Day Trading Stocks & Futures
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When IL&FS Put Its Joint-venture Partner behind Bars for Six Months on Trumped-up Charges: The RAHI Story
What a dangerous bunch of people! Complete abuse of power and position. Imagine if a guy who counts Raghuram Rajan and union minister Jayant Sinha as his acquaintances could go through this, what to talk of an ordinary guy like us?
https://www.moneylife.in/article/wh...-trumped-up-charges-the-rahi-story/55704.html
Umesh Baveja, founder-chairman of RAHI (Regional Aviation Holdings International), will never forget his milestone 50th birthday. Life, as he knew it ended that day, as he lay on the floor at Arthur Road jail (Mumbai), among rows of under-trials with space of less than 3x7 feet per person. He, and his chartered accountant, remained there for 180 days from 22 September 2014 until 21 March 2015.
Mr Baveja was a victim of the vicious machinations of Infrastructure Leasing & Financial Services (IL&FS) to gain control of his company, by converting a civil dispute into a criminal matter.
This is probably the worst of the horror stories about IL&FS’s misuse of State machinery and another case study of how the legal system can be exploited by powerful corporates with malevolent intent.
So, who was Umesh Baveja and how did he get embroiled in IL&FS’s machinations? A former vice-chairman of Cairn Energy, he is a lawyer, management graduate and alumnus of IIT-Delhi and counts RBI governor Raghuram Rajan and civil aviation minister Jayant Sinha among his college-mates.
Mr Baveja turned entrepreneur through a company called Comet Infra, which became RAHI in December 2009. RAHI had the vision of developing 99 regional airports by 2025 to serve industry clusters in smaller cities. Earlier that year, Ramalinga Raju of Satyam Computers had famously confessed to India’s biggest corporate fraud and, in the resolution that followed, IL&FS acquired its infrastructure company Maytas -- later renamed IL&FS Engineering and Construction Company Limited (IECCL). Since Maytas was already developing regional airports, such as Gulbarga and Shimoga in Karnataka, IL&FS noticed Mr Baveja’s ambitious aviation infrastructure company soon after.
IL&FS sought collaboration with RAHI, and also agreed to a minority holding of 40%, even though it had its own plans to develop airport infrastructure as a portfolio.
A joint venture (JV) between RAHI and IL&FS Transportation Networks Limited (ITNL) was signed in March 2010 and the company formed by the end of the year. But ITNL and RAHI began working together on the airport projects even earlier.
RAHI acquired the languishing Shimoga and Gulbarga projects from IECCL as its first two, privately developed, greenfield airports. Several payments were made to various entities for work done prior to the formal agreement. These included payments to IECCL (for the Gulbarga airport) and Comet group company (Rs4.5 crore for development expenses). RAHI was paid a project management fee for developing Gulbarga airport which was set up as a SPV (special purpose vehicle). These payments were made from the equity capital of Rs30 crore brought in by RAHI and Rs20 crore by ITNL.
In line with IL&FS’s template, its financial arm, IL&FS Financial Services (IFIN), was to syndicate the debt, which it did through a consortium led by Bank of Baroda (BoB), for a hefty fee.
According to Mr Baveja, the pace of development and its future potential enhanced RAHI’s value. A valuation report by SPA Capital had then valued RAHI at Rs600 crore. While Mr Baveja was flying high and even planned a regional airline (in 2012), his success was souring things with IL&FS which now wanted majority control.
In the past IL&FS has used its enormous clout to unilaterally change equity holdings or cut partners out of projects (this has been documented earlier). Naturally, Mr Baveja resisted; but he didn’t realise how malicious IL&FS could get. Ramachand Karunakaran with Mukund Sapre managed the venture with RAHI.
IL&FS’s strategy was to squeeze RAHI financially while harassing it from multiple directions. Mr Sapre, who was its nominee on the board, would not attend board meetings when the disputes began. His presence was necessary for approval of further capital injection. The financial squeeze naturally delayed projects and led to pressure from the government.
Eventually, things reached a point where RAHI and ITNL decided to part ways. But it wasn’t so simple. IL&FS did not plan to let the project go. It used its influence with BoB to halt the disbursement of sanctioned payments to RAHI. MD Mallya, who was the BoB chairman then, has not responded to my message seeking his comments.
IL&FS blocked RAHI’s attempt to seek arbitration against IECCL which was stalling its capital raising plans. It also lobbied with the Karnataka government to take over the projects from RAHI (with a view to getting them back later). Having starved the Gulbarga project of funds, it got Corporation Bank to declare it a wilful defaulter.
At the same time, IL&FS misused its vast resources to get IECCL to game the judicial system to block RAHI’s attempt to take the issue to arbitration, as per the contract. Its petition was dismissed by the Karnataka High Court on 23 July 2013; it approached the Supreme Court seeking a stay on the High Court’s order. The apex court dismissed it on 23 August 2013.
Undeterred, IL&FS went back to the Karnataka High Court with a review petition which was also dismissed on 22 November 2013. Given the expense of legal proceedings in India, this strategy is aimed at coercing the capitulation of financially weaker entities. In this case, RAHI was nicely cornered by starving it of money.
What a dangerous bunch of people! Complete abuse of power and position. Imagine if a guy who counts Raghuram Rajan and union minister Jayant Sinha as his acquaintances could go through this, what to talk of an ordinary guy like us?
https://www.moneylife.in/article/wh...-trumped-up-charges-the-rahi-story/55704.html
Umesh Baveja, founder-chairman of RAHI (Regional Aviation Holdings International), will never forget his milestone 50th birthday. Life, as he knew it ended that day, as he lay on the floor at Arthur Road jail (Mumbai), among rows of under-trials with space of less than 3x7 feet per person. He, and his chartered accountant, remained there for 180 days from 22 September 2014 until 21 March 2015.
Mr Baveja was a victim of the vicious machinations of Infrastructure Leasing & Financial Services (IL&FS) to gain control of his company, by converting a civil dispute into a criminal matter.
This is probably the worst of the horror stories about IL&FS’s misuse of State machinery and another case study of how the legal system can be exploited by powerful corporates with malevolent intent.
So, who was Umesh Baveja and how did he get embroiled in IL&FS’s machinations? A former vice-chairman of Cairn Energy, he is a lawyer, management graduate and alumnus of IIT-Delhi and counts RBI governor Raghuram Rajan and civil aviation minister Jayant Sinha among his college-mates.
Mr Baveja turned entrepreneur through a company called Comet Infra, which became RAHI in December 2009. RAHI had the vision of developing 99 regional airports by 2025 to serve industry clusters in smaller cities. Earlier that year, Ramalinga Raju of Satyam Computers had famously confessed to India’s biggest corporate fraud and, in the resolution that followed, IL&FS acquired its infrastructure company Maytas -- later renamed IL&FS Engineering and Construction Company Limited (IECCL). Since Maytas was already developing regional airports, such as Gulbarga and Shimoga in Karnataka, IL&FS noticed Mr Baveja’s ambitious aviation infrastructure company soon after.
IL&FS sought collaboration with RAHI, and also agreed to a minority holding of 40%, even though it had its own plans to develop airport infrastructure as a portfolio.
A joint venture (JV) between RAHI and IL&FS Transportation Networks Limited (ITNL) was signed in March 2010 and the company formed by the end of the year. But ITNL and RAHI began working together on the airport projects even earlier.
RAHI acquired the languishing Shimoga and Gulbarga projects from IECCL as its first two, privately developed, greenfield airports. Several payments were made to various entities for work done prior to the formal agreement. These included payments to IECCL (for the Gulbarga airport) and Comet group company (Rs4.5 crore for development expenses). RAHI was paid a project management fee for developing Gulbarga airport which was set up as a SPV (special purpose vehicle). These payments were made from the equity capital of Rs30 crore brought in by RAHI and Rs20 crore by ITNL.
In line with IL&FS’s template, its financial arm, IL&FS Financial Services (IFIN), was to syndicate the debt, which it did through a consortium led by Bank of Baroda (BoB), for a hefty fee.
According to Mr Baveja, the pace of development and its future potential enhanced RAHI’s value. A valuation report by SPA Capital had then valued RAHI at Rs600 crore. While Mr Baveja was flying high and even planned a regional airline (in 2012), his success was souring things with IL&FS which now wanted majority control.
In the past IL&FS has used its enormous clout to unilaterally change equity holdings or cut partners out of projects (this has been documented earlier). Naturally, Mr Baveja resisted; but he didn’t realise how malicious IL&FS could get. Ramachand Karunakaran with Mukund Sapre managed the venture with RAHI.
IL&FS’s strategy was to squeeze RAHI financially while harassing it from multiple directions. Mr Sapre, who was its nominee on the board, would not attend board meetings when the disputes began. His presence was necessary for approval of further capital injection. The financial squeeze naturally delayed projects and led to pressure from the government.
Eventually, things reached a point where RAHI and ITNL decided to part ways. But it wasn’t so simple. IL&FS did not plan to let the project go. It used its influence with BoB to halt the disbursement of sanctioned payments to RAHI. MD Mallya, who was the BoB chairman then, has not responded to my message seeking his comments.
IL&FS blocked RAHI’s attempt to seek arbitration against IECCL which was stalling its capital raising plans. It also lobbied with the Karnataka government to take over the projects from RAHI (with a view to getting them back later). Having starved the Gulbarga project of funds, it got Corporation Bank to declare it a wilful defaulter.
At the same time, IL&FS misused its vast resources to get IECCL to game the judicial system to block RAHI’s attempt to take the issue to arbitration, as per the contract. Its petition was dismissed by the Karnataka High Court on 23 July 2013; it approached the Supreme Court seeking a stay on the High Court’s order. The apex court dismissed it on 23 August 2013.
Undeterred, IL&FS went back to the Karnataka High Court with a review petition which was also dismissed on 22 November 2013. Given the expense of legal proceedings in India, this strategy is aimed at coercing the capitulation of financially weaker entities. In this case, RAHI was nicely cornered by starving it of money.
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