IL&FS Resolution: Little Hope for Creditors and Pensioners, while Lawyers and Consultants Collect Fat Fees
A massive sum of Rs182 crore has been paid out in legal, consulting and audit fees to the team working on the resolution of the giant Infrastructure Leasing & Financial Services (IL&FS). Importantly, they are the only ones who have got paid in the past 3.5 years (other than employees and directors who get their salaries, sitting fees, expenses and increments) after a new board was put in place to ‘resolve’ this gigantic mess of 347-odd entities with deep inter-linkages.
This information is not in the public domain and was shared with me only after I pointed out that a government-appointed board, engaged in a clean-up, cannot get away with a ‘decline to comment’ stance. I was still not given a break-up of the fees paid to the two law firms and four expensive consultants engaged by IL&FS.
On the face of it, IL&FS submits regular ‘Progress Reports’ to the National Company Law Tribunal (NCLT) under the supervision of a retired judge; but this does not require it to provide all the information that any set of listed companies would need to put out. No annual report or balance sheet is available for three years, since ‘the accounts are being recast’, I was told. So, creditors have no information beyond submissions to the NCLT.
This is not to say that the government-appointed board is not doing a sincere job—it probably is. But, until the resolution gets past the never-ending, multi-level litigation and actually makes payments to deserving creditors, the resolution cannot be called a success.
Pension funds together are owed Rs10,173 crore (these include pension and provident funds, employee welfare funds, superannuation funds, gratuity funds and army group insurance funds) and constitute 10.79% of IL&FS’s debt. They are the worst affected by the corrupt and collusive actions of regulators, rating agencies, statutory auditors, bureaucrats, institutional investors and senior managers who allowed IL&FS to doctor accounts and hide losses, for over five years.
Among the sufferers are people like Kanthimathy David, who writes: “I invested hard my hard-earned retirement benefits in IL&FS in November 2017. I have received nothing from them so far. We are senior citizens with no other bank balance and are living on the government pension. This is not enough for our medicines to lead our normal life. Please help me to get back my money at the earliest…” This was in response to my column last week, where I said unless fixed, the IL&FS resolution could drag on for decades (Like Scam 1992, IL&FS Resolution, Criminal Investigation and Litigation Looks Set To Drag for Decades). 
The government-appointed board, led by banker Uday Kotak, has done well to preserve the value of many special purpose vehicles (SPVs) as going concerns and reduce the number of group companies from 347 to about 100 by selling or shutting down many of them. This has netted over Rs16,000 crore in liquid assets for which it has proposed a pro-rata distribution approved by NCLT, but caught up in litigation. It has proposed an InvIT (infrastructure investment trust) for road assets of around Rs35,000 crore, that is included as successful resolution. This takes the claimed recovery to Rs52,000 crore and one optimistic estimate is that as much as Rs60,000 crore may, eventually, be recovered. Given the outrageous write-offs under the bankruptcy process, this would be considered a success if the pro rata distribution of funds and the InvIT is a success; but it has yet to be cleared by the capital market regulator.
Curiously enough, on 23rd March, Union transport minister Nitin Gadkari told Parliament that he intends to attract investment from farmers, senior citizens and retired government officials into InvITs by offering them 7% returns and that the plan is awaiting clearance by the market regulator. (See link:
His statement was greeted with applause from his party members, but is highly ironic in the context of repeated losses inflicted on pensioners and retirees over the past five years. The government has offered no support or sympathy for pensioners like Kanthimathy David, quoted above, who put their retirement nest-egg in seemingly safe investments (secured non-convertible debentures—NCDs—of IL&FS, pensions invested in IL&FS, AT-1—additional tier 1—bonds of Yes Bank and Lakshmi Vilas Bank, etc), only to be defrauded by phony credit ratings and falsified audited balance sheets.
If Mr Gadkari wants to have a go at the precious, tax-paid next-egg of more pensioners, the government must resolve IL&FS and clean up the system by punishing those responsible for this mega debacle. 
The real problem with IL&FS is that the recovery process has to bypass the legal quagmire of claims and counter-claims that could take decades to resolve. The revised distribution framework proposed by IL&FS has already been challenged before the Supreme Court (SC) as well as the appellate tribunal. Does the government, or its chosen board, have any incentive or pressure to push for early resolution? Barring Uday Kotak, it is a sinecure for most of its directors and a very lucrative assignment for lawyers and consultants. All of them have also been granted indemnities for their actions.
IL&FS’s response to my query about the hefty payments was: “…the professional advice (from them) has enabled the new board to develop an unprecedented and unique group resolution framework outside the IBC (Insolvency and Bankruptcy Code) while retaining going concern status.” On the contrary, bankers and resolution experts tell me that the confused process of resolution through NCLT without following the bankruptcy law is largely responsible for the mess, which is only worsened by the additional red tape of having every decision ratified by a retired judge—justice DK Jain.
IL&FS needs a different process to deal with the complexities of its resolution, given the vast number of legitimate claims and counter-claims from various creditors who have been defrauded by the cabal of executives, led by Ravi Parthasarathy, who controlled the conglomerate for over two decades. Otherwise, IL&FS will keep forking out extremely high fees without real progress on the resolution front. 
Why Are only Consultants Being Paid?
As I wrote earlier, IL&FS’s law firms and consultants have already been paid a whopping Rs182 crore. The consultants are: JM Financial and Arpwood Capital to evaluate group assets; Cyril Amarchand Mangaldas (CAM) and P&A Law Offices for legal advice, Alvarez & Marshal India Pvt Ltd, which was appointed by the previous management, to come up with a revamp plan, and Grant Thornton India, the forensic auditor and claims management adviser. The company says this is 0.35% of the expected resolution of Rs52,000 crore; but, as I pointed out earlier, we have yet to see concrete results in the form of cash distribution or the InvIT even as high fees continues to be paid. Here’s how it has happened.
In 2019, IL&FS submitted a plan for pro-rata distribution, in a ‘fair and equitable manner, of Rs16,000 crore recovered through the sale and dissolution of assets. National company law appellate tribunal (NCLAT) approved the plan in March 2020, but the ruling has been contested by some creditors. The plan proposed that payments would first go “towards all resolution process costs incurred… including but not limited to fees payable to financial and transaction advisors… in full.”
So, the expensive consultants jumped the queue and are being paid regularly. Interestingly, there is no information in the public domain about the terms of engagement, selection process or incentives and indemnities offered to them, although the resolution is being done by a special, government-appointed board. We also do not have annual reports or balance sheets of these companies because the ‘accounts are being recast’ (I was told).
So what is the way out of this legal quagmire? Since the IL&FS resolution is not under the bankruptcy process anyway, it makes better sense to take it out of NCLT and negotiate a fair settlement through discussions and consent of creditors. It would need a process that is truly equitable and does not give preference to secured creditors, especially those who are also investors and are equally responsible for the debacle by failing in their fiduciary duties and, perhaps, actively colluding with the erstwhile management.
If anything, the role of public sector bank (PSB) chiefs, who got lucrative directorships on IL&FS group companies, ought to be investigated for complicity in the fudging and obfuscation that went on since 2012-13. It would be a travesty if they walked away with the best deal because the bankruptcy law favours secured creditors.
Such lenders include: IL&FS shareholders such as State Bank of India (SBI), which held 6.2% of the equity in the parent but was a lender to many of the SPVs, Central Bank of India (7.67%), HDFC (9%), Life Insurance Corporation of India (25.34% stake) along with Orix Corporation of Japan (23.54%) and Abu Dhabi Investment Authority (12.56%).
An equitable resolution process ought to give a fair deal to pension funds and debenture-holders who were defrauded by fake credit ratings and manipulated accounts. But who will speak for them? It is time the finance ministry or the prime minister’s office took an interest in the lackadaisical progress of the IL&FS resolution which has happened entirely during the tenure of this government.

4 months ago
I hope someone from FM and PM looks into the whole IBC process which is going for a toss similar to DHFl and unitech etc where small investors interests are not being taken care of which should have been the prime requirement.How come without the resolution all the lawyers etc are getting fat sumof money and it should be clearly mentioned till the resolution is closed they should not be paid and only together with the retail investors they should be paid then only they will take active interest in solving the issue quickly otherwise they are not bothered since they keep getting money for the time they prolong it.
4 months ago
In the Financial frauds, the role of bankers is the one where immediate focus is directed, perhaps because of their very visibility, and in these again, public sector bankers suffer immediate whiplash due to easy accessibility.

The roles and accountability and subsequent reprisal is too slow and non existent for the major roles played by the Auditors of such companies who fail for decades to either find the wrongdoings or conveniently turn a blind eye to it.

Same goes for rating agencies who went scotfree and their role in downgrading top rating to D post haste in ILFS.. going back years..see Sterling bio tec, satyam..etc all is not pinpointed.

The role of private banks / other fin firms who syndicate such huge loans and collect hefty fees, work in collusion with companies to hide vital facts is never questioned.

Ms dalal, we may see a lot more books coming from you on nirav modi, ILFS, etc.

I am not adding ABG n such NPA because except for name the modus operandi is the same.

The way NCLT resolutions are going and the fees paid to parties involved and exact relations of Resolution Applicants is one separate pandoras box ( which has a parallel with ARCs). Of course, needless to say, the real culprits and beneficiaryies will be swept under the carpet and Finmin and CBI and ED and media will find a way to put the blame on bankers again.
5 months ago
(1). Could you get break up of liquid assets of Rs. 16000 CR in to earning from to sales realisation, BG released and interest earned on cash in Hand?
(2). Is it possible to get break up of debt resolved in two parts - (i ). actual recovery and (ii). Hair-Cut sustained by creditors as part of resolution?
(3). Road assets of ITNL have been brought under InVit which may help institutional creditors like banks escape making provisions in balance sheet, but how can that help pensioners etc and other creditors who had invested with hope of getting higher return for living?
5 months ago
The entire nclt should focus on enabling all creditors to sustain. A select group benefits themost and they do not make the legit creditors. Needs to stop. A complete review is needed
5 months ago
The 2008 Mumbai terror attacks resulted in 174 innocent lives being lost. While one cannot and should not put a rupee value on life, I leave readers to objectively figure out what has damaged the country more – these terror attacks or the IL&FS mess. Nine terrorists were killed WHILE THEY WERE CARRYING OUT THESE ATTACKS. The lone survivor was hanged four years later. In contrast, the IL&FS financial terrorists and their handlers are sitting pretty. The solution is obvious, but who will bell the cat?
Replied to pmbhate comment 4 months ago
You are very right. Like China, these scoundrels such as Wadhawans, Parthasarthys,must be publicly shot dead as an example to all the others. I guess the reason why the Nirav Modis and Mallayas are able leave the country is because they have shared the loot with the powers that be. Those behind them should also be shot dead as an example to all the others
Replied to pmbhate comment 5 months ago
Unfortunately these terrorist wont ever be caught and will whisk away because the net is far too like a beehive..
Kamal Garg
5 months ago
(1) The biggest fraud and atrocity happened to the common and hapless investors is the "writing-off" of AT-1 bonds (which was considered as quasi-equity) by RBI.
(2) All government agencies and regulators are extremely quick to "seal-off, close-off, shut-down" any activity as soon as any such thing arises , but, when it comes to revival of a company like IL&FS, every body drags the feet to take a decision thereby further delaying the resolution process.
5 months ago
Brilliant, painstakingly done article.

Lack of transparency implies rent seaking. That's obvious here.

If the bankers and resolution experts say that "the confused process of resolution through NCLT without following the bankruptcy law is largely responsible for the mess, which is only worsened by the additional red tape of having every decision ratified by a retired judge—justice DK Jain", shouldn't they pressurise RBI even now to appoint an administrator who can handle this under IBC?

Subsidiaries can also be done the same way but fast be bringing them under Fast Track Resolution u/s 55 of IBC and setting up special benches? A professional back office can help the benches to understand and come to speedy decisions.

There are solutions for all problems. Our country lacks initiative.

Resolution of IL&FS could have created a new paradigm. But no such thing is going to happen.
5 months ago
Understand your anger and pain.
1) Why should any entity work for a bankrupt company if not assured of payment? Why should law firms work for free? Globally too this is how it works. It is sad but necessary.
2) how these law firms and consultants are selected? and how their fee is determined? This process needs to be done transparently.
3) Delay in resolution is a major issue, unfortunately it will take decades for our judicial system even to pretend that the matter is concluded.

Asif Memon.
5 months ago
The feeding frenzy over the IL&FS carcass is a prototype of India's colonial legacy. Constitution, laws and Government. This favours those with wealth, authority and power at the cost and misery of the commons:. Since 1921 and with greater viciousness after 1947: As for Gadkari, why does he need additional vehicles to the BJP's atrocious taxes, inflation, perverse interest rates and extortion (bribe) policies?
5 months ago
No Country for Old Men
5 months ago
If we observe earlier such cases , large creditors are always favored and small investors / stakeholders are left to fend for themselves . This discrimination always persisted and government must step in such cases and save the small investors / stakeholders . But going by the happenings , it’s only a wishful thinking.
5 months ago
Our problems should be placed before the notice of our Prime Minister and Finance Minister.
5 months ago
I do not know what kotak is doing and auditors and law makers without any progress should not be paid anything and till the resolution is done safe guarding the interests of the small investors no one should be paid .When nothing has been paid to the creditors how come fat sump is being siphoned off to lawyers and other notorious people .Money should be recovered from the rating agencies also for giving false information in connivance with the ilfs people and they would have got a fat commission for it.I do not know what our FM or PM is doing since just having an IBC is not enough
5 months ago
Time to replace Kotak -led team ? Why not ? Why even basic information is not available ?
5 months ago
It is nobody’s child. Who cares about the loss of public money. Uday Kotak might be a good man but he is very rigid in his views. They should have chosen a Satyam like board for an early resolution.
Replied to sivakumar_go comment 5 months ago
Satyam owed nothing to anyone. Revival of that was much easier.
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