The crisis-hit Infrastructure Leasing & Financial Services (IL&FS) had among its senior ranks several erstwhile high-profile babus who had either retired from, or quit government service to join the organisation. This presumably influenced further developments wherein the government not only provided sovereign guarantee for loans obtained by IL&FS, but also repaid the money when the company failed to do so. This is revealed in a submission made by the department of economic affairs (DEA) under the ministry of finance before a Parliamentary committee.
Responding to a recommendation made by the parliamentary standing committee on finance, chaired by Jayant Sinha, the DEA stated that the ministry of corporate affairs (MCA) found out about the sovereign guarantee provided by Indian government for loans obtained by IL&FS and repaid $2,072,333.99 and euro 7,31,954.06 from the contingency fund of India.
It says, "...IL&FS had availed loans from the Asian Development Bank (ADB) and Kreditanstalt für Wiederaufbau (KfW of Germany), which are backed by sovereign guarantee from the govt of India (DEA) and that the govt of India has made payment of $2,072,333.99 and euro 731,954.06 from the Contingency Fund of India on behalf of IL&FS to ADB and KfW respectively, against repayment due in December 2018."
"It further came to notice that the aforementioned loans were taken by IL&FS for on-lending to infrastructure projects undertaken by group companies of IL&FS and a considerable portion of the said loans are yet to be repaid. MCA has referred the matter to Serious Fraud Investigation Office (SFIO) to investigate...," the DEA submission says.
In April 2019, Moneylife
had reported on the sovereign guarantee issued by the Indian government for loans obtained by IL&FS. The government guarantees, once again, expose how closely the Ravi Parthasarathy-led cabal worked with a network of compromised officers of the Indian Administrative Service (IAS), to run an organisation that had the best of both worlds—the power of a government organisation and the money of private sector—allowing IL&FS officials to draw high salaries and perks even as the ship sank. (Read: IL&FS Shocker: Govt Quietly Paying Up on Sovereign Guarantees to ADB and KfW for Failed Group’s $ 50.4 Million Loan
The Parliamentary committee had also recommended a comprehensive commission of enquiry to probe the role of credit ratings agencies as well as the largest institutional stakeholders, Life Insurance Corp of India (LIC) and others. However, citing ongoing investigation by SFIO as well as Securities & Exchange Board of India (SEBI) and Reserve Bank of India (RBI), the DEA said no for the commission of enquiry.
The DEA also mentioned unauthorised operation of accounts in Axis Bank and Standard Chartered Bank by Ramesh C Bawa, who was director of IL&FS and his family members. "...Mr Bawa...has operated his individually and jointly held bank accounts and lockers, despite there being restraint directions against alienation of movable and immovable properties by the NCLT, Mumbai bench..."
MCA has filed a contempt petition before the National Company Law Tribunal (NCLT) against Mr Bawa, his wife Asha Kiran Bawa, Axis Bank's managing director (MD) and chief executive (CEO) and CEO of StanChart as contemnors and had sought punishment as per the provisions of Section 425 of the Companies Act.
Further, the MCA has also sought impleadment of Ms Bawa and Akanksha Bawa, daughter of Ramesh Bawa as additional respondents in the main company petition, restraining them from alienating their movable and immoveable properties. "This step has been taken in light of the fact that Asha Kiran and Akanksha Bawa have been found to be beneficiaries of the contempt or misfeasance committed by Ramesh C Bawa. This request was accepted by the NCLT.
Noting that the resolution of IL&FS remains sub-judice before the National Company Law Appellate Tribunal (NCLAT), the committee says, "...it feels delays in the resolution process not only brings a steep value erosion to the bankers and other creditors but more importantly, leaves the understanding of the lacunae in the system evasive."
"It is necessary to plug these loopholes as the defaults jeopardised hundreds of investors, banks and mutual funds associated with IL&FS and several non-banking finance companies (NBFCs) also faced default scare, until the government's timely intervention in the matter while taking note of various investigations being undertaken and subsequent penalties being imposed for the failure in exercising due diligence, the committee desires that a thorough systemic review should be conducted by RBI so that each episodes involving 'systemically important entities' are pre-empted," the report says. (Read: IL&FS Default: Parliamentary Committee Seeks Action Taken Report against Credit Rating Agencies