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.