Mumbai: Hari Sankaran, the ousted vice chairman of Infrastructure Leasing and Financial Services Ltd (IL&FS), has suggested to a court that an independent foreign agency, rather than a local one, be hired to probe the company’s affairs leading to the supersession of its board earlier this month.

Sankaran said the appointment of an overseas agency, possibly from the UK, Israel or Singapore, would help prove that there was no wrongdoing or mismanagement in the company and ensure that the findings are unbiased. He was responding to a government petition at the National Company Law Tribunal (NCLT).

“Such a course would avoid any hint of a conflict of interest, as over the years, the known experts/consultants having a presence in India or their associates would have done some work for Respondent No. 1 (IL&FS) and its group companies, having regard to the scale and breadth of their operations," Sankaran said in his 34-page response, a copy of which was reviewed by Mint.

A forensic investigation by an independent body would be capable of assessing the systems and processes at IL&FS and its group companies, he said.

“[This] will establish that there could have been no mismanagement of funds or unscrupulous acts committed without these coming to light," Sankaran said in his response to the government’s petition to supersede IL&FS’s board.

IL&FS has accumulated a debt of more than 91,000 crore and defaulted on some of its payment obligations. Subsequently, lenders to the group, including banks, approached NCLT, followed by the government forcing a change of guard at the group.

On 1 October, the ministry of corporate affairs (MCA), through its regional director Manmohan Juneja, approached the Mumbai bench of NCLT to supersede the board of IL&FS and appoint six new members on its board, including Uday Kotak, managing director of Kotak Mahindra Bank.

Allowing the plea filed by the government, NCLT ordered all the suspended directors of the firm, including Sankaran, to file their response by 15 October. MCA will have to file its submission, based on the response of the erstwhile board, by 30 October. The tribunal will hear the matter next on 31 October.

Denying any wrongdoing, Sankaran said that allegations of mismanagement or compromise in corporate governance norms or risk management on his part were made on a general and vague basis, with no substantiation or detail.

Defending the IL&FS management, Sankaran claimed in his response that delays by shareholders, particularly Life Insurance Corporation of India (LIC), in deciding on external acquisitions or investment offers and capital-raising plans, had brought IL&FS to its current state.

Sankaran recounted that in 2015, a term sheet was signed between IL&FS and Piramal Financial Services Enterprises for a structured merger of the entities. The term sheet had standstill obligations on IL&FS for three-four months, but was later extended to almost 9-10 months, “largely because LIC took time to consider the proposal and ultimately did not agree with the merger valuation". This delay, Sankaran said, had an adverse impact on the finances of the company as no additional funds could be raised through equity or debt throughout this period. The Piramal proposal was eventually unsuccessful and was called off in November 2015.

Similarly, in 2017, a term sheet was signed with Lone Star, under which the US-based fund agreed to infuse about 6,300 crore as equity into IL&FS Transportation Networks Ltd . Under this term sheet, IL&FS was again subjected to “standstill obligations" up to 30 June 2018.

At the board meeting of 21 July, Sankaran said that it was decided to have a rights issue of equity shares to raise 4,500 crore, along with availing a line of credit of 2,500 crore from LIC and 1,000 crore from State Bank of India. “It was clearly understood in the said meeting that, in the event these monies were not forthcoming, Respondent No.1 [IL&FS] would face defaults," he said.

SBI Capital Markets Ltd (SBI Caps) was hired by the board to assess the price at which the equity shares would be offered. SBI Caps determined the value to be 349 per share, which was reduced to 150 per share at the next board meeting on 29 August to make it attractive for the shareholders. “Both the rights issue and the line of credit did not go through till 1 October 2018, when the order in the present petition was passed," he said, referring to the government’s petition to supersede the IL&FS board.

The former vice chairman and managing director clarified that IL&FS has several subsidiaries, of which relief was sought only for 169 group companies. Kotak had recently said that IL&FS has 348 group entities, far higher than the initial estimate of 169 subsidiaries.

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Sankaran also clarified in his response that the possibility of defaults was known to all stakeholders and to the regulatory authorities, as also the steps taken or contemplated to avoid such defaults.

“Central government, through its agencies, controls a little over 40% (i.e. LIC - 25.34%, Central Bank of India - 7.67%, State Bank of India - 6.42% and UTI-UTI Linked Insurance Plan-UTI Asset Management Co. Ltd - 0.82%, aggregating to 40.25%) of the total equity of Respondent No. 1 [IL&FS] anyway. The central government has therefore, always been fully cognizant and aware of the management, business plan, project development and financing plan of Respondent No. 1 [IL&FS]," said Sankaran.

An IL&FS spokesman didn’t respond to an email seeking comment.

Sankaran did not respond to a call and a text message sent by Mint.

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