the resolution process of GIFTCL.
The Principal bench of NCLT also permitted IL&FS to withdraw a sum of Rs3 crore from the escrow account opened to keep sale consideration for meeting the additional process resolution costs that may arise, after approval by the Board of Directors appointed by the tribunal.
"The distribution of the remaining purchase consideration is hereby subjected to further orders of this Bench," it said.
Coming back to the writ petition, Dr Anjaria had alleged widespread mismanagement of GIFT City, the marquee project by failed IL&FS. Dr Anjaria also clarified that his petition was not against the government but against GIFT City and the company's beleaguered parent IL&FS and its chairman and management.
The petition had alleged that this Rs70,000-crore GIFT-City project had virtually been gifted away to the private sector partner, IL&FS, leading to massive losses to the government and the people. He also alleged falsification in accounts and incorrect recording of audit committee meeting at GIFT-City.
In October 2018, Dr Anjaria, who originally designed the concept of GIFT City, had filed a civil application seeking investigation of GIFT-City by Serious Fraud Investigation Office (SFIO), as has been ordered by the National Company Law Tribunal (NCLT) with respect to IL&FS.
In his civil application to the 2016 Writ petition No 260 of 2015 (PIL), he says, "...in view of findings of regional director, ministry of corporate affairs (MCA), Mumbai, that affairs of IL&FS and its group companies are carried out prejudicial to public interest, the affairs of GIFT-City are also required to be investigated by SFIO for two reasons.
"Firstly, IL&FS has a 50% stake in GIFT-City and there it is part of the one of the group companies of IL&FS. Secondly, three senior directors on the board of GIFT-City are also part of board of directors removed by the NCLT at Mumbai. They are Hari Sankaran, K Ramchand and Arun Saha. The presence of these three persons on the board of GIFT-City is apparently inimical to the public interest,” Dr Anjaria had stated.
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