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ILFS AND THE NEGLIGENCE OF LIC , SBI ETC.

ILFS

To state the very obvious, the ILFS scam is a giant one, due to failure and malpractices by one and all, at the highest management levels. Its ongoing litany of debt defaults is the culmination of rampant mismanagement and misreporting, year after year, to conceal its rotten state of affairs. So extensive is the size of the misconduct, that top multiple agencies/authorities are investigating its state of affairs to unravel the truth, which include the RBI, the SFIO and the MCA. Alarmed by the state of its misreporting, not just of its finances/state of affairs, but its number of subsidiaries too, that the new board of directors, headed by Uday Kotak, has ordered a fresh audit, to ascertain its true state of affairs. It is very clear that its audited financial statements have been deliberately window dressed to conceal the truth. The very basics in this case have been supressed, viz the number of its subsidiaries, the size of its overall borrowings, its earnings and losses, the laundering of funds and the contingent liabilities.

While it is clearly a case of blatant misuse/misappropriation of funds under the cleverly cultivated image of being a quasi government entity, which ILFS was not, an extensive blame game is on. Though the negligence and complicity of the independent directors, who are persons of eminence is crystal clear, they yet very audaciously deny any wrong doing and directly blame the management of ILFS, led by its chairman Ravi Parthasarathy. Interestingly, its former highly paid MD/VC Hair Sankaran denies any wrong doing, mismanagement or misgovernance and says that all the reports are biased and wrong. The credit rating agencies and the statutory auditors of ILFS, who clearly facilitated the malpractices at ILFS are silent for obvious reasons.

The former VC/MD Hari Sankaran, who has been a key player in this entire ILFS saga, not only denies any wrong doing, but also blames the shareholder nominee directors of LIC, SBI etc for the failure and downfall of ILFS. In his reply petition to the NCLT he clearly mentions that not only were these directors aware of the entire state of affairs of ILFS at all times, but that by their indecisiveness and inaction, they blocked all management efforts to sell its subsidiaries and raise funds, even at a time when there were clear offers in hand, which included the merger offer with Piramal in 2015 and the 2017 offer of Lone Star, a US based fund to acquire one of its subsidiaries for Rs.6300 crores. They took no decision on monetising/sale of assets investment offers, capital raising plans or external acquisitions, which have led to the collapse of ILFS. He says that though they were informed in the board meeting on 31st July, that if a rights issue was not done immediately, ILFS would default on payment, they yet took no decision or action.

Though Hari Sankaran is under a huge closed and comes with no clean past, his allegations of inaction by the nominees of LIC, SBI etc are worth pondering. These institutions which manage huge public money are known to be negligent shareholders, who have been careless and not vigilant about shareholder interest, which they fail to protect. The poor state of PSBs in which LIC is a large shareholder, stands unfortunate testimony to this reality. If the independent directors of ILFS are to be blamed, so is the case with the shareholder directors, who bear the blame for being careless and irresponsible about the safety/security of the public funds that they manage.

 

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