One such company, Kanak Resources Management Ltd—controlled by its subsidiary IL&FS Environmental Infrastructure and Services Ltd—took short-term loans from group companies over the past two years, only to disburse to related parties.
Kanak Resources was formed in November 2007 as a joint venture between IL&FS Environmental (94.71%) and Centre for Development Communication or CDC (a registered trust, with 5.29% stake) and is involved in handling collection and transportation of municipal solid waste. Kanak’s former managing director, Vivek Agrawal, is the founder trustee of CDC.
Agrawal resigned from his role at Kanak Resources in June 2015 and has since filed an insolvency application against the firm at the National Company Law Tribunal (NCLT). The case was admitted in September 2017 and a resolution process in on.
A review of Kanak Resources’ FY16 and FY17 balance sheets (latest available) show that the company has taken loans from some IL&FS units and either disbursed similar quantum in loans to other subsidiaries or repaid previous loans.
In FY16, for instance, the company took short-term loans and received back earlier loans of ₹ 360 crore from IL&FS Financial Services Ltd (IFIN), IL&FS Transportation Networks Ltd (ITNL), IL&FS Renewable Energy Ltd (IREL) and Sabarmati Capital One Ltd. (SCOL). In the same year, the company loaned and repaid loans of ₹ 356 crore to IFIN, ITNL, IREL, SCOL, Hill County Properties, IL&FS Environmental and IL&FS Maritime Infrastructure Co. Ltd.
While lending to a related party is not illegal, it’s unclear why the companies within the group did not directly lend to each other and used Kanak Resources to route the money.
As is evident, the same companies appear on both sides of the transactions. This means in some cases loans were taken and partly repaid at the end of the year. Some other companies, such as Hill County, were also recipients of loans.
The story is somewhat similar in FY17 when the short-term loans taken and given were ₹ 94.3 crore and ₹ 91.4 crore, respectively.
That apart, Kanak Resources has loans from Yes Bank Ltd, Tata Motors Finance Ltd and Orix Leasing and Financial Services India Ltd.
Kanak Resources earned a profit of ₹ 1.27 crore on a revenue of ₹ 71.69 crore in FY17 and a profit of ₹ 4.82 crore on a revenue of ₹ 59.55 crore in FY16.
An email sent to IL&FS and to Kanak Resources’s company secretary remained unanswered till the time of publishing this story.
In a telephonic interview, Agrawal said he had been involved with the firm since its inception in 2007 and moved to a management role in 2012. Agrawal said he saw in 2015 that IL&FS Environmental was using this company “as a conduit to transact large amount of funds from one related entity to other". He alleged that “loans of over ₹ 100 crore were taken by the company to fund its own projects, but transacted to other related entities on the same or next day".
The company did not enter into these short-term loan transactions in FY13, FY14 or FY15, according to balance sheets reviewed by Mint.
An external consultant associated with the company said the committee of creditors (CoC) took note of these transactions and decided to not allow any further related party deals without its approval.
“The company was trying to move loans between company A to B to C and the CoC put a stop to it," the consultant said on condition of anonymity.
Agrawal alleged that even after the company’s board got suspended on 25 September 2017 following its admission to NCLT, an annual general meeting was held on 27 September 2017, for which notices were not served to minority promoter CDC.
Meanwhile, the resolution professional of Kanak Resources had sought bids under the bankruptcy code in February 2018, and received interests from three firms—Delhi MSW Solutions Ltd, IL&FS Environmental and Health Care Energy Foods Pvt. Ltd.
According to the minutes of the fourth meeting of CoC on 14 March 2018, a final resolution plan was received only from IL&FS Environmental. The plan envisaged buying out the remaining stake from CDC and was approved by the committee. Mint has reviewed a copy of the document. “There was a lot of pressure on me from IL&FS Environment to approve these transactions and I had to resign," said Agrawal.