India Inc.’s original mea culpa was almost a decade back, when on 7 January 2009 Ramalinga Raju, the billionaire promoter of Satyam Computers, then India’s fourth largest information technology (IT) outsourcing services firm, wrote a letter to India’s markets regulator confessing to a $1.4 billion fraud.

Less than 48 hours later, the government dissolved the board of Satyam, and a day later, it set up a three-member panel to run the company. Deepak Parekh, chairman of the Housing Development Finance Corp., Kiran Karnik, former president of the National Association of Software and Service Companies, and C. Achuthan, a former tribunal member of the capital markets watchdog, the Securities & Exchange Board of India were part of the panel.

By 13 April 2009, the three-member panel had successfully found a suitor for Satyam in Tech Mahindra, then owned by Mahindra Group and partly by British Telecom, which agreed to pay 2,889 crore for a 51% share.

Almost a decade later, on 11 September 2018, Infrastructure Leasing and Financial Services Ltd (IL&FS) defaulted on 300 crore of short-term loan from Small Industries Development Bank of India. Subsequently, even as the three listed firms of the Group continued to default on loans, the Reserve Bank of India ordered a special audit of the company.

Still, the government remained hopeful.

“IL&FS is independent of government. It has independent board and shareholders. So, IL&FS needs to resolve its issues on its own and I think it is capable of doing it," economic affairs secretary Subhash Chandra Garg told PTI in an interview on 24 September.

Life Insurance Corp. (LIC), IL&FS’s biggest shareholder with 25.34% stake, too remained optimistic.

“We will ensure IL&FS does not collapse. We will not allow contagion to spread from IL&FS," LIC chairman V.K. Sharma told reporters on 25 September.

Clearly, the government, shareholders and rating agencies (which had still not downgraded many of the company’s group companies) were all caught napping even as on 1 October—20 days after the crisis surfaced—the Ministry of Corporate Affairs received approval from National Company Law Tribunal (NCLT) to appoint a ten-member board to supersede its existing board.

The government’s move to bring in directors from outside to rescue IL&FS is a stark reminder of its rescue act in 2009 for Satyam.

However, there are four differences between l’affaire Satyam and IL&FS.

First, Satyam was a single large IT services firm while IL&FS has 169 group companies, including subsidiaries, joint ventures and associate entities.

Second, Satyam was the saga of a fraud committed by its promoter Ramalinga Raju. In the case of IL&FS, the government suspects that there has been financial wrongdoing committed by the management, and for this reason, it has asked one of the investigative agencies, the Serious Fraud Investigations Office, to start a probe.

Third, Satyam was assured of the annuity-based business from its customers, including Citigroup and Cisco. This surely helped the company in the transitory period when the then government-appointed board was looking to find a suitor for the firm.

By contrast, many of the projects carried out by IL&FS under the public-private partnership model are in a limbo. The company does not have enough cash to even pay lenders on many of its short-term loans, leading to many defaults.

Finally, unlike Satyam, IL&FS carries over 91,000 crore in debt.

So what should the newly appointed board of IL&FS do to save the company?

“Two of the critical things for any business are HR and customers. First, you need to make sure that you are able to retain people. Second, you need to be certain that your customer don’t walk away from you," said Kiran Karnik. “I remember, we all were appointed on a Sunday evening, and from Monday morning, we were on calls, speaking with employees and customers"

“One of the things you need to make certain is that salaries to employees are paid. I remember then that we had made it sure that employees were being paid on time. There is no greater assurance for your employees than they getting paid at the end of the month".

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