Editors’ Note: One of the more interesting contradictions that have come out of the Infrastructure Leasing & Financial Services (IL&FS) controversy is that on one hand the massive shadow bank is struggling to get out from under its debt; on the other, it is accused of getting away with gold-plated contracts or entering into one-sided agreements with state governments that allowed it to reap rewards without bearing too much risk.

One particular joint venture that has come under a spotlight and is of political significance is GIFT City, Prime Minister Narendra Modi’s pet project to set up an international finance centre in Gujarat.

In 2015, GIFT City faced a damning public interest litigation (PIL) filed by D.C. Anjaria, its first independent director and former head of the board’s audit committee. GIFT City is a 50:50 joint venture between Gujarat Urban Development, a state government undertaking, and IL&FS.

Anjaria has alleged irregularities in many aspects of the project and also claimed that much of it was in favour of the private sector partner, IL&FS. This includes effective control of the land, gold-plated management contracts and expensive vendors appointed who didn’t do their jobs.

His allegations have been refuted by the current management of GIFT City as being “false, malicious, factually incorrect and deliberately misleading.”

After three years of near-stagnation on the legal front, Anjaria recently filed two civil applications with the Gujarat high court, informing them of the current situation at IL&FS and the Modi government’s takeover of the company. The matter is set to be heard on November 28, 2018.

In an interview with The Wire, Anjaria talks about the issues raised in his case and why he wants a court-directed probe.



Can you walk us through the basic issues you raise in your PIL petition? How long were you at GIFT city and when did you leave?

The public interest litigation has various contentions on facts as well as on law. All issues concern ‘public interest’ as GIFT City project has consumed enormous public resources in terms of land, investment by Government of Gujarat (GoG) and lending by financial institutions and banks.The concept of an international finance centre based in Gujarat was worked out by me in 2005, presented to Gujarat government in 2006, accepted then, and in mid-2007, I was invited to be an independent director on the board of GIFTCL (Gift City Company Ltd). My directorship was not renewed in mid- 2012.

The broad issues that are raised in PIL are:

One, despite GIFT City project being a ‘public authority’ within meaning of RTI, it is not complying with RTI Act. The reason is obvious and does not require great intelligence to decipher, i.e. it wants to avoid public scrutiny so as to cover financial irregularities.

Two, despite GIFT City project being amenable to CAG audit, it does not offer itself for CAG Audit. The funds invested by Government of Gujarat and money that it will receive from GIFT City project will be directly going out and into government coffers.

Three, the single-biggest contract for designing and master planning of city was given to Fairwood Consultant (FC) without any tender and without assessing project executing capabilities. FC has not discharged any of its obligations but received Rs 178 crore as fees. The management itself has acknowledged the problem and filed for arbitration later, but not when I had complained.

Four, IL&FS has used its subsidiaries to siphon off money from GIFTCL (Gift City Company Ltd). These subsidiaries have no track record of performance, there were no tenders invited before awarding them service contract. There is no account of what services have been discharged by these subsidiaries but fact remains that they are paid for alleged ‘services’. In this background and modus operandi, the web of subsidiaries of IL&FS assumes significance.

IL&FS has also awarded itself development rights of GIFT City Project at a ‘discount’. While development rights are issued at discount to IL&FS, GoG, another shareholder is not issued such development rights. The question that begs an answer is why one shareholder gets development rights at a ‘discount’ whereas another shareholder doesn’t.

This is clear loss to the exchequer and clear gain to IL&FS. These rights were awarded when I as an independent director objected. Directors nominated by GoG on the board of GIFCTL approved such a grant despite objections raised by the independent director.This also proves collusion between IL&FS and directors nominated by GoG.

Five, the accounts are fabricated and audited accounts are not in consonance with guidance note issued by ICAI. The sale revenue from development rights is not recorded in the books. The auditors have obliged by not reporting non-compliance with the guidance note

The minutes books of GIFTCL are false and fabricated. Objections raised by me with respect to FC and sale of development rights at discount to IL&FS were not recorded. The company secretary and CEO ensured that incorrect minutes are recorded, and in the case of the audit committee, the correct minutes sent by me were ignored.

IL&FS, without bringing ‘matching capital’, has been enjoying the fruits of an equity partner.

The most important asset for GIFT City project — land — is given by GoG on lease for 99 years for token rent of Rs 1. This lease allows GIFTCL to mortgage the land and mortgaging such land to public sector banks and FIs, the GIFT City project is executed. So asset is of GoG and it is mortgaged to Banks who have also invested ‘public money”. So all risk of ‘public resources’ loss is on GOG.

Like many other of its contracts, a key source of contention here appears to be that while a joint venture, IL&FS appears to have gotten full management rights, including control over the 880 acres of the land. Are there strict conditions for what IL&FS allowed to do with this land and are there provisions in its contract for it to revert to the state government?

The lease by GoG to GIFTCL is for 99 years with token rent of Rs 1. The lessee is entitled to mortgage the land. So effectively it is sale at Rs 1 to GIFTCL.

Now, IL&FS is the implementing agency under MoU so it has full control over the land. There is a government resolution in the public domain about lease of land and there is no effective caveat in it to reclaim the land.

The original decision of Modi-led Gujarat Govt. was correct and clear – the GIFT City project was to get only the use of the land, with ownership remaining that of the state and its 100% entity GUDC. That was part of the JV agreement.

Later, IL&FS kept asking and the government appointed chairman and directors who agreed to not only to transfer the lease to GIFTCL, where IL&FS holds 50% equity, but later even agreed to give the GIFTCL, and thus IL&FS as manager, the right to ‘mortgage’ the govt land.

With land possession, 50% lease interest through GIFTCL, and even the right to mortgage means ‘effective ownership’ of 50% of 880 acres of land by IL&FS. Furthermore, all financial risk, if GIFTCL defaults to banks on loans taken with mortgage land, is now passed on to the state itself.

A perfect example of a private partner in a PPP vehicle walking away with the land benefit without investing.

If IL&FS had put in equity, why was it allowed to charge for management services? Is that a standard part of other similar contracts? Was there a tender process to choose a partner for management services?

If one is bringing ‘expertise’ as equity partner and that is what IL&FS claimed to have, it cannot charge management services fee because one cannot have equity shares as reward as well as fees for management services.

There was no tender while choosing IL&FS as partner of GoG, a violation of provisions of the Gujarat Infrastructure Development Act.

Another source of contention is the Fairwood Consultants contract, which you allege was paid almost Rs 400 crore but did not provide any services. Going by the terms of the contract, what was Fairwood supposed to provide?

Fairwood Consultants was given the most important contract that GIFTCL will ever award while executing the project.

Under the contract, FC was to design and give engineering services for the entire GIFT City. What FC gave as services is great pictures of buildings and nothing more. In fact, FC has no track record of project execution.

In fact, it was given contract on the day of IL&FS signing of MOU with GOG, when there was no contract between GoG and IL&FS, as JV came into existence only on May 15, 2007. If executed successfully, FC had a contract that could have given them over Rs 1,000 crores. Rs 400 crore is the total consulting fee, a major beneficiary being FC.

GIFTCL itself has chosen to claim only Rs 178 crore, that too through arbitration, now running its fifth year.

The services provided by FC to GIFT project can very well be gauged by the fact that all designs for the buildings provided by FC, not one has been constructed so far in reality on the ground. This demonstrates the designing and engineering capacity of the service provider.

Can you elaborate on your allegations that IL&FS siphoned off money belonging to GIFT City?

Charging management fees, service contracts to subsidiaries of IL&FS, the sale of development rights at discount only to IL&FS, not paying 1% fees to GoG as agreed in JV contract on sale of development rights, not repaying GoG the land related profit as per government resolution even though sales revenues are collected on development rights sold… All these are clear examples of loss to exchequer.

The last unpaid due will be close to Rs 2,000 crore.

Do you believe the SFIO probe that the Centre has ordered into IL&FS should take a look at the GIFT city contract as well?

Yes, and PIL has specifically asked for a court directed probe.

In monetary terms, how much undue benefit do you think IL&FS received as a result of the one-sided contract with GIFT city?

Difficult to state with figures as correct figures are not out in public domain.

My estimate would be – close to Rs 2,200 crore; but remember GIFTCL does not share correct figures publicly.

Since you filed your petition in 2015, how many hearings have there been? Why do you think there has been almost nil progress in this case?

After the first hearing, a notice was issued to GIFTCL, they had replied and we had countered with surrejoinder giving full evidence as required. Other respondents are yet to be served a notice.

We filed two civil applications naming other respondents as well as informing Gujarat high court of IL&FS situation and GoI action. The high court has given November 28 as the date to hear the full matter.