The dispute between New Tirupur Area Development Corporation Limited (NTADCL) and its shareholder Infrastructure Leasing & Financial Services Ltd. (IL&FS) over debt repayment has now reached the doorstep of the Registrar of Companies (RoC), Coimbatore.
The NTADCL management has written to the RoC alleging conflict of interest over participation of IL&FS’s nominee directors in board meetings with an agenda related to disbursement of IL&FS’s senior loan. However, the IL&FS has denied the charge.
In 1995, the NTADCL was incorporated as a special purpose vehicle and public utility to improve potable water and sewerage infrastructure in Tiruppur through an integrated water supply and sewerage project. In 2000, the Tamil Nadu Water Investment Company Ltd. (TWIC) was formed to route all investments into the NTADCL. The Tamil Nadu government owns a 46% stake in the TWIC and the IL&FS, 54%. The TWIC holds a 28.72% stake in the NTADCL. Overall, the State government owns a 38.32% stake in the NTADCL, and the IL&FS, 25.88%.
The total cost of the project was ₹1,023 crore and the financial closure was done in March 2002. For the project, the IL&FS brought in ₹180 crore as a senior loan, of which it raised ₹90 crore from the U.S. Agency for International Development (USAID). On this loan, the IL&FS made deductions of about ₹41.24 crore and disbursed ₹48.76 crore to the NTADCL.
Due to the deteriorating financial position of the NTADCL, a corporate debt restructuring (CDR) plan was implemented on March 29, 2012, as part of which the State government infused ₹150 crore into the NTADCL. As per the plan, 30% of the IL&FS debt was converted into equity. After the implementation of the CDR, the senior loan to be repaid by the NTADCL was ₹120.27 crore.
In its letter to the RoC, the NTADCL management has alleged that the deduction of ₹41.24 crore by the erstwhile IL&FS management was illegal and that the short-disbursement of senior loan by the IL&FS resulted in more financial implications. The NTADCL management decided to stop payment to the IL&FS based on legal opinion, it said.
The NTADCL further said that it had been defrauded by the erstwhile IL&FS management and made excess payment to the tune of ₹249 crore.
It pointed out that out of the nine directors, three were nominees of the IL&FS — L. Krishnan(appointed through the TWIC as a nominee of the IL&FS), G. Mahalingam (appointed as a Board Member in the IL&FS Ltd. and nominated directly as the IL&FS nominee in the Board of NTADCL), and Baijiu Mathew — and sought the intervention of the RoC to direct the nominee directors of the IL&FS not to participate on the agenda items related to IL&FS senior loan disbursement issue. It also requested the RoC to refer the short-disbursement issue for investigation by Serious Fraud Investigation Office (SFIO).
Based on the NTADCL’s letter, the RoC sought clarifications from the nominee directors of the IL&FS. In a letter, dated March 5, the RoC said that till the matter was under consideration, the nominee directors should refrain from attending the board meeting relating to the agenda items under conflict of interest.
Responding to the RoC, the IL&FS said that the issues raised by the NTADCL were already sub judice before National Company Law Tribunal, Mumbai, including by way of proceedings initiated by the NTADCL itself. It also denied the allegations of fraud made by the NTADCL and said that the latter had unilaterally stopped repaying the IL&FS Senior Loan to the tune of ₹52.92 crore.
It said based on an order issued by Regional Director of the Union Ministry of Corporate Affairs (Western Region) dated September 30, 2019, SFIO has already launched an investigation into IL&FS and its group companies including NTADCL and so a second reference to the SFIO cannot be made.
IL&FS further said its new board (constituted post the fiasco in 2018) including Mr. Mahalingam have been appointed by the NCLT on the recommendation of the Ministry of Corporate Affairs.
The new board and nominee directors have been granted immunity by NCLT. The IL&FS Nominee Directors are also functioning under the aegis of the New Board (who in turn are appointed by the NCLT) and participating in NTADCL Board’s meeting with a view to not just safeguard the interest of IL&FS but also the interest of NTADCL and in larger interest of all stakeholders of the IL&FS Group and in larger public interest. In these circumstances, the question of conflict of interest cannot and does not arise, it said.
The IL&FS also requested the RoC to dismiss the NTADCL’s compliant and unconditionally withdraw the directions issued on March 5 and restore status quo.
Meanwhile, according to sources Mr. Mahalingam has resigned and was replaced by another director from the IL&FS.
