ILFS-Tiruppur Saga: Will LIC’s Demand Get Timely Political Support?
The good news is that Infrastructure Leasing & Financial Services (IL&FS), under the government-appointed board of directors, has managed to secure a lot of assets, and, over a four-year period, made payouts through two entities. It has also persuaded a few public sector partners of the failed, hydra-like conglomerate to acquire joint-venture companies. The IL&FS group has also been downsized from a ridiculous 347 entities to around 88.
Given this background, isn’t it strange that the goings-on at three key water privatisation projects at Tiruppur in Tamil Nadu remain unresolved and murky as ever? This needs to be seen in the context of three important facts:
  • The water privatisation projects were conceived in the 1990s as a unique experiment to bring water to prosperous but water-starved hosiery exporting towns like Tiruppur;
  • Unlike other IL&FS projects with state or public sector partners, these critical projects in Tamil Nadu have made little or no headway towards resolution and remain mired in litigation;
  • Even though forensic audits and initial investigations (now in limbo) have established how IL&FS colluded with bureaucrats in multiple states, they continue to hold sway.
Here’s what is happening at Tiruppur’s water project: The board of New Tiruppur Area Development Corporation Limited (NTADCL) has refused to permit Life Insurance Corporation (LIC) to have a nominee director on its board. What is it afraid of and why?
This is a story worth exploring, especially in the context of the furore in Parliament over LIC and State Bank of India (SBI) extending to the Adani group. Consider the irony. On the one hand, LIC is being hauled over the coals for investing in the Adani group and here it is being kept out of the board of one subsidiary of a failed conglomerate (IL&FS), under a government-appointed administration, that too in an Opposition-ruled state. What better example to prove that good governance, investigation and regulation is never a serious concern for our elected representatives; it is only about politics!
Let’s look at NTADCL more closely. It was incorporated in the 1990s as the first-ever water privatisation project under what was known as the Tiruppur Area Development Programme (TADP). It was a joint venture between the Tamil Nadu (TN) government, IL&FS and the beneficiaries of the water and sanitation programme, namely, the Tiruppur Exporters Association. The investment in NTADCL was through Tamil Nadu Water Investment Company Limited (TWIC), which holds 32.5% of the equity, IL&FS with just 11.6% and AIDQUA Holdings (Mauritius), Inc (AIDQUA), the only foreign investor holding a 27.89% stake, with smaller investments coming from LIC, General Insurance Corporation (GIC) and others.
Although IL&FS had a small shareholding in NTADCL, it controlled every action of the company through its 54% ownership in the promoter TWIC, set up as a special purpose vehicle (SPV) jointly with the TN government. More on this later.
Typical of how IL&FS operated, things turned sour decades ago with legal battles over IL&FS attempting to saddle the company with costs such as Rs10 crore to manage an escrow account for a US multilateral agency (USAID) loan; the cost of incorporation of TWIC and also, unilaterally changing the shareholding pattern. Right until it crashed in August 2018, IL&FS exuded such power and influence over the governments it partnered with, that regulators turned a blind eye to allegations of wrongdoing; litigation against it dragged on for decades without hearings and it also threatened directors who dared to ask tough questions. (Read: 1. 31 October 2018: IL&FS Scandal: When a Director Was Threatened with Jail and Slapped with Criminal Defamation for Raising Questions 2. 12 December 2018: IL&FS’s Tirupur Project: Destructive Impact of RBI’s Failure To Act)
One would have thought this high-handedness would end after 2018 when a government appointed board was asked to handle the IL&FS resolution, the serious frauds investigation office (SFIO) was tasked with conducting a detailed investigation, and forensic audits commissioned by the new board came up with shocking revelations. The Grant Thornton reports, which are in the public domain, confirmed large-scale fraud, mismanagement of funds, a total disregard for regulators, capricious actions and circular deals that hid poor financial performance for several years and, finally, how its high credit ratings were engineered through dubious inducements.
Yet, as I wrote earlier, nothing changed at the Tiruppur water companies barring a change in the IAS officers on the board. Then, in December 2022, IL&FS decided to sell its 54% holding in TWICL to the TN government as part of the resolution process. According to the shareholders’ agreement signed by all parties, this would require prior consent from all shareholders including AIDQUA, LIC, GIC and other insurers, etc. That was easier said than done, because of litigation filed by AIDQUA pending in the Supreme Court over IL&FS’s decision to unilaterally change the shareholding of investors. This is an issue that the IL&FS board has not addressed  even under the chairmanship of banker Uday Kotak.
Around the same time, LIC decided to take an interest in NTADCL and sought a seat on the board of directors. Perhaps it wanted a say in the sale process to ensure it got a fair deal. Surprisingly, the new management, headed by chairman Shiv Das Meena and managing director (MD) Chandrakant B Kamble, opposed it to the point of treating LIC like a hostile investor. Mr Kamble even obtained a legal opinion on why LIC should be denied the board position. The legal opinion itself is questionable, since LIC had sought the appointment of its nominee under Section 6A of the Life Insurance Corporation Act, 1956.
The Act empowers it to impose conditions “it may think fit, necessary or expedient to protect LIC’s interests (in concerns in which it has an investment)” including the appointment of ‘one or more directors’ …which shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force or in the memorandum, articles of association or any other instrument relating to the concern, and any provision regarding share, qualification, age limit, number of directorships, removal from office of directors and such like conditions contained in any such law or instrument aforesaid, shall not apply to any director appointed by the Corporation in pursuance of the arrangement as aforesaid.”
This is unambiguous and even more relevant after LIC has gone public. Intriguingly, while government bureaucrats are opposed to it, the lone foreign investor wrote a formal letter supporting LIC’s directorship in December 2022.
Remember LIC, with a 25.34% stake, is the largest shareholder in IL&FS, the beleaguered holding entity. In fact, it was even being pushed to bailout the entire conglomerate in 2018, when IL&FS began to default on its loan obligations. So why is the NTADCL board so afraid of an LIC nominee? And why would it not want to answer questions from LIC, no matter how uncomfortable they are?
LIC had, indeed, been asking hard questions for over 15 years. In December 2008, it rejected a rights issue planned at par and questioned whether the sponsors had contributed their share to the debt service reserve fund. In March 2009, it outright rejected the debt restructuring proposal of the company. Eventually, a third debt restructuring was pushed through by IL&FS with support from IDBI Bank in 2011. Then too, the LIC representative raised many objections in writing to the conversion of debt to equity, but had to go along with the ‘super-majority’ decision that bound lenders. LIC never signed the ‘Master Restructuring Agreement’ dated 29 March 2012 for the corporate debt restructuring.
Meanwhile, the Reserve Bank of India (RBI) as regulator, shamelessly refused to intervene, despite strong letters from AIDQUA, which is a large investor in NTADCL. LIC is already a big loser with its investment in IL&FS (the parent holding company) and was accused of not being alert, as well as NTADCL. AIDQUA, the foreign investor, is already in the Supreme Court against what it says is “an attempt to transfer shares in violation of the Articles of Association of NTADCL” by ignoring a dispute that is already sub-judice.
Looking at it dispassionately, it would appear that the new government-appointed board of IL&FS has no interest in behaving any differently from the old one led by Ravi Parthasarathy. In fact, it even continues with the same legal firm of Cyril Amarchand Mangaldas, which has been in the news over the Adani connection. The Tamil Nadu government is also happy to have its bureaucrats play along, even though, as an Opposition-ruled state, its political leaders have a completely different take when it comes to the Adani dispute.
The Adani controversy makes this story extremely relevant for three reasons. First, IL&FS collapsed under the weight of dubious dealings and regulators who failed to do their job. This caused a systemic shock and inflicted huge losses on investors who thought they held AAA-rated debt in IL&FS companies. The high-cost resolution process that is going on for five years is also ignoring legitimate concerns and even litigation filed by a key investor.
If our politicians want regulators or even LIC and SBI to act decisively and independently, they need to be empowered, supported and questioned in every major scandal, not merely when it is politically expedient to do so. The Supreme Court wants a committee to protect investors after the Hindenburg report, but what about the investors and creditors who have lost heavily in IL&FS and cannot even get a date or a hearing in the apex court for years on end? Genuine investor protection should not be on a case-by-case basis.
1 year ago
This case typifies what the IAS is now, a corrupt, power hungry, unscrupulous and rotting 'iron frame' of our governance structure. The Central government should transfer these babus to insignificant positions, stopping all their future pay raises and terminal benefits, it would be a deterrent and in fact possibly less than the interest and opportunity loss that IL& FS creditors are suffering.
Meenal Mamdani
1 year ago
Wow, such a hard hitting article in America would have had reporters begging to get the details which would make front page news in any newspaper, general or finance-focused.
Yet here there seems to be complete indifference from individual and institutional investors to get to the bottom of this explosive story.
As usual, the individual/institution expect the government to bring the culprits to the dock.

I admire Ms Dalal and Mr Basu for pursuing such investigations, despite indifference from concerned parties, for so many years and establishing a track record that is enviable.
The duo continue to expose crimes in the financial sector even though the injured parties are nonchalant. Hats off to you two.
I hope that Indian investors become aggressive about enforcing their rights and hold the miscreants, whether dishonest govt employees or private entities, to account.
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