Crisis-hit Infrastructure Leasing & Financial Services' (IL&FS) outsted top executive Hari Sankaran, in an affidavit filed before the National Company Law Tribunal (NCLT), dismissed allegations of financial mismanagement and siphoning of funds.
Sankaran blamed the macro-economic environment and principal shareholder LIC's indecisiveness to conclude its stake sale for the company's troubles.
Sankaran said that company's board members were fully aware about all relevant factors affecting its business and that of its group companies. He also asked NCLT to appoint an independent foreign agency without conflict of interest, rather than a local one, to investigate the company's affairs.
Moneycontrol has seen a copy of the affidavit.
"It is unfortunate that allegations are made in the present petition of me being irresponsible, negligent, incompetent, and of my putting a veil, or acting with misleading intent by presenting rosy financial statements," said Sankaran in his affidavit.
"I have never done as alleged at any time and I deny these allegations with all the emphasis at my command. I also deny as incorrect and unwarranted the allegations of mismanagement or compromise in corporate governance norms or risk management, on my part. These allegations are made on a general and vague basis, with no substantiation or detail," he said.
Sankaran said that the allegations of suppression of material information about company's financial solvency and its ability to raise funds from investors in August 2018, and of not giving any indication that the company would start defaulting on its debt repayments, were "purely conjectural".
"I deny that there was any siphoning of funds. My remuneration was paid in compliance with the provisions of the Companies Act and was in line with the policy formulated by the Board," Sankaran said.
Sankaran, who was employed with IL&FS for a continuous period of around 28 years, said the value of 'intangible assets' shown on the balance were in line with Indian Accounting Standards.
"... long term service concession agreements are required to be treated in the accounts as 'intangible assets' when the revenue is dependent upon collection of fees from the general public, as, for example, is the case of collection of toll from the public in regard to roads constructed by IL&FS’s group company," Sankaran claimed.
LIC blocks Piramal deal
Sankaran said LIC blocked a proposed merger with Piramal Financial Services in 2015, which would have generated around Rs 8,500 crore by way of investible funds in the merged entity. The reason cited by LIC was low valuation, he said.
"This resulted in adverse consequences on IL&FS as no additional finance could be raised by way of equity or debt throughout this period," he said.
Sankaran said the company had also signed a termsheet with Texas-based fund Lone Star in December last year, under which the latter agreed to invest around Rs 6,300 crore ($965 million) as equity into ITNL, thereby effectively acquiring it and providing funds to service group debts.
However, Lone Star pulled out of the deal in June this year.
Last ditch effort
Sankaran said that in IL&FS' board meeting on July 21, it was resolved that the company would come out with a rights issue to raise Rs 4,500 crore and that it would also borrow Rs 2,500 crore from LIC and Rs 1,000 crore from State Bank of India (both IL&FS shareholders with nominees on the board).
"It was recorded that the company required the line of credit by August 15, 2018 and the rights issue to be completed by September 15, 2018. It was clearly understood in the said meeting that, in the event these monies were not forthcoming, IL&FS would face defaults," Sankaran said.
"These resolutions were passed with the affirmative votes of the nominee directors of LIC and SBI on the board of IL&FS. The Board also appointed SBI Capital Markets as the merchant banker to undertake a valuation of IL&FS for the purposes of assessing the price at which the equity shares would be offered in the proposed rights issue. SBI Caps determined the value to be Rs 349 per share," he said.
"In the next board meeting of Respondent No.1, held on August 29, 2018, it was resolved that in order to make it attractive for the shareholders to subscribe to the rights issues, the equity shares would be offered at Rs 150 per share. Both the rights issue and the line of credit did not go through till October 1, 2018, when the order in the present petition was passed," he said.
Earlier this week, the government got a go ahead from the NCLT to supersede the existing board of IL&FS with its own nominees, led by Uday Kotak, Managing Director of Kotak Mahindra Bank.
The Centre in its petition to replace IL&FS board alleged about mismanagement, concealing material information related to finances of the group, showing high intangibles and siphoning of funds.
According to available data, IL&FS has Rs 91,000 crore of consolidated debt, Rs 3,500 crore of which it had to repay this year. But things have started to unravel since the company started defaulting on debt repayments.
Saving IL&FS became imperative for the government as it tries to avert a Lehman Brothers-like crisis to prevent the contagion from spreading to other financial institutions such as banks and other NBFCs.
IL&FS has a diversified shareholding. LIC is the largest shareholder with 25.34 percent stake, while Central Bank of India, State Bank of India, HDFC, UTI, Orix Corporation of Japan and Abu Dhabi Investment Authority are the other shareholders.
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