Are Former Bureaucrats on New IL&FS Board Stalling Resolution?

The government’s attempt to repeat the Satyam feat of quick crisis resolution has not borne fruit this time.

It took just three months, in 2009, for a three-member committee, headed by Deepak Parekh with technology expert Kiran Karnik and legal expert C. Achuthan, to complete the bids for Satyam Computers, after B. Ramalinga Raju’s stunning confession of fraud.

In an uncanny turn of fate, Infrastructure Leasing & Financial Services (IL&FS), which acquired two of the Satyam family entities (Maytas Infrastructure and Maytas Properties), turned into a more spectacular failure in less than a decade later. If Satyam was sold for Rs 2,900 crore, IL&FS’s outstanding debt is nearly Rs 1,00,000 crore. It is also far more complex, with 348 layered companies and collaborations with state and Central government entities.

Unfortunately, the government’s attempt to repeat the Satyam feat of quick crisis resolution has not borne fruit. Ten months later, there is only a glimmer of some Rs 20,000 crore being recovered through the sale of wind power, roads and other assets.

Uday Kotak, a dynamic banker, chairs the new board; but the rest of it is packed with retired bureaucrats (Vineet Nayyar, C.S. Rajan, Bijay Kumar, Dr Malini Shankar, G.C. Chaturvedi, Srinivasan Natarajan and Nand Kishore) who are calling the shots and also causing complications. Most of them are from the Indian Administrative Service (IAS).

Alarmingly, some had close connections with the discredited IL&FS cabal. They also seem unwilling to dislodge other IAS officials who continue to control group entities. Here’s how they are messing up things.

Conflict of interest

On  July 22, Indian Express wrote that the new IL&FS board was looking for a new legal advisor after a top official complained to the Ministry of Corporate Affairs (MCA) alleging “strong” conflict of interest in the association of the law firm Cyril Amarchand Mangaldas (CAM) with IL&FS. He is also alleged to have said that removing CAM may upset Uday Kotak whose Kotak Bank is advised by CAM.

Also read: SFIO Investigation Throws Up New Leads on Insolvent Bank’s Dealings

CAM, as the latest forensic audit by Grant Thornton (GT) has shown, was advising Ravi Parthasarathy on ILFS Transportation Network (ITNL) in the run up to the default.

Stunningly, it is Bijay Kumar, a Maharashtra-cadre IAS officer appointed to the new board as a whole-time director, who filed the complaint. Even more curious is the fact that he, along with vice-chairman Vineet Nayyar and managing director (MD) C.S. Rajan (both former IAS officers), was empowered by the board to find a replacement for CAM as far back as February 2019!

Why would a powerful, whole-time board member complain to MCA after failing to find a replacement for CAM for four months? Why was CAM allowed to continue for the past four months? Why did the board member record a complaint only when GT’s forensic audit, which brought out emails from Ravi Parthasarathy (former chairman) seeking guidance from Cyril Shroff in May 2018 (before the eventual default), was about to go public?

IL&FS’s response to my query about Bijay Kumar filing the complaint was: ‘no comments’.


There is another angle to this drama that also goes back to February 2018. Almost simultaneous to the appointment of CAM, Shardul Amarchand Mangaldas (SAM) was appointed a legal advisor for ITNL in October 2018. ITNL is one of two major IL&FS companies in deep financial trouble. Shardul Shroff had worked on the Satyam deal with the government appointed board of that time and was invited to advise the new board on ITNL at Nayyar’s behest.

Around January 2019, the same Bijay Kumar had a “showdown” with Shardul Shroff leading to SAM’s exit. This reporter has learned that the “showdown” was over an intemperate letter that Bijay Kumar sent SAM, for which he later apologised when threatened with a defamation suit.

The timing is important; because the board’s decision to replace CAM also happened soon after that. Brothers Shardul and Cyril Shroff split acrimoniously into two separate firms a few years ago. They now head large and expensive legal firms that are highly sought after by corporate India, including Kotak Bank.

So why has IL&FS continued working with CAM for four months? The official response from IL&FS is as follows: 

“Engagement with CAM was initially done by a Committee of Directors shortly after the new Board took over. The key consideration of the appointment at that stage was the complexity at hand, to ensure continuity of operations and to enable the new board to settle down. Thereafter, in February 2019, committee of the new management was appointed by the board to work on the engagement of legal advisors. It is continuing to assess and will take necessary decisions soon.”

On the appointment and exit of SAM, IL&FS says: “SAM had been appointed by the Board for providing legal services pertaining to transportation sector considering their expertise in area of distress resolution. SAM resigned from ITNL in May 2019 and their resignation was noted by the Board on May 22, 2019.”

The reply makes no mention of the “showdown” and why it happened. Also, the reference to the likelihood of Uday Kotak being upset at CAM’s removal hints at some friction between the chairman and the board.

Uday Kotak, a dynamic banker, chairs the new board of the IL&FS but the rest of it is packed with retired bureaucrats. Photo: Reuters

‘Tainted’ Executives

Another problem with the new board is its reliance on so-called tainted executives who were deeply involved with the fraud and the cover-up. The argument is that they need continuity and people with knowledge about the business. But this has caused a lot of outrage among IL&FS’s employees. This reporter herself has received multiple messages about the deep links between Dilip Bhatia, designated chief executive officer (CEO) and the cabal that ran IL&FS earlier.

GT’s forensic audit exposes Bhatia’s attempt to fix the credit rating including a proposal to pay Moody’s rating agency a fee of $68,000 to buy time and keep a crucial rating private for some time.

What is still unknown is that Bhatia had also extracted a massive personal loan of Rs 2.5 crore at a very low interest, when IL&FS as a group was already in a deep financial mess. Many employees insist that the loan was “silence money” because he knew too much. But while the key management coterie was sacked, Dilip Bhatia was made chief strategy officer and, later, promoted to CEO. He calls the shots under the new management.

When asked about the Rs 2.5 crore loan, IL&FS said: “Dilip Bhatia was sanctioned a loan of Rs 2.5 crore in January 2018, as approved by the competent authority, at then applicable interest. The said loan has since been fully and duly repaid by him in February 2019. The new board of ITNL has already taken this on record in its board meeting held on February 25, 2019.”

Did the board check how Bhatia could repay such a huge loan so quickly? If he had the resources and did not need the money, why was he sanctioned such a big loan when IL&FS as a group was in financial distress? IL&FS has rewarded many former employees with apartments and cars, to ensure their silence.

Also read: What Triggered the Downfall of IL&FS?

On asking whether it plans to act on the GT’s findings, IL&FS said: “The board is seized of the GT report, and its findings, on CRAs and will be deliberating on the interim report findings in due course. The board will take appropriate steps in this regard, after verifying the authenticity and veracity of the observations made in the report. We would not like to make any comments, especially on any individual or specific incident, till the report is fully considered and discussed by the board in its entirety.”

Governance at subsidiaries

Finally, there is the issue of how IL&FS is dealing with subsidiaries headed by IAS officers. This reporter has repeatedly written about how the institutional investor AIDQUA has been pointing to financial jugglery and mismanagement at New Tirupur Area Development Corporation (NTADC) 2010. It has been ignored and even harassed, forcing it to approach the Supreme Court and the NCLAT for redress.

S. Krishnan, a serving IAS officer of the Tamil Nadu cadre, has been a part-time MD of NTADC for a decade, despite objections from AIDQUA, which has a 27% stake. The appointment violates Section 203 of the Companies Act 2013, which mandates the need for a full-time MD. The government-appointed board has also done nothing.

Now, on June 25, the MCA has asked director Bijay Kumar to take “appropriate action” with regard to AIDQUA’s complaints. What the new board will consider “appropriate” remains to be seen.

The Satyam plan worked because a lean and practical three-member group was focused on working together in minimising the pain to stakeholders and salvage the business. The IL&FS board, packed with bureaucrats (some of whom were very close to the sacked management), has no such concern, although it is headed by a highly successful banker.

Clearly, the government has got the composition all wrong; but it is investors and the financial system which will pay the price.

This article first appeared on Moneylife and has been republished with permission. Read the original article.