 Hello and welcome to NewsClick. I am Paranjoy Guha Thakurtha and with me is Sucheta Dalal. She is the managing editor of this magazine and portal called Money Life. She is a well-known investigative journalist based in Mumbai and she has written about dozens of scams in the financial sector. Today I am going to talk with her about a very very unusual scam if I may use that word and that pertains to the Gujarat International Finance Tech City, also called Gift City which is a kind of a showcase project of the Gujarat government but behind that project there is a lot of murky stuff happening. Sucheta, thank you so much for giving us your time. You know on the 9th of August you wrote this article about how this gift city project of the Gujarat government is really, there is a huge scandal behind it. It's a major scandal. The project is worth 70,000 crore rupees so that's not a small amount by any standard but what has happened is the way a private partner of Gift City that is ILFS also known as the Infrastructure Leasing and Financial Services is going to lead to massive losses for the government. If you can summarize what is this scandal? Very simply it is that the Gujarat government owns the land. All they needed to build Gift City was somebody who would plan it and give out a contract. Instead they bring this private company as a partner. The partner does nothing but again subcontract the entire process of building Gift City. In the process of doing that it ends up acquiring control over all the land that is gifted by the government virtually free of cost at 1 rupee and it has a gold plated contract to build the buildings and then there is an advantage towards the end where if the cost increases 1% of the total project is also with them. Okay you are saying 880 acres of land have been given for this project on a 99 year lease at a nominal price of 1 rupee per acre which is like virtually free. Now this land was to be in the government's lane but it has been transferred to IFL effectively I, L and FS is getting control over this land. Exactly so the land is not necessarily transferred but the control goes to this joint venture. Now when you talk about a 50-50 joint venture if the government comes in and its 50% is the value of the land you have to have a partner who has the size to bring in that kind of money as well. Now what is I LFS? I LFS is a company it's a private company masquerading like a public limit. Because there are public sector organizations with some shareholding in it correct me if I am wrong. Correct so this in the early 90s was considered the model for growth for India because they were supposed to be professionally run companies which are not government companies which are not handicapped by you know CAG audit or a CVC requirement. Instead these have become like fiefdoms with no succession plan, nobody in charge and they have just grown and grown so I LFS today is this humongous organization with over 120 subsidiaries which is larger than most public sector entities with zero succession plan the same man being formally the MD then vice chairman then chairman for 26 long years and nobody no external agency no RTI taking a look at what they do. What is worse is that half the shareholding the shareholding also mysteriously changes hands so in the early days. So who owns I LFS isn't there some public sector government owned entities which have some stake in fact earlier it was mainly government owned entities that's why it grew you know masquerading like a government entity which is what even the national stock exchange has been doing. These are private companies with absolutely no oversight from the government but government companies put in the equity so earlier it was central bank UTI then over a period of time suddenly state bank of India stake increases UTI vanishes HDFC used to have a significant stake that is also reduced central bank has been making losses that stake is reduced now you have two foreign companies that have come in one of them is ORIX which has a 22% stake so today it is half foreign owned and half Indian owned and it has a footprint in every single infrastructure project every major infrastructure project in the country. Okay, Sushita what you're saying is that I mean if you can explain in as simple a language as you can what you mean by a gold plated contract what you've written is that they're getting a hefty fee of 20 lakh rupees a month which excludes taxes and other out of pocket expenses and effectively this is meaning that they're getting in terms of fees alone from this quite a lot of money it's 400 crore has already been paid to them you're saying in terms of the giveaway of the land that's another 440 crores and on top of all that in terms of fees alone they're going to get 700 crores so this is quite a huge amount of money so look at it you're in a 50-50 venture okay so if you're in business you have to be able to take the risk as well so here is a venture where the government brings in its equity with public land which is our land okay and the private company has no risk whatsoever because the capital that it's supposed to bring in comes through these fees and since you're earning fees and a part of that you can always shift back as your capital you're investing nothing and you're getting control of a 70,000 crore project because the management of that project is going to be done by this company now what is really unusual about this and extraordinary in fact is that you know you have three committees on corporate governance and independence of directors and here is somebody called DC Anjaria who conceptualized gift city that is why he was invited to be independent he was a director that's why he was invited to be an independent director and from the very first board meeting he's asking simple questions this is not rocket science all he's saying is that the day this project was signed how can you have already signed a contract subcontract for building it with this private company which is housed in one of the ILFS entities which is another controversial project which is a Noida toll bridge company okay now Mr. DC Anjaria who was this gift city's first independent director independent director and audit committee head and he's also associated with the Amidabad based the CERC the computer education and research center now he's moved this public interest litigation but for almost three years nobody has written about it nobody has you know talked about it until you wrote this story in August I mean this to me is something quite extraordinary absolutely because the very fact that an independent director and audit committee head and remember this is happening while there is such a debate about what's happening in the Tatas and what's happening in Infosys and Sebi sets up another Kotak committee to look at corporate governance and here's this man who has appealed to everybody it's not that he just got up one day and walked to court and said I'll file a PL he has written letters tried to draw attention to this issue gone to every source that ought to have redressed it which is the Gujarat government the central government when nobody listened as a last resort he moved the public interest litigation tell me what you've written over here is in your article you've written that ILFS is facing financial constraints and there is talk about the life insurance corporation which has 25% stake in the company might be intervening in the affairs of ILFS I mean how do you put the two together here? no two things Paranjaya one of the reasons why people may not have written and one of the reasons why even all of us had to be very careful except for the fact that here's an audit committee head who's got all the facts and documents two things happen when you're talking about a company like ILFS there's no public information except it's annual report annual reports don't give you too much you try going through the annual report you have to first come across 121 subsidiaries and what they do so to demand and get information about this company is virtually impossible like I said there's no succession plan there's nothing we woke up with the start when LIC says that you know debt of 1 lakh crore LIC is heading the way of unit trust of India because it cannot you know keep taking over every failed loss making organization in the country and even if it wants to I mean even today my question is this LIC we have a news leak you're talking about IDBI bank you're talking about so many other things exactly and if LIC says I'm going to take over ILFS I would like to ask 10 questions to LIC which is a government organization saying what are you going to do what are you doing about it so far all we know is ILFS is holding a board meeting do you know that ILFS is chairman resigns when things are hot for whatever reason health reasons the vice chairman is already seated in the chairman's office the vice chairman colludes to issue a half page advertisement as a denial so I ask them questions they have not applied to me one at a time this is what I found very very unusual that on the 13th of August Mr Ajay Pandey who is the managing director and the chief executive officer of gift city he did not evidently respond directly to you but uses another part another company called Scotch Development Foundation and in business standard they publish a large advertorial so to say without naming you without mentioning you but effectively trying to counter all all that you have written isn't that very unusual highly amusing as well because this was an article written in money life now you have advertised that there were these issues raised you cannot possibly reply to it so they have used half the advertorial to defame Mr Ajarya which again doesn't hold water because most people know him as a senior person with a long track record in the financial world you can't so easily defame him but in any case for a company to stand up and say that the head of its audit committee had to resign because they wouldn't answer questions and you know if you notice an advertorial is a nice way to resign to reply because you don't have to give facts I know and the headline says the headline says allegations are false malicious factually incorrect misleading but what allegations whose made those allegations where were they made exactly and then why do they use this scotch foundation I mean why can't they do it directly exactly because there was a half page ad available but my point is that can a government organization do this I mean today gift city is 50% Gujarat government who has sanctioned the side can Ajay Pandey do whatever he wants I mean is there no accountability in the system anymore now there's something very unusual about a particular entity which is mixed up in this and that's called fairwood holdings and it seems the role paid by this company which is in some ways associated with IL and FS is also somewhat not just mysterious you find that in even that advertorial that has been come out it seems that there's a lot of money to be recovered from this company but this company it appears to me you say you've written that it's office is located in the premises of the infrastructure leasing and financial services group so fairwood and the contract given to fairwood is a crux of this controversy because that is the contract which was which Sanjaya alleges was bagged and presented in the first board meeting of gift city and he refused to sign it he said I want to see the contract now even Mr. Pandey's advertorial argues that it was well thought of they had done their due diligence and they made the right decision now he again contradicts himself by saying we are in arbitration against them so it was either the right decision or it was a blunder the very fact that you are in arbitration against them and he conveniently doesn't mention what is the amount sought so that amount from one of the annual reports is what I have mentioned in my second article that's an old annual report it's like 31st March 2010 exactly so that's like 8 years ago more than 8 years ago and arbitration continues so you have 4 meetings a year that means arbitration itself is a sham they were saying at that time in 2010 fairwood had a net worth of 77 crores and according to you you have named the sources that the amount could be as high as 5740 crores exactly and they haven't denied that as yet so they don't talk maybe they are waiting for another advertorial but the amount is that large so how did a company with a net worth of 77 crores it was temporarily housed in this Noida toll bridge company now they say it's independent and we are against them but can an arbitration which goes on for so long for such a large amount isn't it just a sham because unless arbitration is over you are not going to come out and say okay we were wrong it was a mistake the day the arbitration is over and there is a ruling that ruling will in all probability indict ILFS for the manner in which this fairwood and the consortium was selected okay Mr. Anjaria's petition has accused infrastructure leasing and financial services of misusing squandering resources that belong to the government there is a Gujarat government money that belongs to gift city and you also mentioned that it's not the first time it's happened to ILFS and you talk about the Delhi Noida toll project where eventually the Supreme Court of India intervened and there was a CAG audit and eventually it was decided that particular expressway the toll gates be done away with correct so that project is still it's not been decided one way or the other because it has to be decided but that is a controversial gold plated project I don't think there's any doubt anymore and here there was a court ordered CAG report okay they have a project in Tirupur that's going on for the last 25 years has seen the light of the day they always go in and bag a project initially which was when we'll bypass in Bombay that I know of the Burley Searock link in Bombay they can't build it then they quietly transfer it to someone else but because they've been squatting on the project they actually get some money even to release it now why is a company like this not under some audit or RTI because these are systemically according to the RBI it is now a considered a systemically important NBFC why shouldn't they be under RTI because so if they are a systemically systemically important non banking financial company according to the Reserve Bank of India it should be more transparent it should be more transparent it should be more transparent but I think it shouldn't be up to itself to be more transparent there has to be some oversight mechanism so if you do not like the CAG and you do not want the CBC the least you can have is right to information you should at least be subject to RTI I don't see why this cannot happen my last question to you what does this whole episode pertaining to the Gujarat international finance tech city or the gift city this huge project which was originally supposed to be 25,000 crores and now it's 70,000 crores what does this tell you of the so called Gujarat model of development because this is being touted as the project the showcase project for of the Gujarat government so unfortunately I don't know whether I can Gujarat model because of this project but it is definitely at fault for selecting the wrong contractor and partner who could not deliver I think the project is a good idea they are arm twisting people now to go there whether it was required in Gujarat or it should have been in Bombay is the moot question because Bombay is the financial capital why would you want even a city like this which is supposed to be this international financial hub in Gujarat by then maybe you might have a high high speed train connecting that's why you need the train because ultimately you have to come to Bombay where the money is but having done it they have obviously failed in getting the right partner, implementing it on time, making it meaningful and keeping costs in control so that is obviously contrary to what they tout about themselves thank you so much Sushita for giving us your time you've just heard Sushita Dalal managing editor of Money Life discussing this big scandal concerning the Gujarat international finance tech city also called gift city which is supposed to be a showcase project of the Gujarat government thank you for being with us