IL&FS unit acted as loan conduit for group firms, related parties

Infrastructure Leasing and Financial Service Ltd (IL&FS), the debt-laden conglomerate that was taken over by the government after a string of defaults, ran its operations through a complex web of subsidiaries ranging from construction to waste management.

One such company, Kanak Resources Management Ltd— controlled by its subsidiary IL&FS Environmental Infrastructure & Services Ltd—took short-term loans from group companies over the past two years, only to disburse to related parties.

Kanak Resources was formed in November 2007 as a joint venture between IL&FS Environmental (94.71%) and Centre for Development Communication or CDC (a registered trust, with 5.29% stake) and is involved in handling collection and transportation of municipal solid waste. Kanak’s former managing director, Vivek Agrawal, is the founder trustee of CDC.

Agrawal resigned from his role at Kanak Resources in June 2015 and has since filed an insolvency application against the firm at the National Company Law Tribunal (NCLT). The case was admitted in September 2017 and a resolution process in on. A review of Kanak Resources’ FY16 and FY17 balance sheets (latest available) show that the company has taken loans from some IL&FS units and either disbursed similar quantum in loans to other subsidiaries or repaid previous loans.

In FY16, for instance, the company took short-term loans and received back earlier loans of Rs 360 crore from IL&FS Financial Service Ltd (IFIN), IL&FS Transportation Networks Ltd (ITNL), IL&FS Renewable Energy Ltd (IREL) and Sabarmati Capital One Ltd. (SCOL). In the same year, the company loaned and repaid loans of ₹356 crore to IFIN, ITNL, IREL, SCOL, Hill County Properties, IL&FS Envronmental and IL&FS Maritime Infrastructure Co. Ltd.

While lending to a related party is not illegal, it’s unclear why the companies within the group did not directly lend to each other and used Kanak Resources to route the money.

As is evident, the same companies appear on both sides of transactions. This means in some cases loans were taken and partly repaid at the end of the year. Some other companies (such as Hill County) were also recipients of loans. The story is somewhat similar in FY17 when the shortterm loans taken and given were ₹94.3 crore and ₹91.4 crore, respectively. That apart, Kanak Resources has loans from Yes Bank, Tata Motors Finance and Orix Leasing and Financial Services.

IL&FS RAN OPERATIONS THROUGH A COMPLEX WEB OF UNITS RANGING FROM CONSTRUCTION TO WASTE MANAGEMENT