Why IL&FS’s Resolution Is Dragging and How Blanket Immunity from NCLT May Benefit Colluders
The resolution and action in Infrastructure Leasing and Financial Services (IL&FS)—a massive financial conglomerate of 347 entities that went bust with an outstanding debt of over Rs95,000 crore and triggered huge turmoil in the financial world—has been slow, patchy and selective. This is surely a blot on a government that takes pride in fast and decisive action. And, increasingly, it is clear that the buck stops with the government. 
After putting a dynamic banker like Uday Kotak in charge of resolution, along with a pack of bureaucrats on the board, IL&FS’s biggest hurdle is with distribution of assets. A proposal under the bankruptcy law has been caught up in legal wrangling for over 14 months. 
The Insolvency and Bankruptcy Code (IBC) gives secured creditors (in this case, many banks that colluded with the previous regime) the biggest share. IL&FS has offered a different formula. Under this, secured creditors get liquidation value, but any recovery above that value will be divided equally among secured, unsecured and operational creditors. Typically, creditors will continue to fight for a greater share until the court arrives at a decision, and it is eventually ratified by the Supreme Court. 
Instead of ensuring a specific solution in public interest for a complex, atypical situation like IL&FS, the government has been trying to work on another, half-baked financial resolution Bill that is likely to stir up more controversy. IL&FS, over the past 25 years, pretended to be a public sector enterprise with hundreds of joint ventures with state government entities and, thus, attracted significant investment from pensions and mutual funds and has dues to large infrastructure contractors that cannot be easily dismissed as unsecured operational creditors. 
The biggest impact of the delay is being felt on the resolution of road projects where IL&FS has accepted binding bids of Rs7,580 crore, which have an expiry date, and bidders are getting restive. These could lapse and the process would have to be restarted, if there is no quick decision. IL&FS is also sitting on recoveries of nearly Rs7,000 crore lying in banks that cannot be distributed. 
At the annual general meeting (AGM) early this month, chairman, Uday Kotak, has already postponed the timeframe for recovering around Rs 47,000 crore of outstanding debt from March to July 2020. He also spoke of the infrastructure investment trust (InvIT) being set up for nine road assets with a debt of over Rs11,000 crore; but InvIT’s fate also hangs on the distribution formula.
While all this is pending, IL&FS has wrangled blanket immunity from the National Company Law Tribunal (NCLT) on 27 January 2020, for directors on the boards of hundreds of step-down subsidiaries. The NCLT order says, “We hereby clarify that the immunity granted by this court not only covers the directors appointed by this court but also such of those directors to whom the IL&FS board would appoint for subsidiaries, other group companies and trustees of IL&FS Employees Welfare Trust.” 
Many senior executives and bureaucrats close to the Ravi Parthasarathy-led cabal remained on the boards of subsidiary companies for continuity. Now, they too could enjoy the benefit of NCLT granted immunity. 
Other Signs of Flagging Resolution
After one explosive forensic report from Grant Thornton and a second tepid one, there is no further revelation on what was happening even in the main holding companies of IL&FS. This is another sign of flagging momentum in the resolution process and its impact is seen even in actions of the investigation agencies such as SFIO (serious frauds investigation office) and the ED (enforcement directorate). 
There is silence on the role of various former bankers on several IL&FS companies or to investigate quid-pro-quo deals. There is also a clear view that Ravi Parthasarathy, who founded and built the giant conglomerate and controlled all decision-making throughout, is being protected. Five of his close associates—Hari Sankaran, Ramesh Bawa, Arun Saha, K Ramchandran and Mukund Sapre (arrested on 8thJanuary by Delhi economic offences wing) have been arrested and in jail for over six months, but he, and a couple of others, are surprisingly untouched. There is a clear signal in this regard to investigation agencies as well.
Here’s an update on some key companies, some of which have been flagged in a letter to the prime minister’s office (PMO) at the end of November, by a whistleblower signing himself as ‘Mahesh Inamdar’.
The Orix Deal: The whistleblower has questioned the lack of investigation against public sector banks (PSBs) and institutions that invested in IL&FS and its group entities. He specifically raises the valuation of IL&FS’s sale of its 49% stake in wind energy assets to Orix Corporation of Japan. 
Orix already held 51% in each of these companies and chose to exercise its right of refusal instead of bidding for the stake. It then had to match the sole bid that was received from Gas Authority of India Ltd (GAIL) that, alleges the whistleblower, was at half the valuation at which it originally acquired the stake. The wind power business has since declined and GAIL’s bid was also made without reps and warranties, but it ensured that Orix Corporation got a great deal.
Interestingly, AK Purwar, former chairman of State Bank of India (SBI) represents Orix in India today. Orix and Life Insurance Corporation (LIC) are the two biggest shareholders of IL&FS with a stake of a little over 23% each. SBI was another major shareholder with a 6.42% stake. All of them remained mute spectators to Ravi Parthasarathy’s shenanigans and failed to exercise any oversight or governance rules. 
IL&FS Securities Services Ltd. (ISSL): In July 2018, just before IL&FS began to default, IndusInd Bank had signed a deal to acquire ISSL. This was scrapped in November 2018 by the new board. The whistleblower alleges that a Rs300 crore sale was allowed to fall through, while ISSL has since dug itself into a bigger hole in the controversy over stockbroker Allied Financial Services allegedly stealing Rs344 crore of securities from three Puneet Dalmia group entities. 
I learn that things were not so simple. ISSL’s sale to IndusInd Bank fell through because it wanted to set off a 45-day bridge loan to the distressed group. The Bank has also set off money owed from on IL&FS entity against dues to another and the matter is under litigation. But the upshot is that fresh bids called for ISSL and IL&FS Settlement and Transaction Services 2018 have been a non-starter.
Cuddalore Project: The case of IL&FS Tamil Nadu Power Company Ltd (ITPCL), which has a 3,840 MW thermal power plant in Cuddalore, is among many controversial joint ventures with the Tamil Nadu (TN) government. The whistleblower wonders why these entities, packed with many IAS (Indian Administrative Service) officers cannot recover dues from Tamil Nadu Generation and Distribution Corporation (TANGEDCO).
Indeed, the TN government owes a hefty Rs1,400 crore to the Cuddalore project and its refusal to pay up is also impacting the sale of these entities.
Surprisingly, S Krishnan, finance secretary with the TN government, is on the board of several joint ventures with IL&FS, including the New Tirupur Area Development Corporation Ltd (NATDCL). This Tirupur project is one of the three where the Union government is paying off the dubious sovereign guarantee extended to two multilateral agencies.  
It is strange that nobody is able step in and resolve the impasse caused by TANGEDCO’s refusal to release legitimate dues to the IL&FS subsidiaries, especially when it is driving away potential bidders.
NHAI and Other Dues
According to insiders, it was a Herculean task to get the National Highway Authority of India (NHAI) to approve claims of close to Rs3,000 crore. And, yet, the problem is far from over. NHAI has correctly insisted that interests of operational creditors must be taken care of; but that will depend on the ability to adopt a different distribution formula that has to be cleared by the bankruptcy tribunal. 
The sale of GIFT City (Gujarat International Finance Tec-City), a joint venture where the Gujarat government was among the first to step forward and offer to buy out the IL&FS stake, was approved only recently. It is valued at Rs1,200 crore. This was mainly because of the shady, one-sided deal that Ravi Parthasarathy had engineered to benefit IL&FS group entities. 
The resolution team has received approximately Rs5,800 crore worth of claims against which IL&FS has counter-claims of around Rs1,500 crore. Although IL&FS announced a 48% cut in its wage bill and 42% drop in operational expenses, this comes at a cost. Many employees have left and others work under constant fear of being blamed for actions under the previous management. 
While there is cost cutting on employees and operations, the cost of litigation and fees paid to multiple auditors and consultants continues to soar. 
The biggest frustration though, is the apparent lack of support from the government in ensuring quick decisions even at a time when economic growth is flagging and a quick release of funds would be a financial and sentiment booster. 
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Nagaraju Bommanahalli
4 years ago
I will ask both both parties please reply ,how much money recovered till today by selling assets of fraud persons who taken huge fraud loans,how much money returned to the bankrupted bank account holders , don't do drama,my friend lost several lakhs from Alpic finance a NBFC in twenty five years back, but till today he have not received single paise , this Alpic finance company is a subsidiary of Cipla group, this NBFC done huge fraud,but till today no action taken, these companies go to court and take stay order for the sale of theirs assets, Court will drag the case to twenty to thirty years at that time all investers will die, these fraudessters enjoy our loot money with political leaders, these are all drama nothing will happen only poor will die , why not Auditors arrested who have been submitting manuplated Audit reports by fabricating balance sheets. Even concerned officials from RBI are also equally liable for this situation. We need to initiate proper legal steps to compel RBI to immediately resume normal operations of Bank.In past history no business man who had taken huge fraud loans are not punished by court,ask these RBI give the list of who had punishment for such crime in India, nothing only poor people are finished from these fruduster, former finance minister chidambaram who had made banks to give loans by phone calls is getting bail after bail from all courts ,his son has thousand crores money in foreign country, these money has gave by Vijay malya like business men for getting fraud loans,no hope for our India , UPA gave 70%fraud loans , NDA has gave 30%fraud loans,one is 840and another is420, this is only difference, both parties taking India to bankruptcy,no hope for common people
In India nobody knows how Indian companies are doing fraud from the beginning to last ,for example a big business men will start the company in India as below .His companies actual value is Rs2000crores but with the help of the auditors,Banks,and chartered accountants he made his company s values to RS 6000 crores by book adjustment with bribe and he call IPO that is in share market and collect Rs10000 crores in share market, first he pumped 60%of money to foreign country in the name of business and will deposit most of the money in his name next he will file bankruptcy due to losses and will write off all the loans this is the business doing in India ED is doing drama ICICI Bank chandakochar is well known to all she done huge fraud in ICICI Bank, this drama of enquire is doing from past one year, but still she is not arrested, reasons In this icici bank scam all SEBI auditors ED RBI central government rating agencies big leaders of all parties involved.central government making all efforts to avoid arrest these fellows,if arrested all all foreign country become knows most of the Indian companies running on bogus and take away all foreign investment,then India become bankruptcy.This is well known by central government hence avoiding all efforts to arrest directors of icici bank chandakochar DHFL jetairways Videocon kingfisher airline PNB bank head il@fs etc .even Vijaymalya kingfisher airline companies don't have single plane in his companies name but all banks gave Rs10000 crores money, same type loans gave to jet airways,DLF, Devan housing finance company,il@,fs,etc wait in few months most of the common people investment in icici bank NBFC PSU banks equity NCD mutul funds become Zero,All parties RBI officers, SEBI, etc are corrupt they are taking India towards bankruptcy
Hudaf Shaikh
4 years ago
Huge sums are being siphoned off from IL&FS, DHFL and other companies under resolution by making extremely generous agreements for management and legal support - who then make issues far more complex just to charge huge bills -
It's high time that NCLT puts it's foot down to this outright theft -
4 years ago
IL&FS: A text book case of how in India's Colonial-Communist Hybrid State, the unaccountable minions of Government avoid accountability for loot and plunder:
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