Firstly, I have reviewed all court documents pertaining to this matter, but I am not naming the whistleblower-director because neither the government of India nor the new board of IL&FS has shown any inclination to end the malicious legal proceedings so far. IL&FS is packed bureaucrats of the Indian Administrative Service (IAS), who either remained mute spectators or were active participants in its vicious scheming, and they continue remain in key positions even after the board of the holding company was sacked.
Secondly, IL&FS spent a whopping Rs 2.16 billion on legal and consultancy cost in FY17-18 alone. That kind of annual budget can get a lot of things done in India, many of them unsavoury.
Thirdly, IL&FS’s attempts to harass and intimidate directors were not restricted to one individual. It has continued to pursue the defamation case against other directors of the foreign investor before the magistrate’s court even after the Uday Kotak-led board has taken charge.
Fourthly, I have brought the details of this case to Mr Kotak’s attention including the fact that Mr Bhat, who threatened to have this whistleblower-director arrested, remains on the board. Mr Kotak says he is having this examined by the legal department. It is not clear whether the same legal team will sing a different tune now.
Coming back to the whistleblower-director, let’s examine whether his actions were defamatory or was this harassment a part of IL&FS’s diabolical strategy of ensuring that nobody (whether from the IAS, or employees or directors) dared to question its dealings and way of working. Several of them freely admit that they are scared to speak even today. IL&FS has been run like a personal fief by a small group of men, headed by Ravi Parthasarathy, for almost three decades.
Problems at NTADCL cropped up when one of the foreign investors as well as Life Insurance Corporation of India (LIC, to some extent) began to demand increased transparency after they came in as investors. A point of contention was that IL&FS intended to deduct massive fees and expenses from the funds procured by IL&FS, but this was not been fully disclosed and brought to the attention of the board.
Moneylife has written about how this landed in court leading to limited strictures in a Madras High Court judgement in connection with a corporate debt restructuring proposal.
More serious issues cropped up over Rs 900 million procured from the USAID (a US development fund), in 1997. The board minutes in 1997 show that IL&FS’s former vice-chairman Hari Sankaran had committed to the NTADCL board that IL&FS would bear the interest payable on the funds kept in an escrow account with Bank of India. IL&FS, he said, would also bear other expenses and the interest burden would not have to be borne by NTADCL.
But chairman Ravi Parthasarathy (in a letter dated 25 September 2002), wrote to NTADCL’s managing director to say that the costs would have to be borne by the company. The board was not informed about Mr Parthasarathy’s letter of 2002, until March 2010. NTADCL's managing director, an IAS officer, later joined the company as an IL&FS employee.
A special audit was conducted by M/s R Janakiraman & Co., and the whistleblower-director informed the foreign institutional investor, who then wrote to the other shareholders of NTADCL as well as the Reserve Bank of India (RBI) and the vigilance department of IDBI about the adverse findings of the special audit.
Stunning as it may seem, IL&FS filed criminal defamation proceedings against the whistleblower-director (representing a foreign institutional investor) for even writing to RBI and IDBI about its lack of transparency in a fairly strong language. Had they acted on the letter, the fate of IL&FS may have been different.
As I wrote earlier, the whistleblower-director petitioned the Bombay High Court, which heard the arguments at length (on the opposite side was the state of Maharashtra, along with IL&FS, which was arguing that the case be heard by the sessions court) and quashed the defamation case on 22 July 2015. The order took note of the special audit findings of ‘unwarranted deductions’ that IL&FS had made. A Madras High Court order has also noted the same.
IL&FS went back to the Bombay High Court seeking an amendment to the order; but the High Court refused it on 12 August 2015. IL&FS then challenged the order in the Supreme Court, which also dismissed its special leave petition on 27 September 2016.
Scandalously, as I mentioned earlier, IL&FS continues to pursue its allegations against other directors of the foreign investor, even after the Uday Kotak-led board has taken over.
After the ignominious collapse of IL&FS, a question that has been repeatedly asked is: Why did the watchdogs fail to bark? The Securities & Exchange Board of India (SEBI) wants the board of directors to check corporate malfeasance and the Companies
Act, 2013, has imposed onerous responsibility on them. But who stands by those directors who have dared to speak or raise their voice?
On the contrary, the government and the regulator have signalled that, as a director or even as a chairman of a large corporate group, you are on your own (remember Cyrus Mistry’s fate?) when it comes to actions or allegations by management!
Similarly, DC Anjaria, even as head of the audit committee at GIFT City (Ahmedabad) was ousted and defamed when he dared to raise his voice. For two years, from 2016 to 2018, no media would touch his story even after he filed a PIL (public interest litigation).
The founder of RAHI Aviation, another joint venture to develop airports in Karnataka with IL&FS, was not so lucky. Unaware of how vicious IL&FS could get, he ended up in Mumbai’s Arthur Road Jail for six months because of the constant machinations by IL&FS to ensure that his bail was denied and later Given that it takes 15-20 years for any legal matter to be settled, it has all but destroyed his life and corporate career.
The RAHI founder’s emails of 2 October 2015 to the then RBI governor Raghuram Rajan and civil aviation minister Jayant Sinha (both were his classmates at IIT-Delhi) and the Maharashtra chief minister, blowing the whistle on IL&FS’s dubious dealings were ignored. Had anyone acted then, the systemic damage caused by IL&FS could have been contained. The details of that story require a separate narration.
But both cases probably begin to explain why even those officers (including several IAS officers) who left the IL&FS group after serious differences have not blown the whistle in any formal manner. Many refuse to speak even today, because they are still not sure that the government wants to take the investigation to its logical conclusion and not bury it.
IL&FS has had a special, often practiced modus operandi: first, blame the victim for its faults. If that didn’t work, try intimidation. If that didn’t work, try again using every other resource at their disposal, including government ones, to suppress voices. Alas, what is being reported nowadays won’t change what has happened. But, it’s up the new board, led by Asia’s richest banker renowned for good governance to change old habits at IL&FS. The place to start sooner rather than later is with each of the 348 group companies’ boards of directors.
By arrangement with moneylife.in.