A dispute has arisen between New Tirupur Area Development Corporation Limited (NTADCL) and its shareholder Infrastructure Leasing & Financial Services Ltd. (IL&FS) over debt repayment.
IL&FS has moved the National Company Law Tribunal (NCLT), Mumbai, alleging that NTADCL unilaterally began defaulting on servicing its debt. The NTADCL management has denied the charge.
In 1995, NTADCL was incorporated as a special purpose vehicle and public utility to improve potable water and sewerage infrastructure in Tiruppur through an integrated water supply and sewerage project. It was a public-private partnership to provide water services on commercial terms, the first private water supply and sanitation project, and one of the largest private investments in urban infrastructure in India.
In 2000, Tamil Nadu Water Investment Company Ltd (TWIC) was formed as a promoter company to route all investments into NTADCL. The Tamil Nadu government owns a 46% stake in TWIC and IL&FS, 54%. TWIC holds 28.72% stake in NTADCL. Overall, the Tamil Nadu government owns 38.32% stake in NTADCL, while IL&FS owns 25.88%. The total project cost of ₹1,023 crore was funded with an equity capital of ₹322.7 crore, a subordinate debt of ₹86.5 crore and a financing facility of ₹613.8 crore. The financial closure was done in March 2002.
The debt of ₹613.8 crore was arranged from various banks and financial institutions, with IDBI Bank being the lead lending institution. Of this, IL&FS brought in ₹180 crore as senior loan, of which it raised ₹90 crore from the U.S. Agency for International Development (USAID). On this loan, IL&FS made deductions of about ₹41.24 crore and disbursed ₹48.76 crore to NTADCL.
Due to the deteriorating financial position of NTADCL, a corporate debt restructuring (CDR) plan was implemented on March 29, 2012 as part of which the Tamil Nadu government infused ₹150 crore into NTADCL. According to the restructuring plan, 30% of the IL&FS debt was converted into equity. After the implementation of CDR, the senior loan repayable by NTADCL was ₹120.27 crore. NTADCL had to make repayments from April 2013 to March 2026, as per the petition filed by IL&FS before the NCLT.
NTADCL has considered only repayment to the extent of ₹48.76 crore of the USAID component and alleged that it had earlier made excess payments to IL&FS and stopped payment in this regard, IL&FS said. NTADCL has always and consistently admitted and acknowledged its indebtedness to the USAID Portion of the IL&FS Senior Debt for the entire disbursed sum of ₹90 crore, it added. NTADCL management unilaterally began defaulting on servicing IL&FS debt, which was being serviced with interest till December 2022, said a spokesperson from IL&FS Group. As per IL&FS’s petition, the dues payable by NTADCL are to the tune of ₹52.92 crore.
Attempts to resolve the issue through discussions have not yielded any favourable results, leaving IL&FS with no choice but to take up the issue against its own joint venture company with the NCLT, the spokesperson added. However, when contacted, a senior official from NTADCL denied the IL&FS’s charge of default in making payment.
The issue is about short disbursement made by IL&FS on the USAID component. The non-disbursed amount cannot be called debt. Just because wrong entries have been made, it cannot be called a right transaction, he said. The official further alleged that it was a case of fraud, and pointed out that the Tamil Nadu government had provided over ₹1,000 crore to protect the public utility. NTADCL has paid an excess amount of ₹250 crore to IL&FS. The decision to stop payment is based on legal opinion and to protect the State government and public interest. The company is prepared to face the legal challenges, the official said.
In 2003, private equity investor Aidqua Holdings (Mauritius) Inc. invested ₹90 crore in NTADCL for a shareholding of 27%. In 2010, Aidqua challenged the deductions made by IL&FS and sought a special audit. The case is pending before NCLT Chennai.
After the CDR, Aidqua stake dipped to 15%. Aidqua has challenged the CDR before the Supreme Court, and the case has been pending.
IL&FS’s new Board is already facing multiple challenges with respect to NTADCL, including shareholder issues. The debt default towards IL&FS will further complicate and delay the valuation, monetisation and resolution of its stake in NTADCL, the company’s spokesperson said.
