Like Scam 1992, IL&FS Resolution, Criminal Investigation and Litigation Looks Set To Drag for Decades
The saga of a Siddhapurush / Himalayan yogi guiding decisions of the managing director (MD) of the National Stock Exchange (NSE) drowned out new findings in another equally huge scam whose investigation is dragging exactly like the co-location (Colo) scam. The forensic audit of IL&FS Transportation Networks Ltd (ITNL), the largest step-down subsidiary of Infrastructure Leasing & Financial Services (IL&FS) which imploded in September 2018, was released just two days before the order of the Securities and Exchange Board of India (SEBI) on NSE, but barely got any media coverage or detailed analysis.
 
ITNL had submitted Grant Thornton’s (GT’s) forensic audit of ITNL that runs to nearly 900 tedious pages of repetitive narration and, so, ends up dampening the enormity of lawlessness at IL&FS, ITNL and its 347 group entities. In many ways, IL&FS was exactly like NSE. An ostensibly ‘professionally’ run company, set up by pedigreed institutions and banks with a luminous board that abdicated its fiduciary duties by delegating absolute power to the chairman/vice-chairman/managing director, while collecting very hefty sitting fees and huge perks. There was one big difference. IL&FS had several step-down holding companies that were listed on stock exchanges and ought to have been under better scrutiny by institutional investors, investment analysts and mutual funds but preferred to rely on dubious ratings.
 
Perhaps because GT’s forensic audits of IL&FS Financial Services Ltd (IFIN), and IL&FS Engineering and Construction Company Ltd (IECCL) have already documented widespread financial jugglery, circular transactions and manipulation, we are no longer shocked by the widespread fraud at ITNL.
 
ITNL, India's largest BOT (build-own-transfer) road asset owner, with approximately 13,100 lane-kilometres in its portfolio, claimed to take large infrastructure projects from conceptualisation through commissioning to operations and maintenance under public-private partnerships. IL&FS, the main holding company, had a 72% stake in ITNL and nearly 27% of the shares were held by the public. ITNL was the biggest step-down holding company and was listed on the exchanges.
 
The detailed documentation by GT, in a nutshell, shows that ITNL (IL&FS Transportation Forensic Audit report Shows Gross Irregularities and Manipulation) was essentially a Ponzi scheme that conducted ‘circular transactions’ to fool statutory auditors, regulators and rating agencies, which enabled it to keep raising fresh money to hide its losses. The entire group, especially ITNL, has been in deep financial trouble since FY12-13 and managed to hide its losses through dubious financial transactions right until September 2018 when Moneylife first broke the news (IL&FS defaults on Rs1,000 Crore Short-term Loan from SIDBI?) that it had defaulted on a Rs1,000 crore loan to SIDBI (Small Industries Development Bank of India).
 
ITNL, like other entities, hid its losses by brazenly moving funds between hundreds of special purpose vehicles (SPVs) it had spawned, often on the same day. GT recreates several detailed money trails to establish that the ‘provider of funds is the ultimate recipient as well’. Email scans of key officials revealed that such financial trickery was routinely practised by the group with concurrence, and often under instructions, from senior management.
 
GT says that the road projects suffered a cost overrun of a whopping Rs8,077 crore because funds were taken out of the company. That an interest overrun in excess of Rs3,433.42 crore had often increased project costs. Short-term borrowings were blithely utilised for long-term funding and it also borrowed funds which were “routed through mutual funds, fixed deposits, etc., and then ultimately invested into group companies (via loans or investments)…” The report details many specific instances of circular deals including a significant one of over Rs547 crore with IndusInd Bank involving IL&FS, ITNL and several SPVs. Excess bills, awarding contracts to parties without a proper bidding process, misrepresentation to lenders of the SPV projects by submitting inflated toll revenue estimates, compromised tender process, capricious selection of consultants, etc, have been meticulously documented in the report.
 
What do all these findings mean for quick resolution of the big IL&FS debacle? Very little. Action is equally slow along twin paths. The resolution and recovery process is supervised by the government-appointed board, led by banker Uday Kotak, which is not involved in looking at fraud and wrongdoing. In an affidavit before the National Company Law Appellate Tribunal (NCLAT), the board had said that it would resolve a debt of Rs55,000 crore of the total outstanding debt of Rs99,355 crore as of 8 October 2018. It also hoped to reduce the number of group entities to less than 100.
 
The government moved a proposal for pro-rata distribution of about Rs16,200 crore almost two years ago and it was even approved by NCLAT. Unfortunately, hybrid resolution process under the Bankruptcy Act had led to endless, often legitimate, litigation and no money has been distributed. Over Rs7,099 crore of provident fund money remains stuck and a pro-rata scheme clearly suggests there will be a significant write-off. 
 
Last March, the parliamentary standing committee on finance called for systemic change, noting that “...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.” That is cold comfort to individuals, banks, funds and companies who lost money to fraud and are stuck with a deadening resolution process, instead of the speed that was promised by the Bankruptcy Act.
 
The criminal investigation is equally slow-moving. the serious frauds investigation office (SFIO) started with a bang but action has virtually come to a halt. A series of high-profile arrests, including those of former vice-chairman Hari Sankaran, Arun Saha, Ramesh C Bawa, K Ramchand and Mukund Sapre, have gone nowhere. It only shows India in poor light when arrests are not followed up with charge-sheets and timely litigation. More embarrassingly, there was no action against Ravi Parthasarathy, who controlled IL&FS with a close cabal of executives for over 25 years; he was finally arrested by the Tamil Nadu police based on the complaint of a private entity.
 
Meanwhile, new IL&FS frauds continue to erupt. Only yesterday (15th March), Punjab National Bank reported a fraud of Rs2,060 in IL&FS Tamil Nadu Power Company Ltd (ITPCL), which is already a bad loan following on Punjab & Sind Bank’s declaration of its Rs149 crore loan to the same company as a fraud. This is better known as the controversial Cuddalore power project in Tamil Nadu.
 
There is more complication and litigation likely in the Tamil Nadu water projects at Tirupur. Moneylife has earlier reported how Mauritius-based AIDQUA Holdings, a 27% stakeholder in New Tirupur Area Development Corporation (NTADCL), was among the earliest to blow the whistle on IL&FS’s dubious dealings. NTADCL and its key shareholder AIDQUA Holdings remain deeply dissatisfied with the new board as well as Grant Thornton, the claims-management adviser. NTADCL has filed an intervention petition with NCLAT in Mumbai (Exclusive: IL&FS Subsidiary NTADCL Dragged to the Appellate Tribunal; AIDQUA Steps Up the Pressure on Tirupur Water Project Woes) as well as Chennai. AIDQUA Holdings also has litigations pending against IL&FS in the Supreme Court (SC) which never seem to come up for hearing and final disposal.
 
Unless the government works out a coherent process that pulls the IL&FS resolution out of the quagmire of endless, multi-level litigation, it could drag on for decades. As for the criminal investigation into fraud and wrongdoing, SFIO may simply bury the cases after initial action, because a deep-dive into IL&FS and its 340-odd subsidiaries would expose the corrupt and collusive role of the Indian Administrative Service (IAS) bureaucrats who protected, nurtured and benefited from the lawless IL&FS.
 
Even with a Himalayan yogi stirring things up, the NSE investigation has carefully steered clear of exposing the role of finance ministry bureaucrats and appointees. In IL&FS, the number of colluding bureaucrats is so large and spread across so many states, that they were sarcastically referred to as the ‘IL&FS cadre’ by those who refused to be co-opted.
 
Last year, the joint parliamentary committee on finance asked the Reserve Bank of India (RBI) for a systemic review to prevent future IL&FS-like disasters. What it ought to have done first was to suggest a faster, time-bound investigation and resolution process for large financial scams, including personal accountability of individuals responsible for wrongdoing or failure of fiduciary duties. It is important to remember that the special court in Mumbai, that was created to investigate the securities scam of 1992 (Harshad Mehta scam), continues to hear these cases 30 years later! The IL&FS scam will be no different, unless the government does something about it.
 
 

Comments
r_ashok41
3 months ago
All these fraudsters ilfs top personnel and catalyst should be shot at or sent to pakisthan or afghanistan .When so many people's are cursing them they and their family will suffer till they die of incurable disease is what i can tell all of them and curse their families
Darbha Srinivas
3 months ago
Money life TV is urgently required. We need an unbiased Hindi and English Channel. Hope one day it will become reality
pgodbole
Replied to Darbha Srinivas comment 3 months ago
Yes, good idea. Current business channels do not carry out such investigative reports. But will such channel get advertisement support from the very same business community which it will keep under its lens and subject it to microscopic investigation?
saharaaj
3 months ago
drag for decades!!! many would be dead on the way
prasanna
3 months ago
As an investor in shares of IL&FS-TN I am a looser. If I can get hold of a list of shareholders with their names, addresses and e-mails, we could go against the Auditors of IL&FS TN under tort law which is in the Companies Act, 2013. They miserably failed in their duty and probably were hand in glove with the management.
surajit.som
Replied to prasanna comment 3 months ago
As per grapevine, one list of investors was submitted but then the company behind it turned out to be fraud. No doubt the Company Cheif was a former IL FS boss !!!!
indukuri.raju75
3 months ago
If I get a chance,I will kill those bastards in front of all.
They are enjoying life after arrests also.izzat nahi hai.
We are suffering alot with families
kanthimathydavid
Replied to indukuri.raju75 comment 3 months ago
Yes, me too feel that we will join together and fight against them.
kanthimathydavid
3 months ago
What happened to that Ravi Partha sarathi who looted all the money from IL& FS? He is safe. But we are suffering.
kanthimathydavid
3 months ago
My hard earned retirement benefits was invested invested by me in the year 2017 November in IL& FS.So far nothing i received from them. We are Senior citizens and no other bank balance with us. We are leading our lives with the Government pension. This is not enough for our medicines and leading our normal life. Please help me to get back my money at the earliest.
Kamal Garg
3 months ago
What is happening in this country? Scams after scans and that too, of serious proportion. They all cheat and siphon off public money and go scot free also.
kanthimathydavid
Replied to Kamal Garg comment 3 months ago
PM and Finance Minister both are purposely safeguarding all these culprits. Another Amit Shah he is also involved in safeguarding these culprits.
r_ashok41
3 months ago
to give assurance to the depositors what the committee can do is whatever amount has been realised to give it to the stakeholders to start with and this will help them.In india because of the loopholes in the laws all financial institutions do this kind of activities thinking that nothing will happen to them.Unless laws are strict and enforcement still stricter and the ill gotten wealth should be taken and auctioned off at the earliest so that it will be lesson for future people not to try these kind of activities.
mahesh.bhatt
3 months ago
Ma'am you are so intelligent & how could you miss Justice Delayed is Justice denied.Indian Judicial Systems are well oiled corruptly top to bottom plus caveat Time Unltd conditions apply.Happy colourful Holi festivities to all at Moneylife.Await Narsimha Avatara for Hiranyakashyaou's killing till then die listening Tareeq pe Tareeq Pe Tareeq Om Shanti Om Mahesh Bhat
surajit.som
3 months ago
Kotak Mahindra et al are busy people , not lazy bones like us !!! Give them some time-say fifty years-and they will come out with a grande expose !!!!!
kanthimathydavid
Replied to surajit.som comment 3 months ago
Yes I agree that he is busy. But innocent people like me are suffering without money. He is very rich so he don't know our problems. I lost all my retirement benefits in IL& FS.
Nahom
3 months ago
System is well optimised to protect the looters. This is one of many Deep State Politico-Bureaucracy technique above Party Line.

kanthimathydavid
Replied to Nahom comment 3 months ago
Yes, you are correct.
kanthimathydavid
Replied to kanthimathydavid comment 3 months ago
I don't think that they will return our money before I reach my grave.
virendrajain174
3 months ago
Sucheta,

You may add VANIISHING COMPANIES saga to this list also.
An extract of response to question in Parliament is given below.
Highlights: Money recovered in 24 yeas (1999 to 2022): Zero;
Attempts made to recover siphoned off money: NIL.GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
LOK SABHA
UNSTARRED QUESTION NO: 17
ANSWERED ON: 18.11.2019
Vanishing Companies
Bache Gowda B.N.

Will the Minister of CORPORATE AFFAIRS be pleased to state:-

(a) the details of number of companies included in the list of vanishing companies in the country at present; and
(b) the details of action taken against such companies?

ANSWER
THE MINISTER OF STATE FOR FINANCE
AND CORPORATE AFFAIRS (SHRI ANURAG SINGH THAKUR)
????? ??? ????????? ????? ???????? ??? ????? ?????? (?????????? ???? ?????)
(a) A Coordination and Monitoring Committee (CMC), co-chaired by Secretary, Ministry of Corporate Affairs and Chairman, SEBI was set up in the year 1999 to look into the issues of Vanishing Companies. It consists of all Regional Directors (RD) of the Ministry of Corporate Affairs as well as representatives of the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). Out of the companies that came out with
the Initial Public Offers (IPO) during the years 1992-2005, a total of 238 companies were identified as ‘Vanishing Companies’. Due to the continuous efforts of this Ministry, 129 companies have been traced and are now regular in filing statutory returns. Further, 32 vanishing companies were under liquidation proceedings. After deletion of these 161(i.e. 129 plus 32) companies from the list of vanishing companies, the total number of Vanishing Companies now stand at 77.
(b) The Registrars of Companies have initiated legal action in respect of the Vanishing Companies, their Promoters and Directors. Besides carrying out physical verification of the Registered Offices, prosecutions have been launched for various offences under the Companies Act, 1956 as well as under the Indian Penal Code, 1860.






Compensation to investors/shareholders: Zero
Jail sentence to promoters: Nil;
Regulators & SE officials held responsible: None.
GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
LOK SABHA
UNSTARRED QUESTION NO: 17
ANSWERED ON: 18.11.2019
Vanishing Companies
Bache Gowda B.N.

Will the Minister of

CORPORATE AFFAIRS be pleased to state:-

(a) the details of number of companies included in the list of vanishing companies in the country at present; and
(b) the details of action taken against such companies?

ANSWER
THE MINISTER OF STATE FOR FINANCE
AND CORPORATE AFFAIRS (SHRI ANURAG SINGH THAKUR)
????? ??? ????????? ????? ???????? ??? ????? ?????? (?????????? ???? ?????)
(a) A Coordination and Monitoring Committee (CMC), co-chaired by Secretary, Ministry of Corporate Affairs and Chairman, SEBI was set up in the year 1999 to look into the issues of Vanishing Companies. It consists of all Regional Directors (RD) of the Ministry of Corporate Affairs as well as representatives of the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). Out of the companies that came out with
the Initial Public Offers (IPO) during the years 1992-2005, a total of 238 companies were identified as ‘Vanishing Companies’. Due to the continuous efforts of this Ministry, 129 companies have been traced and are now regular in filing statutory returns. Further, 32 vanishing companies were under liquidation proceedings. After deletion of these 161(i.e. 129 plus 32) companies from the list of vanishing companies, the total number of Vanishing Companies now stand at 77.
(b) The Registrars of Companies have initiated legal action in respect of the Vanishing Companies, their Promoters and Directors. Besides carrying out physical verification of the Registered Offices, prosecutions have been launched for various offences under the Companies Act, 1956 as well as under the Indian Penal Code, 1860.







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