Jailed Arun Saha centrifugal force in fixing rating agencies at IL&FS

The rating agencies fiasco viz IL&FS is now common knowledge. Triple A rated IL&FS Group entities enjoyed best of credit worthiness in the market place and a whole catalogue of high profile MNCs, trusts and corporate entities subscribed to its bonds

On Wednesday, it accounted for another victim. CARE Ratings placed Chief Executive Officer (CEO) Rajesh Mokashi on leave until further notice, making it the second rating agency to do so amid regulatory concerns. Earlier this month, ICRA Ltd, the Indian unit of Moody's Investors Service, placed its CEO Naresh Takkar on leave after Sebi forwarded concerns raised anonymously to the company.

CARE said Mokashi would be on leave until the company had examined an anonymous complaint against him sent to the Sebi. The same Mokashi connect emerges in the questioning of joint Managing Director (MD) at IL&FS, Arun Saha.

Saha, a key member of the operating cabal who was arrested by the Enforcement Directorate (ED) in mid-June, has during the course of his interrogation dropped quite a few clangers and implicated himself and the clique which ran the Group headed by Ravi Parthasarthy on the jiggery pokery that was going on.

The malfeasance stems from the role played by this closed user group. The narrative that emerges from Saha's questioning on this issue is a telling tale of how the collusion between managements and ratings agencies functions to the detriment of corporate India.

Take a gander at the questioning of Saha by the Serious Fraud Investigation Office (SFIO), which reveals the world of complicity. On a question posed to him by the SFIO during the course of the interrogation, Saha is asked about a mail dated December 30, 2015 from Ravi Parthasarthy to him. His response is that he intimated Ravi that IL&FS had not given CRISIL any business and only once the negative rating in ITNL was removed by them would business be given to them again for new ratings.

On being asked about how extreme pressure was brought to bear in the context of forwarding of the Rating letter with the mail subject, IEECL-CARE RATING BBB- OUTLOOK STABLE, Saha's retort was that it was done in the context of achieving the result for FY 2017 with only two months left in the financial year.

Extreme pressure being in the context of the Rating Agency agreeing to the company's Plan. So brazen and naked was the threat of removing or giving business by Saha and Parthasarthy that it was used as a lever for power play.

Here is a sample of the line of questioning:

Q4. Please state the issues which you were handling in rating agencies in absence of Ravi in light with the answer to question no.30 in your statement dated 9.4.2019.

Ans. The matters handled were with regard to update on fund raising plan, Operational issues raised by the Rating agencies. Post Mr Parthasarathy's illness attending meeting with Rating Agencies along with Mr Hari Sankaran on matters relating to capital raising plan in IL&FS that was contemplated and the shareholder support and divestment initiatives of ITNL and other assets.

Q5. What are the operational issues which were handled by you with the rating agencies?

Ans. Issues, if any that the agency wanted to have discussions on any operational matters. Like various discussions were held with regard to adoption of IND AS account standard, compliance of norms, observations of auditors etc.

Q8. You have been shown email dated 24.11.2016 from Hari to you regarding appointment of an Independent director, why have you stated that in the reply of the same that the person has to be non-intrusive and obedient?

Ans. That was inappropriate communication. What I wanted to communicate was that the person should be a nice gentleman.

Q9. Are you suffering from any mental illness?

Ans. No, I am not suffering from any mental illness.

Q10. Then in that situation how can the words non-intrusive and obedient mean nice? Which in fact are the very reasons why an independent director is mandated in Companies Act?

Ans. It was a judgmental error to use those terms.

Q11. Are you saying today on 17.04.2019 that the words used by you in 2016 were inappropriate for the appointment of an independent director?

Ans. Yes I am saying this today.

Q13. Please see the email dated 4.5.2018 from you to Ravi wherein you have stated that I have told ICRA to keep in abeyance the downgrade in rating to A- (negative) for ITNL. Can you do so?

Ans. I had requested ICRA on intimation from ITNL, that to keep the rating decision in abeyance for discussions and I wanted the CFO of ITNL to meet them asap.

Q14. Were you not interfering in the independent process of rating agencies to the advantage of your company?

Ans. No. As soon as a rating mandate is given to the rating agency, the agency has the unfettered right to go ahead with their rating decisions. As a customary practice, rating agencies keep a communication with the Company till it's formally published and provide draft of their communication for review and comments.

Q20. Were such communications with Mr Anjan Ghosh done previously also by you for ratings given by ICRA for instruments raised by your companies?

Ans. I do''t think so, it has been done by me previously for ratings given by ICRA for instruments raised by our companies. This would be a one off case, where such telephonic communication has been made with Mr Anjan Ghosh and email to that effect (dated 04.05.2018) had been sent to me which is mentioned above.

Q21. So you mean to say that you were influencing the rating agencies after the customary practice of communication sent to your company?

Ans. No, in this case no formal communication was sent to me.

Q23. Having written -- "I have already spoken to CARE and India Rating"", please explain what does this mean? Were you speaking directly and if so to whom?

Ans. I do‘'t recollect to whom I have spoken in the rating agency.

Q24. Do you know anyone in CARE and India Ratings?

Ans. Mr Rajesh Mokashi, MD of CARE and Mr Anando Bhowmik, head of financial services ratings of India Ratings were known to me.

Q16. In case the interactions were done by the officials of the companies with the rating agencies then in what capacity were these rating agencies informing you?

Ans. The communications take place at the credit department and accounts department and the credit department handling these rating agencies communications were headed by Sujoy Das and in case of ITNL it was handled by Mr Dilip Bhatia, CFO.

Q17. So you mean to say in the context of the mail above that Dilip Bhatia informed you about the downgraded rating of ITNL by ICRA?

Ans. The name of the person who intimated me over the phone about this downgrade is not recollected today but he was reporting to Dilip Bhatia, CFO in ITNL.

Q18. So after this telephonic communication by this person in ITNL you mailed Ravi immediately about this downgrade.

Ans. Yes.

Q25. Is''t it coincidental that you are knowing all the heads of the rating agencies in spite of not having any mandate for taking up the task of rating of the IL&FS entities?

Ans. I have been dealing for IL&FS rating for over two decades and in this process have made various officials of rating agencies from time to time and on few occasions interacted with rating agency officials for group rating if needed by the group entity.