After a top official of IL&FS sent a complaint to the Ministry of Corporate Affairs alleging “strong” conflict of interest in Cyril Amarchand Mangaldas (CAM)’s association with the crisis-ridden company as its legal adviser, the financial institution has started searching for another law firm.
The complaint alleged that CAM was legal adviser to the former board of IL&FS, which is facing criminal and legal action by government agencies, and continues to perform that role for the new board, too.
The complaint also alleged that IL&FS officials feel that speaking about the conflict of interest issues of CAM would “upset” Uday Kotak, chairman of the new IL&FS board, because of his “longstanding business relationship” with CAM.
Following the Ministry’s directive to look into the issue, the new board has shortlisted four separate law firms for the position and is likely to conduct interviews this week. The board of IL&FS may also discuss the appointment of a new legal advisor in its board meeting on July 24.
When contacted, a spokesperson for Uday Kotak said: “Mr Uday Kotak and the new board of IL&FS are committed to the highest levels of corporate governance, and all decisions of the board are taken solely in the interest of IL&FS. Therefore, any allegation of emotion or relationship as the basis of decision making by anyone is baseless.”
Cyril Shroff, managing partner of CAM, said: “Our firm does not have any conflict of interest.”
The complaint to the Ministry alleged CAM had been giving off-the-record legal advice to IL&FS Transportation Networks India Ltd (ITNL) during its extreme liquidity crisis in mid-2018. It alleged that despite knowing about the crisis at ITNL, a listed entity, the law firm did not advice the company to disclose these issues to SEBI, the capital markets regulator.
To validate its claims, the complaint cited an email found during the forensic audit of ITNL, purportedly written by Ravi Parthasarathy, former chairman of IL&FS, to a few top officials of the ITNL, IL&FS Financial Services (IFIN) and IL&FS.
Parthasarthy’s email of May 21, 2018, pertained to the liquidity crisis at ITNL and allegedly stated that he discussed the issues of ITNL with Cyril Shroff and a top official of an audit firm. Based on the discussions, Parthasarthy purportedly stated in the email, approaching the National Company Law Tribunal under the Insolvency and Bankruptcy Code may not be a suitable option for the firm. The email goes on to state that ITNL should instead create a scheme for coming out of the liquidity crisis and approach the lenders.
The IL&FS Group has total liabilities of about Rs 94,000 crore. The alleged financial irregularities at IL&FS came to light in September 2018, after some group entities started defaulting on debt repayments. The entire group has been defaulting on repayments since then. The government subsequently superseded the company’s board, and appointed a new management to work on a resolution plan.