No wrongdoing at IL&FS ever, says its former MD
MUMBAI: Hari Sankaran, the ousted vice chairman of Infrastructure Leasing and Financial Services Ltd (IL&FS), has suggested to a court that an independent foreign agency, rather than a local one, be hired to probe the company’s affairs leading to the supersession of its board earlier this month.
Sankaran said the appointment of an overseas agency, possibly from the UK, Israel or Singapore, would help prove that there was no wrongdoing or mismanagement in the company and ensure that the findings are unbiased. He was responding to a government petition at the National Company Law Tribunal (NCLT).
“Such a course would avoid any hint of a conflict of interest, as over the years, the known experts/consultants having a presence in India or their associates would have done some work for Respondent No. 1 (IL&FS) and its group companies, having regard to the scale and breadth of their operations,” Sankaran said in his 34-page response, a copy of which was reviewed by Mint.
A forensic investigation by an independent body would be capable of assessing the systems and processes at IL&FS and its group companies, he said.
“[This] will establish that there could have been no mismanagement of funds or unscrupulous acts committed without these coming to light,” Sankaran said in his response to the government’s petition to supersede IL&FS’S board.
IL&FS has accumulated a debt of more than ₹91,000 crore and has defaulted on some of its payment obligations. Subsequently, lenders to the group, including banks, approached NCLT, followed by the government forcing a change of guard at the group.
On October 1, the ministry of corporate affairs (MCA), through its regional director Manmohan Juneja, approached the Mumbai bench of NCLT to supersede the board of IL&FS and appoint six new members on its board, including Uday Kotak, managing director of Kotak Mahindra Bank.
Allowing the plea filed by the government, NCLT directed all the suspended directors of the company, including Sankaran, to file their response by 15 October. MCA will have to file its submission, based on the response of the erstwhile board, by October 30. The tribunal will hear the matter next on October 31.
Defending the IL&FS management and absolving its members of wilful negligence, Sankaran has claimed in his response that delays by shareholders, particularly Life Insurance Corporation of India (LIC), in deciding on external acquisitions or investment offers and capital-raising plans, had brought IL&FS to its current state.
Sankaran recounted that in 2015, a term sheet was signed between IL&FS and Piramal Financial Services Enterprises for a structured merger of the entities. The term sheet had standstill obligations on IL&FS for three-four months, but was later extended to almost 9-10 months, “largely because LIC took time to consider the proposal and ultimately did not agree with the merger valuation”. This delay, Sankaran said, had an adverse impact on the finances of the company as no additional funds could be raised through equity or debt throughout this period.
The Piramal proposal was eventually unsuccessful and was formally called off in November 2015.
Similarly, in 2017, a term sheet was signed with Lone Star, under which the Us-based fund agreed to infuse about ₹6,300 crore as equity into IL&FS Transportation Networks Ltd (ITNL). Under this term sheet, IL&FS was again subjected to “standstill obligations” up to 30 June 2018.
Moreover, at the board meeting of July 21, Sankaran said that it was decided to have a rights issue of equity shares to raise ₹4,500 crore, along with availing a line of credit of ₹2,500 crore from LIC and ₹1,000 crore from State Bank of India.
Sankaran has also clarified in his response that the possibility of defaults was known to all stakeholders and to the regulatory authorities, as also the steps taken or contemplated to avoid such defaults.