GIFT City-IL&FS Issue Gets Murkier with Ajay Pandey’s Interview
On 8th August, I wrote about an unprecedented case where the independent director and audit committee head of Gujarat International Finance Tec-City (GIFT City) had filed a public interest litigation (PIL) alleging that the showpiece Rs70,000-crore project had virtually been gifted away. The beneficiary was its private sector partner, Infrastructure Leasing & Financial Services (IL&FS), at a huge cost to the government and the people of Gujarat. (Read: Is GIFT City Gujarat’s Gift to IL&FS through One-sided Deals?)
 
What made this particularly newsworthy is the fact that IL&FS is cash strapped and a series of its projects are in deep trouble. It has outstanding loans of over Rs1.2 lakh crore (source: Moneycontrol) and has been directed by the Reserve Bank of India (RBI) to reduce debt exposure of group companies by March 2019 (source: Business Standard). This infrastructure group, with a large footprint and massive debt, has been repeatedly accused of gold-plating projects in several states. 
 
While everybody has stories about IL&FS’s inefficiencies, very few are willing to speak openly, or on record, because IL&FS and its network of 174 direct and indirect subsidiaries, joint ventures and associate companies has an army of powerful former bureaucrats and politically connected persons on its payroll as employees, consultants, advisers and directors.
 
In the circumstances, the fact that an independent director and audit committee head of a 50:50 joint venture with a state government (that, too, Gujarat) chose to take the matter to court on behalf of the people of Gujarat is bold and admirable.
 
My article provoked a sneaky reaction from GIFT City, which provides an insight into the hostile reaction that DC Anjaria, a highly regarded senior finance professional, is up against. Moneylife had asked GIFT City as well as Hari Shankaran, vice-chairman of IL&FS (who is now occupying the chairman’s office without a formal appointment) for comments before we published our report of 8th August. Neither of them has responded so far. 
 
Instead, on 13th August, Ajay Pandey, the MD and CEO (managing director and chief executive officer) of GIFT City, chose to respond through a advertorial by a third-party (Skoch Development Foundation), published in Business Standard (see image). The advertorial about Gift City included a half-page interview of Mr Pandey, which makes no reference to Moneylife while countering the charges made by Mr Anjaria reported in my column. A Skoch representative confirmed that Mr Pandey’s interview was to counter Moneylife
 
 
The advertisement, in the form of an interview, had a screaming headline: “Allegations are false, malicious, factually incorrect and misleading”. Since an advertisement apparently does not have to follow editorial norms, it does not say who made the allegations or where they were published. 
 
Much of the interview is a defamatory attack on the petitioner, Dr Anjaria, ascribing motives to his courageous whistle-blowing. In the process, Mr Pandey glosses over key facts and details, which are part of the PIL. This column will not go into the allegations against Mr Anjaria simply because he and his lawyers are in the process of taking up the matter of his defamation with GIFT City, Mr Pandey and the newspaper. 
 
What is of concern is that the MD&CEO of a joint venture with a state government has breezily made several factually inaccurate statements mainly to defend the financially beleaguered IL&FS, whose giant debt exposure is worrying RBI. Here are some of the issues with Mr Pandey’s advertorial interview. 
 
The main allegation in Mr Anjaria’s PIL against GIFT City is that IL&FS, a 50% partner, picked a consortium led by an entity called Fairwood Holdings, without following due processes, to prepare a master plan, concept and design. This was done before GIFT City formally came into existence. 
 
The backdated contract was pushed for ratification by the GIFT City board of directors without even tabling the contract at the meeting. Further, that Fairwood Consultants were paid over Rs400 crore in fees and did not deliver on their contract.  
 
Mr Pandey, in the advertorial, responding to Moneylife’s article, alleges that Mr Anjaria was an independent director throughout the period when the contract was awarded and acquiesced with the decisions. 
 
He cleverly does not provide any dates, although the PIL (copy available with us) is packed with details and chronology of events, the formation of GIFT City and how the contract was brought to the board. Nor does he answer the simple question of whether bids were invited, in line with the Gujarat Infrastructure Development Board’s guidelines, before handing out the contract. 
 
Mr Pandey ends up proving Mr Anjaria’s allegations—of the lack of competence of Fairwood Holdings to handle the project—by admitting that the contract was terminated within two years of its appointment—putting paid to the claims that it was selected after great deliberation.  
 
Further, he says that GIFT City is in arbitration with Fairwood Holdings to “recover money paid for work not done by the consortium.” Anyone with any dealings with the state or Central government knows what a Herculean task it is to recover even legitimate reimbursements. And, yet, here is GIFT City, a 50% state undertaking, saying it is in arbitration with Fairwood since December 2014 to reclaim money paid for work that was not delivered. 
 
Mr Pandey says that 25 hearings have already taken place and the next one is scheduled for 25th August—two days hence! Since arbitration tends to be an expensive process, it is pertinent to ask how much GIFT City has spent on these 25 arbitration hearings over four years, because it apparently failed to choose the a major consultant with adequate due diligence. 
 
Perhaps deliberately, there is no mention of the sum claimed from Fairwood by GIFT City through arbitration. Sources tell us it is a whopping Rs5,740 crore. And, yet, we understand that the balance-sheet of Fairwood, as on 31 March 2010, showed that it had a net worth of Rs77 crore. What does this tell you about Gift City’s chances of recovering anything from Fairwood? My sources say that Fairwood has not even been paying salaries to its employees on time. 
 
So, is the expensive arbitration meant to cover up a bad decision and how the consultant was selected? Meanwhile, typical of IL&FS’s projects, the cost of the project has soared from Rs25,000 crore in 2008 to over Rs70,000 crore and the project itself looks very different from the original videos available on YouTube. The irony is that Mr Pandey, who chose a half-page advertorial to defend the deal, wasn’t even with GIFT City when the contract was awarded.
 
Here’s another shoddy falsehood by the Gift City MD&CEO. In response to a question, he says that the PIL No 260 of 2015 in the Gujarat High Court (filed by Mr Anjaria) is “against GIFTCL (GIFT City), IL&FS and the Government of Gujarat.” On the contrary, Mr Anjaria had strategically ensured that the Government of Gujarat is not a party to the litigation—in fact, he considers it to be a victim. 
 
 
That the MD&CEO of a large and prestigious joint venture of the government would make such a silly mistake in an advertorial to defend the project, smacks of arrogance. It also raises questions about the causal manner in which he has chosen to defame the petitioner, who was selected as an independent director because of his contribution to the very concept of Gift City. It is shocking that the head of a government venture would resort to such a stratagem and distortion. 
 
My sources believe that Mr Pandey’s interview was at the behest of IL&FS, a company that ought to be focusing on reducing its debt, answering questions raised by a whistleblower, and drastically shedding or closing down pointless ventures which it had no business starting in the first place. 
 
Here is a rectification published on 7 September 2018 by the same newspaper
 
 
And a rejoinder to the advertorial...

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    COMMENTS

    sachchidanand

    1 year ago

    Thanks Sucheta for exposing ILF&S who are already known to be inefficient ..Keep it up

    Sunil Gidwani

    1 year ago

    very well said Sucheta. Knowing your and Mr. Anajaria's reputation there is no need to doubt anything you have said but I guess no one will easily accept allgations of any wrong doings because its a PM's pet project

    sharafuddeen

    1 year ago

    Sucheta ji, another pandora's box u have opened. I have not read your 08 Aug. article. IL&FS is an institution I attempted to borrow in year 1997 for a large then innovative project in Kerala. Their own due diligence was questionable, when they started to analyse our project. We were all NRIs & were not enjoying political patronage from even in-active political party. Yourself & Mr.Anjaria deserve to be decorated with nothing less than highest civilian honour. Congrads.

    Is GIFT City Gujarat’s Gift to IL&FS through One-sided Deals?
    Gujarat International Finance Tec-City—GIFT City for short, a showpiece project of the Gujarat government, faces an extraordinary public interest litigation (PIL) filed by DC Anjaria, Gift City’s first independent director and former audit committee chairman. The petition alleges that this Rs70,000-crore project has virtually been gifted away to the private sector partner, Infrastructure Leasing & Financial Services (IL&FS), leading to massive losses to the government and the people. 
     
    Mr Anjaria, who originally designed the concept of GIFT City, levels serious charges against IL&FS, the favoured private partner of this public-private partnership (PPP), with documents to back his allegations. While the project itself has been lagging, some gold-plated ‘management contracts’ signed with IL&FS allow it to rake in high fees and give it complete management control over the huge project without any significant investment, transparency in decision-making or accountability to the public or the government. 
     
    For questioning the contracts signed by IL&FS, Mr Anjaria’s candidature as an independent director was not renewed. The allegations in his PIL (No 260 of 2015 filed in the Gujarat High Court) are as follows: 
     
    Sham Land Deals: When Gift City was conceptualised, the land was to remain with the state government and made available to the project only on lease. However, the GIFT City Company Limited was structured as a 50:50 joint venture between the Gujarat government and IL&FS (a private company), with the latter having full management rights, making it a private project with the state as a funding, but non-controlling, partner. Nearly 880 acres of land have been given to this project on 99-year lease at a nominal price of one rupee per acre—almost free. 
     
    Although the land was to remain in the government’s name, it has been fully transferred to the project company. In effect, IL&FS gets control over this massive and valuable land, by investing a mere Rs2.5 crore as its share of the 50% equity (the project started with a nominal share capital of Rs5 crore). The value of the land is at least Rs2 crore/acre, which translates to a massive give-away of Rs440 crore to the private partner. 
     
    Gold-plated Contract: While the land for the project is provided by the government, IL&FS does not contribute through management expertise either—that is separately paid for, says the petition. A separate management contract allows IL&FS to collect a hefty fee of Rs20 lakh per month excluding taxes and out-of-pocket expenses. This money was allegedly paid, despite objections raised by government directors as well as the petitioner as chairman of the audit committee.
     
    Effectively, IL&FS got back its equity investment in the project as management fees at the end of the very first year. That apart, IL&FS-appointed consultants have been paid over Rs400 crore as project consultancy fees, over the years.
     
    In addition, the government has agreed to pay 1% as success fees of the full landed cost of the project on completion. Given that this is billed as a Rs70,000 crore project, IL&FS stands to earn Rs700 crore from this fees alone, on completion. As the project cost has increased steadily since its inception in 2007, IL&FS potentially benefits from this by earning higher fees on completion. This is just one of the many one-sided aspects to this partnership agreement.
     
    Favoured Associates: The petitioner alleges that a contract for ‘architectural and engineering services’ for the project was signed by IL&FS with Fairwood Consultants, before incorporation of the GIFT Company (without approval by any government entity), on the very day that a memorandum of understanding (MoU) was signed by it with the Gujarat government.  
     
    Later, when a company was formed to implement the project, the board of directors was asked to ‘regularise the contract’ without even placing the actual contract before the board. There was no tender to select the consultant, although this is clearly a 50:50 PPP. 
     
    If this weren’t bad enough, the firm was paid hefty fees of Rs400 crore without providing any significant architectural or engineering services (beyond photographs and models of building designs, says the petitioner). When the audit committee asked Gift City to demand services or recover the fees paid, there was allegedly another shocker. 
     
    It was revealed that the contract included a clause that advances once paid, are not recoverable even if services are not provided. The petitioner alleges that the contract merely ended up as a route to transfer money to Fairwood Consultants, without any service obligation. The petitioner had raised this issue at the board meeting as well. Importantly, the petitioner says, Fairwood Consultants did not have any worthwhile team/expertise and were housed in a small office within IL&FS’s premises at the controversial Delhi Noida Toll Company. 
     
    The petition also makes the following key points: 
    • The Gujarat government issued no advertisements for selection of the private partner to construct the integrated township project, although it involved huge investment and services. 
    • The project should have been undertaken as per the requirements of Gujarat Infrastructure Development Act, 1999, which specifically regulates PPP projects in the state of Gujarat.
    • No bids were invited before awarding the management services contract under the garb of it being joint venture contract. 
    • Investment of Gujarat government is routed through Gujarat Urban Development Co Ltd (GUD), a company wholly-owned by government of Gujarat, and is otherwise amenable to audit of comptroller and auditor general (CAG). The funds invested in GIFT City have also been contributed from consolidated fund of the government of Gujarat and, so, GIFT City is a beneficiary of the consolidated fund of India. 
    • Owing to Section 15 of CAG’s (Duties, Powers and Etc) Act, 1971, even IL&FS is amenable to audit of CAG. 
    • The petition alleges that minutes of the board meetings were not allowed to be properly recorded. In case of the audit committee, the minutes were allegedly altered by the board after Mr Anjaria was removed as the audit committee chairman. These minutes specifically pertain to the meeting where it was resolved to recover funds from Fairwood Consultants and resolution was passed by a majority of the committee members.
    • The comments of various directors, including the petitioner, were not recorded by the chairman of the board using his discretion to approve the minutes of board meetings. 
    • The petition accuses IL&FS of squandering government resources and siphoning off money belonging to GIFT City and the government and causing a loss to the exchequer. 
     
    The petition asks for a probe by the serious frauds investigation office (SFIO) into the finances and accounts of GIFT City, especially the money paid to Fairwood Consultants and all affiliates of IL&FS and as well as for the alleged services rendered by them through a special investigation team (SIT). It also wants GIFT City to be brought under the Right to Information Act by being declared a public authority, as one of its main prayers. 
     
    The PIL was filed in the Gujarat High Court in 2015, but has, strangely, never been written about or come up for discussion. It is now in the public domain, mainly because of reports about the financial problems faced by IL&FS and the fact that Life Insurance Corporation of India (LIC), with a 25% shareholding in the company, apparently intends to take charge of management and provide a financial bailout for the sprawling funds-strapped infrastructure entity.  
     
    The respondents to the petition are: Gift City, IL&FS, GUD and Gift City chairman Sudhir Mankad. Moneylife has written to Hari Shankaran, the vice chairman and managing director of IL&FS, who stepped into Ravi Parthasarathy’s office immediately after he abruptly resigned. Incidentally, Mr Parthasarathy, who has headed and controlled IL&FS for nearly 25 years, has resigned only from the parent company and not from the boards of subsidiaries and associate companies.  We have no response from IL&FS. 
     
    We have also written to GIFT City for a reaction. Their answers will be incorporated when received. Moneylife has perused the writ petition as well as rejoinders filed by respondents. The case has been in limbo for the past few years. 
     
    A rejoinder was filed in court on behalf of GIFT City which has denied most of the allegations by Mr Anjaria or that there was any irregularity in the appointment of Fairwood Consultants. Interestingly, it also says that arbitration proceedings have been initiated against Fairwood Consultants with regard to “infirmities in design". It appears to be sham arbitration, as it has not been given any vital information and has failed to reach any judgement after six years.
     
    This is not the first time that IL&FS has been accused of gold-plating a public infrastructure project. The Delhi-Noida Toll project has been scrapped by the Supreme Court of India which ordered a CAG audit precisely on these grounds. 
     
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    COMMENTS

    Anil

    1 year ago

    Moneylife must also look into the credentials of Fairwood Consultants and the promoters/ persons behind this firm.

    Srinivas Sreeram

    1 year ago

    I head bows to the truthfullness of MoneyLife Foundation members who correctly predicted the scams in many instances & it did happen. Money Life Foundation has proved once again that the big ministries, big minister, 56" chested PM, scores of IAS babus & many others including the media business channels who continuously drum beat glossy side of businesses never predicted a single scam in its entirely till it iself unfolded in public domain

    James Bond

    1 year ago

    This is one of showcase example of gujarat development modal, how saheb awarded contracts and tenders to his crony capitalists who later finance in his political advancement

    Ashok Senniappan

    1 year ago

    What a set of brainy people we have .

    Harish

    1 year ago

    Excellent and Balanced Article.

    Bhavya Gandhi

    1 year ago

    All the editors r supporters of congress...
    The PIL will be defended soon..

    Just assumption or presumption of someone doesn't culminate it into fraud..

    Very disappointed with editor..

    Nothing of such sort can be ever done by modi govt

    REPLY

    Shivram Ramakrishnan

    In Reply to Bhavya Gandhi 1 year ago

    Did you even read the article? The article is very well written. Excellent job by Moneylife!! Clearly this appears to be another scam. Hope the guilty are punished.

    Sucheta Dalal

    In Reply to Bhavya Gandhi 1 year ago

    Really? Maybe you need to google ILFS and its debt. Incidentally, Modi govt does not run ILFS-- or for that matter GIFT city either. Wait for more, unless your view is influenced by some other considerations and not the facts in this article.

    Ramesh Jaradhara

    1 year ago

    Indians and Indian cos know only one thing i.e. scam scam scam.....

    REPLY

    Ajay Sharma

    In Reply to Ramesh Jaradhara 1 year ago

    I prefer to think of it as the lucky fortune of a few scammers who repeatedly fail to get caught.

    NIRISHA OPTICS P LTD

    1 year ago

    There are more skeleton in land scam is done in gujarat whic should come up

    RAMACHANDRAN THARKABHUSHANAM

    1 year ago

    MANY STATE GOVERNMENTS WERE OBLIGED TO AWARD GOLD PLATED CONTRACTS TO IL&FS OBVIOUSLY IT IS AN ASYLUM FOR SEVERAL IAS OFFICERS. IT IS ONE OF THE HIGHLY PATRONISED COMPANY

    SATTI RAJU DUMPALA

    1 year ago

    This is one of many skeletons of Modi's Gujarat????

    Mahesh S Bhatt

    1 year ago

    Generally you pay & Governments Globally GIFT now this is coined as GIFT CITY so why Moneylife is making noise. It shall happen Great Indian Rope tricks Golmaal Mahesh Bhatt

    Deepak Narain

    1 year ago

    Everywhere, government remains a loser and private interests mint money under its nose. We are silent spectators!

    Himanshu Vashist

    1 year ago

    ITNL is another can of worms waiting to be opened. RIDCOR is a similar scam between Vasundhara Raje govt and ITNL/IL&FS. Maybe someone will look into that a discover financial fraud to put Delhi noida toll bridge to shame.

    Surya Dev

    1 year ago

    This is how tax payers money is being wasted.

    Venkatanathan Raghavachari

    1 year ago

    One more fraud .Is there any end to such frauds.

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