The Enforcement Directorate (ED) has summoned MNS party chief Raj Thackeray, in connection with its money laundering probe in the IL&FS payment default crisis case, officials said, on August 19, 2019. It had also called Unmesh Joshi, son of former state chief minister and Shiv Sena leader Manohar Joshi, in the same case, after which he deposed before the central agency in Mumbai on August 19, they said. Unmesh Joshi’s statement has been recorded under the Prevention of Money Laundering Act (PMLA), they said.
The federal agency is probing Thackeray’s involvement in the case, in connection with the IL&FS Group’s loan equity investment of over Rs 850 crores in a company called Kohinoor CTNL. The company was promoted by Unmesh Joshi and is constructing Mumbai’s Kohinoor Square towers. Thackeray and Unmesh Joshi had jointly bid for some assets, after creating a consortium but later, the MNS supremo quit.
IL&FS had invested over Rs 200 crores in Kohinoor CTNL and is said to have suffered a loss in the deal. The ED, it is understood, wants to look into the entire transaction and hence, has summoned the two. The agency had, last week, filed its first charge-sheet before a special court in Mumbai in the case and had attached assets worth about Rs 570 crores.
IL&FS seeks NCLT’s nod, for the sale of its wind energy business
Debt-hit IL&FS Group has sought the National Company Law Tribunal’s (NCLT’s) approval, for the sale of its wind energy business, which could help the company to reduce its debt by Rs 4,800 crores
August 12, 2019: Embattled IL&FS Group has proposed to the National Company Law Tribunal (NCLT), the sale of its wind energy business to Japan’s Orix Corporation, which will help reduce the debt of the company by Rs 4,800 crores. Infrastructure Leasing and Financial Services (IL&FS) said in a statement that it has filed the proposal, to complete the sale of its wind energy business, held under IL&FS Wind Energy Limited (IWEL) to ORIX Corporation of Japan, with the NCLT for final approval.
IL&FS said it had already received approval for the sale of its wind energy business from justice (retd) D K Jain, appointed by the NCLAT to supervise the operation of the resolution process of IL&FS Group companies, in July 2019. Justice Jain had approved the sale, on the conditions that the proposal will be placed before the NCLT for its approval and the bid amount realised from the sale be kept in an escrow account. This amount in escrow account will only to be disbursed in accordance with the directions in the proceedings, pending before NCLT/NCLAT, as applicable.
See also: DHFL seeks Rs 15,000-crore lifeline
ORIX Corporation of Japan, owner of 49% stake in each of seven operating wind power plants of the IL&FS Group, had expressed its intent to buy out the remaining 51% stake held by IWEL. This intent, to buy a 51% stake, was in exercise of ORIX’s right under the terms of an existing MoU, wherein ORIX can match the price offered by the highest bidder, for purchasing IWEL’s stake in the wind Special Purpose Vehicle (SPV). The sale to ORIX will lead to resolution of the following seven companies of the IL&FS Group – Lalpur Wind Energy Private Limited, Etesian Urja Limited, Khandke Wind Energy Private Limited, Retadi Wind Power Limited, Wind Urja India Private Limited, Tadas Wind Energy Private Limited and Kaze Energy Limited.
IL&FS Financial Services laundered Rs 5,000 crores of shareholder funds, ED informs court
IL&FS Financial Services, a subsidiary of the IL&FS Group, is suspected to have laundered more than Rs 5,000 crores of shareholders money, the Enforcement Directorate said, adding that further investigations were underway
June 21, 2019: The Enforcement Directorate, on June 20, 2019, told a Mumbai court that IL&FS Financial Services (IFIN), a subsidiary of the crisis-hit IL&FS Group, alone had allegedly laundered over Rs 5,000 crores of shareholder funds. In a remand application submitted to the special court, the ED claimed the Group was being run as a ‘personal fiefdom’ by the directors, who indulged in enhancing turnover for ensuring better credit rating for Group companies and also bonus-like incentives.
The ED filed the application, a day after arresting IL&FS’s former joint managing director Arun Saha and former managing director of IL&FS Transportation Networks Ramachand Karunakaran. The duo was remanded to ED custody till June 25, 2019. The total debt of IL&FS has inflated to Rs 91,000 crores, due to ‘arbitrary sanctioning of loans or credit facilities, including routing of money through third-parties’, the ED said in the application. “In IFIN, it is suspected that there has been laundering of more than Rs 5,000 crores of the shareholders money,” the central probe agency said, adding further investigation is on.
The application stated the committee of directors had created a ‘complex system to show artificially enhanced turnover’ and to show inflated profits, to attract capital from gullible parties. “It was done to maintain high credit rating,” it added, while also stressing that the directors had an eye on performance-related perquisites while doing this. The application further said while there was a complex web of 232 companies in the Group, a management board consisting of the arrested duo and other officials including R Parathasarthy, Ramesh Bawa, Hari Sankaran, Vibhav Kapoor and Shahzaad Dalal, had full oversight on all critical issues, including financing and strategy for the entire group.
The government had to replace the board of the group and subsequent investigations have pointed towards shortcomings at credit rating agencies’ end, which had continued to rate the Group companies at a very high level, due to which the exposure of the financial sector increased. In one more revelation, the ED said third-party lending by IFIN to companies like the bankrupt SKIL and ABG Shipyard, also resulted in a loss of Rs 2,000 crores. A loss of Rs 74 crores has been ascertained due to raising of bogus invoices by IL&FS Rail, IL&FS Transportation Networks, the ED said, citing the FIR in the case.
IL&FS crisis: ED arrests two former executives in PMLA probe
The Enforcement Directorate has arrested two former executives, in connection with its money laundering probe in the IL&FS case, officials said
June 20, 2019: The Enforcement Directorate (ED), on June 19, 2019, said that it had arrested IL&FS’ former joint MD Arun K Saha and MD of transportation network K Ramchand, in Mumbai, under the Prevention of Money Laundering Act (PMLA). These are the first arrests in this case by the ED. The two will he produced before a special PMLA court in Mumbai on June 20, 2019, they said.
The central agency had filed a money laundering case in February 2019 and had twice raided a number of former executives, in order to obtain additional evidence. IL&FS has defaulted on payment of loans to SIDBI and along with its subsidiaries, has a combined debt of over RS 91,000 crores.
IL&FS crisis: ED conducts fresh raids in Mumbai
The Enforcement Directorate has conducted fresh raids against at least four directors of IL&FS, in connection with the money laundering probe in the multi-crore IL&FS payment default crisis
May 22, 2019: The Enforcement Directorate (ED), on May 22, 2019, carried out fresh searches in Mumbai, in connection with its money laundering probe in the multi-crore IL&FS payment default crisis, officials said. They said the residences and offices of at least four directors of the firm, were being raided. The central agency had first carried out searches in this case, in February 2019, after it filed a criminal case under the Prevention of Money Laundering Act (PMLA). The searches are aimed at collecting additional evidences and documents, they said.
The debt crisis at the infrastructure lender came to light following a series of defaults by its group companies beginning September, 2018. The crisis-ridden infrastructure conglomerate IL&FS Group, once hailed as a pioneer of public-private partnership, has come under the scanner of multiple regulators, for alleged defaults related to financial disclosures and corporate governance.
IL&FS crisis: ED raids multiple locations after filing PMLA case
The Enforcement Directorate has conducted multiple raids against executives linked to IL&FS, after a case was registered under the Prevention of Money Laundering Act
February 20, 2019: The Enforcement Directorate (ED), on February 20, 2019, conducted raids on at least six locations in Mumbai and Delhi-NCR, in connection with the multi-crore IL&FS payment default crisis, officials said. They said the action by the central probe agency came, after it registered a criminal complaint under the Prevention of Money Laundering Act (PMLA) in the alleged payment default case and searches were being conducted at the residential locations of executives linked to the Infrastructure Leasing and Financial Services (IL&FS), including its former chairman Ravi Parthasarathy and few others. The raids are on in Mumbai and locations in Delhi and the national capital region (NCR) including Gurugram, they said.
Officials added that the investigators are looking at collecting additional evidences and documents, apart from what they have obtained till now as part of the probe. The debt crisis at the infrastructure lender came to light following a series of defaults by its group companies, beginning September, 2018. IL&FS has defaulted on payment of loans to SIDBI and along with its subsidiaries, has a combined debt of over Rs 91,000 crores.
The ED’s case is based on an FIR filed before the Economic Offences Wing (EOW) of the Delhi Police, in December 2018. Ashish Begwani, director of Enso Infrastructures (P) Ltd, had filed the case against officials of IL&FS Rail Ltd, for allegedly causing Rs 70 crores loss to his company by fraudulent means. Begwani had alleged in his complaint that in August 2010, he was approached by two officials of IL&FS Transportation Networks Ltd and he had invested Rs 170 crores in IL&FS Rail Ltd, a special purpose vehicle for the Gurugram Metro project, in order to take its 15 per cent shares.
“However, over a period of time, the complainant observed that the company is not performing profitably and funds are being misused,” an EOW official had said quoting Begwani’s complaint. The ED will probe if funds generated illegally in this case, were laundered to create illegitimate assets by the accused.
NCLAT allows 22 IL&FS firms in the ‘green’ category to repay their debt, as per schedule
The NCLAT has allowed 22 companies of the crisis-hit IL&FS Group, which were classified in the ‘green’ category, to service their debt obligations and also appointed former Supreme Court judge DK, Jain to supervise the resolution process
February 12, 2019: The National Company Law Appellate Tribunal (NCLAT), on February 11, 2019, allowed 22 companies of the crisis-hit IL&FS Group, which were classified in the ‘green’ category based on their financial health, to service their debt obligations. Besides, a two-member bench headed by justice SJ Mukhopadhaya approved the appointment of former Supreme Court judge, justice DK Jain, to supervise the resolution process of IL&FS and its group companies.
The appellate tribunal also lifted a moratorium and allowed 133 IL&FS firms incorporated outside India, to continue with the resolution process. “We allow the boards (of the green companies) to permit them to service debt obligations as per schedule,” said the NCLAT. The NCLAT’s direction came during the hearing over the government’s plan for the resolution of IL&FS Group companies.
In an affidavit filed before the NCLAT, the government informed that former Supreme Court judge justice DK Jain had agreed to supervise the resolution process of the IL&FS Group companies. As per the terms and agreement, Jain will get a monthly remuneration of Rs 10 lakhs and Rs 2.5 lakhs per sitting, besides other expenses, which would be paid by IL&FS.
During the hearing, the solicitor general of India Tushar Mehta, appearing for the Ministry of Corporate Affairs, submitted a list of 302 subsidiaries of IL&FS, which are jointly controlled entities, group companies and associates, forming part of the IL&FS Group companies. Out of 302 companies, 169 companies are incorporated in India and the remaining 133 are incorporated outside India, he added. He further informed the NCLAT that out of 169 domestic companies, classification process under Green, Amber and Red categories had been completed for 69 firms, as on February 9, 2019. Out of 69, the government had marked 22 companies under Green, 10 in Amber and the rest 38 in the Red category.
Mehta sought permission from the appellate tribunal to allow the ‘Green entities’ to service their debt obligations as per scheduled repayment, to which the NCLAT agreed. However, over the Amber and Red categories, the appellate tribunal said that it would pass any order after hearing them in the next hearing on March 12, 2019. “We want to know from the government and IL&FS, as how they intend to resolve all entities, particularly in ‘amber’ and ‘red’ group entities. Whether they would form a Committee of Creditor as normally done in the company insolvency resolution process,” said the tribunal. It also said that the moratorium against them ‘cannot continue for an indefinite period’.
During the hearing, senior lenders such as Indusind Bank, L&T Finance and Aditya Birla & Capital Fund opposed the government’s plea to make the Amber and Red companies to make payment necessary only to maintain and preserve their going concern status. Senior advocate Abhishek Manu Singhvi, appearing for Indusind Bank submitted that any such payment would have a great cascading effect on the NPAs of the top five lenders of the group companies.
The major group companies in the green list included IL&FS Investment Manager, IL&FS Security Service, IL&FS Paradip Refinery Water, Tamil Nadu Water Investment, IL&FS Asian Infrastructure Manager, IL&FS Urban Infrastructure Manager, IL&FS Infra Asset Management, North Karnataka Expressway, IL&FS Solar Power, Tadas Wind Energy, Khadke Wind Energy, Etesian Urja, Kaze Energy, Wind Urza India, Maytas Logiparks, Lalpur Wind Energy, Jharkhand Infrastructure Invest Company, IIML Asset Advisors and IISL Settlement & Transmission Services.
Over 100 IL&FS Group companies remained under the assessment of the resolution consultants, for classifications, the affidavit further informed. The government will file another affidavit in the next two weeks, classifying these remaining 100 companies, it added.
Government submits resolution plan for IL&FS
The central government has submitted a debt resolution plan for IL&FS to the NCLAT, which involves categorising the Group’s companies into green, amber and red, based on their financial positions
February 5, 2019: The government, on February 4, 2019, submitted the debt resolution plan for crisis-hit IL&FS to the National Company Law Appellate Tribunal (NCLAT) and also suggested the name of retired Supreme Court judge, justice DK Jain, to supervise the entire process. The entire resolution process would be based on the principles enunciated in the Insolvency and Bankruptcy Code. Under the plan, the government has categorised IL&FS Group companies into green, amber and red, based on their respective financial positions.
The corporate affairs ministry had fixed September 30, 2018, as the cut-off date for entertaining the claims submitted by the lenders. On October 1, 2018, a newly-appointed board took over the reins of IL&FS. “During the conduct of the resolution process of the IL&FS Group, payments will be permitted only to maintain and preserve the going concern status of the companies of the IL&FS Group,” the ministry said, in its affidavit detailing the resolution plan. According to the ministry, it would maintain the waterfall system during asset monetisation, wherein the seniority of lenders would be maintained as is done under the IBC.
“The distribution of the sale proceeds would be in accordance with the waterfall mechanism specified under section 53 of the IBC,” it added. Under Section 53 of IBC, senior secured creditors’ loans are cleared first and any surplus that remains thereafter, is given to unsecured or subordinated creditors and thereafter, to the equity owners.
“We allow the counsels for union of India and IL&FS to contact justice (retired) DK Jain, for consent and to discuss the terms and conditions of engagement, including monthly fee, travelling expenses, allowance, etc.,” the two-member NCLAT bench said. According to the resolution plan, a suitable eligibility criteria will be stipulated, approved by the newly appointed directors and then, expression of interests will be invited for the same. It further added that upon receipt of the recommendations, a successful bidder would be declared, who will deposit the earnest money. Upon declaration of the successful bidder, documentation of the sale will be completed and forwarded to the National Company Law Tribunal (NCLT) for the final approval.
According to the affidavit filed before the NCLAT, the classification of the IL&FS Group companies, is ‘based on a 12 month cash flow-based solvency test’. Companies falling in the green categories are the entities, which will continue to meet their payment obligation. Companies falling in amber category are those who are not able to meet their obligations but can meet only operational payment obligations to senior secured financial creditors. Amber category entities are permitted to make only payments, necessary to maintain and preserve the going concern. “Companies falling in the red category are the entities which cannot meet their payment obligations towards even senior secured financial creditors,” it said, adding that these companies would be permitted, to make payment necessary to maintain and preserve the going concern status.
Over the cut-off date, it said: “Financial, operational and statutory claims and liabilities as of September 30 (cut-off date) will be invited. The cut-off date had been kept as September 30, since the newly appointed directors were appointed by the NCLT on October 1, 2018.”
IL&FS crisis: Government to seek special dispensation from RBI
The government will soon approach the RBI, seeking a special dispensation for the deferment of provisioning requirements for bank loans extended to some IL&FS Group firms, amid efforts to monetise assets of the crisis-hit group, official sources have said
January 23, 2019: Official sources, on January 22, 2019, said efforts were on to monetise certain assets of debt-laden IL&FS and the Group is expected to come out of the woods in the next four to five months. Against this backdrop, the sources said the Corporate Affairs Ministry would soon approach the Reserve Bank of India (RBI), seeking dispensation for the deferment of provisioning of loans, with respect to some IL&FS Group firms. The RBI has strict norms in place, regarding non-performing assets for banks and a relaxation is expected to help the government in getting more time to resolve problems at IL&FS.
Some companies of the diversified IL&FS Group, which has debt burden of over Rs 91,000 crores, have failed to repay loans. Following the crisis at IL&FS late in 2018, which raised concerns over liquidity in the system, the corporate affairs ministry had superseded its board. The sources said the government has identified a few IL&FS subsidiaries having ample funds in their escrow accounts but are unable to service their debt obligations. The government is likely to cite the current situation, including availability of funds in escrow accounts of certain IL&FS companies, for seeking the special dispensation, they added.
On January 22, 2019, the ministry reviewed the progress made in dealing with the problems at the Group. The IL&FS Group companies are estimated to have outstanding loans of about Rs 60,000 crores to banks and financial institutions, while the total debt is over Rs 91,000 crores. State-owned LIC is the single largest shareholder in IL&FS Group with 25.34 per cent, while Japan’s Orix Corporation owns 23.50 per cent. Among others, Abu Dhabi Investment Authority has a 12.5 per cent stake, IL&FS Employees Welfare Trust (12 per cent), HDFC Ltd (9.02 per cent), Central Bank of India (7.67 per cent) and State Bank of India (6.42 per cent), at the end of March 2018. In August 2018, the debt crisis at the IL&FS Group came to the fore, when one of its companies defaulted on repayment of a Rs 1,000-crore debt to Sidbi.
Government seizes control of debt-laden IL&FS
The government has taken control of the board of debt-laden IL&FS, making it only the second instance that the government has done so, after the first one involving Satyam
October 3, 2018: The government, on October 1, 2018, seized control of debt-trapped IL&FS, superseding its board with one led by India’s richest banker Uday Kotak and vowed to stop further loan defaults. This is only the second time after Satyam Computer Services Ltd that the government has taken control of a company’s board. The government, in 2009, superseded the board of Satyam.
The Mumbai-bench of the National Company Law Tribunal (NCLT) approved six directors, including Kotak Mahindra Bank MD Uday Kotak, former SEBI chairman GN Bajpai and ICICI Bank chairman GC Chaturvedi, to take over the board. This followed the Ministry of Corporate Affairs moving the NCLT against IL&FS and its subsidiaries, seeking a change of the board and management control of the company. Kotak was named as non-executive chairman of the new board. The other directors approved by the NCLT were retired IAS officers Malini Shankar and Vineet Nayyar and veteran auditor Nandkishore.
The move to take over IL&FS followed its recent defaults roiling Indian markets. “The government stands fully committed to ensuring that needed liquidity is arranged for the IL&FS from the financial system, so that no more defaults take place and the infrastructure projects are implemented smoothly,” the Finance Ministry said, in a statement in New Delhi. ‘Restoration of confidence’ across markets and the financial system in IL&FS Group ‘is of utmost importance for the financial stability of capital and financial markets’.
The NCLT allowed the union government’s interim prayer to reconstitute the board of IL&FS, observing that the company’s affairs were being conducted in a manner ‘prejudicial’ to the public interest. The Finance Ministry in a statement, said the government found ‘serious corporate-related deficiencies’ in the IL&FS holding company and its subsidiaries and has ordered an SFIO (Serious Fraud Investigation Office) probe into the alleged financial irregularities in the NBFC.
“The restoration of confidence of the money, debt and capital markets, the banks and financial institutions, in the credibility and financial solvency of the IL&FS Group, is of utmost importance for the financial stability of capital and financial markets. There is an emergent need to immediately stop further financial defaults and also take measures, to resolve defaulted dues to the claimants,” it said. The company would require a combination of measures like asset sales, restructuring of some liabilities and a fresh infusion of funds by investors and lenders, to prevent defaults. “The confidence of the financial market in the credibility of the IL&FS management and the company needs to be restored,” the ministry said.
The government, it said, had approached the NCLT, after it was convinced that the governance and management change in IL&FS Group is very necessary, for saving it from ‘financial collapse’. “Continuance of the present board had become prejudicial to the interests of the company and its members and this management was affecting public interest, because of its adverse impact on financial stability and making capital markets so adversely affected,” the ministry said, adding its prayer before the NCLT was to supersede the board of IL&FS and its substitution by the new board of directors.
The ministry said IL&FS Group, which has assets of Rs 1.15 lakh crores, is presently facing tremendous debt pressure and struggling to service around Rs 91,000 crores in debt, which is the outcome of its ‘mismanaged borrowings in the past’. Before the NCLT, the government said the IL&FS directors had failed to discharge their duties and that many mutual funds would collapse, if the company collapses. There were concerns that default by a large NBFC like IL&FS would create a liquidity crunch in the financial markets. Approving the immediate takeover of the IL&FS board by six government nominees, an NCLT bench of judges MK Shrawat and Ravikumar Duraisamy, said that the suspended directors of IL&FS must, henceforth, cease to represent the company anywhere.
“After considering the government’s case, we are of the view that prima facie, this is a fit case to invoke sections 241 (2), 242 of the Companies Act and to declare that the affairs of IL&FS were being conducted in a manner prejudicial to the public interest,” the bench said. The government, in its plea, said that it had chosen to intervene, as it impacted the entire nation’s economy. It also told the NCLT that it had already ordered for an investigation into the company’s affairs, through the Serious Fraud Investigation Office.
The government cited the precedence of the 2009 takeover of erstwhile Satyam Computers and urged the bench to invoke the jurisdiction of sections 241(2) and 242 of the Companies Act, 2013. The sections provide for the union government to approach the NCLT and the tribunal, to pass orders to regulate the affairs of a company, respectively, in a case where the affairs of such company were not in public interest. Taking note of the government’s arguments, the bench held, in its interim order, that the present case was a fit one to invoke the jurisdiction of the above sections.