UPDATED on 13 June 2020 at 9.10am to add response from IL&FS.
In the past couple of weeks, two publications have published exclusive reports
on the second forensic audit of ITNL (IL&FS Transportation Network Ltd). ITNL, like IFIN (IL&FS Financial Services), is one of the two big listed entities of the mammoth 347-company conglomerate that Ravi Parthasarathy built and destroyed before resigning in July 2018 on health grounds.
These reports don't add to what we already know
from the first
forensic audit of IFIN
, except to provide more granular details about the lies, dubious dealings, lawlessness, collusion of auditors and law firms (who like to call themselves officers of the court), fixing of bids, relentless routing of money between firms to hide finances and handing lucrative contracts to those who colluded with the group irrespective of their work experience, ability to deliver or financial soundness.
All of this was hidden in a seemingly magical bubble of lavish salaries, perks, international travel, and expensive lifestyles for the charmed inner circle of executives who participated in the reckless expansion of this ‘systemically important’ financial conglomerate.
Those in the financial sector may devour detail of these fraudulent deals, but the rest of us want to know what the government has done about it. Why has enforcement action flagged after the Enforcement Directorate (ED) and the Serious Frauds Investigation Office (SFIO) filed
their initial charge sheets?
It is almost two years
since IL&FS began to default (as first reported by Moneylife
) and the government sacked the board to hand over control to a bunch of retired babus
with top banker Uday Kotak as chairman of the board.
The cost of the resolution effort is well over Rs100 crore paid out to five expensive legal and advisory firms. What do we have to show for it?
Well, a couple of major divestments have been to partner entities but most of the road projects remain in limbo especially after the Covid lockdown. Orix Corp of Japan, which already held a 51% stake in a set of seven wind power companies, has acquired
the balance 49% in April 2020 for just over Rs6 crore. Orix holds a 23.54% stake in IL&FS, the holding company, but has been a silent witness to Mr Parthasarathy’s shenanigans for over two decades.
The controversial, Rs70,000 crore Gift City
of Gujarat has finally been acquired by a Gujarat Government entity at the end of May by paying Rs32 crore for a 50% stake. This was another project where babus
were wilfully blind. So glaring was the loot that an independent director and audit committee head, went to court with a public interest litigation just to force officials to protect public money.
Other than this, five senior executives (former vice chairman Hari Sankaran, IFIN chief Ramesh Bawa, full time directors Arun K Saha, Ramchand Karunakaran and Mukund Sapre, who were part of Mr Parthasarathy’s close cabal) remain in jail for almost a year, while the founder remains untouchable, ostensibly on health grounds.
Almost everybody agrees that the resolution process has been shockingly slow and mismanaged. Is this to protect Parthasarathy and his clique or the bureaucrats and lenders who colluded with him?
Let’s examine the actions of each of these stakeholders in the context of the ITNL forensic report having confirmed what the IFIN forensic audit by Grant Thornton had already revealed in its first interim report.
The Auditors: The Indian Express
, which has accessed the GT forensic report
says SRBC & Co., (an arm of Ernst and Young), as the auditor to ITNL, appear to have kept out concerns about its viability as a going concern after meetings with the management for 2017-18 (concerns were raised only in the June 2018 quarter report published on 13th August after Mr Parthasarathy had stepped down as chairman, says the paper).
This, it says, had happened even though chairman Parthasarathy himself had admitted in an email to his top management cabal, just five days before this meeting that “It may not be feasible to sustain ITNL cash flow requirements much longer”.
According to the article, Mr Parthasarathy’s email speaks of formulating a scheme to approach banks and “keeping the RBI advised”, but did not see ‘much point’ in seeking their approval as RBI had got rid of all its earlier ‘debt restructuring schemes’.
We already know that the RBI has consistently ignored all attempts by whistle blowers
and even IL&FS’s partners and investors like AIDQUA
, to draw attention to its crooked functioning.
has, for the first time, has questioned the role of RBI officers in failing to initiate timely action. But there were no names mentioned to indicate where the buck stopped.
The latest forensic audit, reported by Moneycontrol
reveals that Ravi Parthasarathy had discussions with R Gandhi, then deputy governor on 19 March, 2016 for “formulating a new legislation to facilitate fund raising by the (IL&FS) holding companies”, which were already a financial mess.
Remember, this was 2016, but the RBI did nothing until IL&FS crumbled on its own in August 2018. For two full years, RBI raised no alarm, did not tighten supervision, force better disclosure or prevail on IL&FS to cut the flab, sell companies and streamline operations. In fact, government and the regulators and the government were even clueless about the exact number of companies in the group.
Two years later, Mr Gandhi has been the government’s chosen director on Yes Bank (when it was sinking rapidly and again after the bailout). So not only are there no consequences for silence and acquiescence but there is actually a reward. Remember, Mr Gandhi was also in charge of the messy demonetisation of currency in November 2016, which dealt the first big blow to our economy. Mr Gandhi did not respond to my whatsapp message about his and the RBI’s failure to act against IL&FS.
The executives: Now let’s look at how the top executives, other than those who are in custody has fared. As mentioned in my previous column, the new board of IL&FS felt the need to offer bonuses to some executives to ‘persuade’ them to say on. These were paid out between 31st march to 4th April and had caused a lot of outrage in the organisation.
When I brought this to the notice of RBI and chairman Uday Kotak, the payments were frozen on 7th April, after Rs4.48 crore out of a proposed payment of Rs11 crore had been paid out. These are people who ought to be happy they have a job when so many were sacked, but the board of retired babus believed they needed a 10% incentive payment to get their support in a scam-ridden group for a recovery process that is moving at a snail’s pace.
The recipients include Mr Dilip Bhatia, who has been promoted to CEO, despite a growing body of information about how he was part of Mr Parthasarathy’s favoured cabal, which destroyed the organisation. The others are S C Mittal (CEO, ITNL), M Wagle (CFO, ITNL), Sanjay Arora (HR chief), Sudakshina Bhattacharya (CHRO), Mr Krishna Kumar (CEO, IIML) who has resigned despite the persuasion bonus, Manoj Borkar (CFO, IIML), Mr Savio (IT Head), Anil Sharma (CEO Elsamex), which one of the most controversial group of global companies, that has escaped deep scrutiny for two years, Kazim Khan (CEO, IECCL), Naveen Agrawal (CFO, IECCL).
Remember, IL&FS always paid very high salaries and all these executives continue to be paid very well even while the group companies report mammoth losses and ordinary people have their provident fund money stuck in the group!
I have asked the official spokesperson of IL&FS about Mr Dilip Bhatia’s elevation despite forensic audits
exposing his complicity in fraudulent dealings and mismanagement. I have also asked how the board could justify bonuses to heads of hugely loss making entities such as ITNL and others. I have also asked whether Cyril Amarchand Mangaldas continues to advise the group despite clear conflict of interest, since it had advised Mr Parthasarathy in the past about not approaching the bankruptcy court. The company declined to comment.
Everybody from the regulators, to investors, lenders and partners, especially the bureaucracy were co-opted and induced to look the other way in the IL&FS scam. But none of them will pay the price.
Funnily, despite the slow progress of resolution and stalled action, the government is apparently sanguine about progress, even while pension payments are held up. In an interview
to the PTI on 5th April, just after the Covid-19 related lockdown was announced, Mr Injeti Srinivas, Secretary, Ministry of Corporate Affairs claimed that a substantial portion of IL&FS’s Rs94,000 crore debt would be recovered.
A month later, all we see is some paltry recoveries from Gift City and the Wind Power companies, very little progress on getting various states such as Tamil Nadu to buy out IL&FS stakes in their joint ventures and a massive increase in losses. ITNL alone has reported a massive loss of Rs17,000.32 crore for fiscal year 2019-20 as against a standalone profit of Rs251.76 crore in 2018-19.
Yet, in the strangest assertion, Mr Srinivas claimed that “the elephant” had gone amock and “it was strange that nobody saw it, whether it was statutory auditors, independent directors, credit rating agencies or others”. This, as we have proved is absolutely false. Everybody from the regulators, to investors, lenders and partners, especially the bureaucracy were co-opted and induced to look the other way in the IL&FS scam. But none of them will pay the price.
IL&FS subsequently got back with a response to say: “Retention payout under key resource program (KRP) included people that were critical to see through the enormous resolution mandate across IL&FS group companies. Commitment and performance formed important basis of this one time payout (from operational cost) and was paid on completion of performance and retention period. The list of eligible population was identified across companies for this payout after evaluating relevant aspects. Total payout till date is Rs4.48 crore. This was not a bonus, hence not linked to company performance”.