India’s roster of private companies is littered with shell companies, shelf companies, and companies with weird names that have nothing to do with their supposed line of work, and often have no meaning whatsoever. Although many of them operate in legally dubious manners – or don’t really ‘operate’ in any meaningful sense of the word – their obscurity means we don’t normally get to hear about them.
One such company is Karanja Infrastructure Private Limited. This is a company which:
- has ties to companies in the private defence sector, including Nikhil Gandhi’s and Anil Ambani’s;
- is owned by a company in Mauritius, Blackstone Capital Limited, and gets foreign investment from this company from time to time;
- has few assets and very little revenue (it has actually gone entire years without any income at all);
- has massive, unexplained unsecured debts to the tune of Rs 380 crore, and for which they pay no interest;
- gives out large capital advances (around Rs 260 crore) to random companies; and
- has been ensuring debt-ridden companies get loans worth hundreds of crores from banks, by guaranteeing the loans against its properties (the value of which comes to barely Rs 63 crores).
For different people reading this, it’ll be ringing different alarm bells. If you are an accountant, you’d would look at its balance sheet and wonder how the company survives. If you’re a lawyer, you’d look at those unsecured debts and wonder how the company hasn’t fallen foul of laws that don’t allow interest-free loans.
If you’re an officer of the Enforcement Directorate (ED), well, you’re going to start wondering if you need to consider an investigation into fun things like money-laundering, round-tripping and financial subterfuge.
Now, those aren’t allegations we’re going to throw around ourselves. Instead, we’re going to present the facts about this company and let you decide what to think.
Maybe you’ll think this is all unnecessary, that it’s entirely above-board. Maybe you’ll think it’s a bit dodgy but not newsworthy. Or maybe you’ll have some questions you’d like to ask.
Like why does this company exist? Who owns it? What does it do? And why in God’s Adam Smith’s name does anyone want to have anything to do with it?
And maybe, just maybe, if enough people ask those questions about this company and others like it, we might start to get some answers about India’s shadowy private defence sector.
The Mysterious, Misleading Ownership
Karanja Infrastructure Private Limited (or KIPL for short) was incorporated in India on 18 March 2004. It was a pretty nondescript company, with a share capital of only Rs 1 lakh, and two entirely obscure individual shareholders.
In the financial year 2006-07, something interesting happened. The company was acquired by an overseas company called Blackstone Capital Limited.
For those familiar with the world of international finance and investments, this probably comes as quite a shock. The Blackstone Group, after all, is a giant among international investment firms, investing in some of the largest companies in the world, and buying strategic stakes in companies with genuine potential and prospects.
So why would they buy into a company like KIPL? And why would they keep increasing their stake till they owned 99.56% of the company, buying shares at eye-watering premiums of Rs 990 per share in 2015?
The Blackstone Group has categorically denied having any investment in Blackstone Capital Limited, and expressed complete surprise over the existence of this company. What it looks like, therefore, is that whoever really owns KIPL is trying to use the Blackstone name as a smokescreen to hide their true identity.
Blackstone Capital Limited was incorporated in Mauritius in 2006 – the same year it acquired its majority stake in KIPL, which indicates this was the sole reason for its creation. Because it has been registered as a Global Business Category 1 company, this means details about it are not available to the public, even on payment of a fee. As a result, we cannot trace exactly who owns it, and therefore really owns KIPL.
Whoever the real owners are, they do not belong to the Blackstone Group and yet are trying to make anyone looking at their company believe this is so, whether to improve their credibility, or to mislead anyone scrutinising the company. The accounts of KIPL make no mention, even where they should, that it is owned by a foreign company.
This kind of obfuscation over the ownership of the company is in itself suspicious, and doesn’t inspire much confidence about KIPL’s dealings.
The Mysterious Business of KIPL
But why, you might ask. Why should we be suspicious about KIPL’s dealings? Just because it’s owned by a company falsely pretending to be part of a global investment group doesn’t necessarily mean things aren’t above board, does it?
That’s valid scepticism, so let’s look at what we know about KIPL’s business. The memorandum of association of the company sets out a suitably vague objective for the company, essentially saying it would do pretty much anything relating to “infrastructure facilities and services.”
The Quint sent a questionnaire by email to KIPL (to the official email address provided to the Ministry of Corporate Affairs) over two weeks ago, asking about the business of the company and the projects they are working on, to which we received no response.
We also visited the company’s registered address: Shop No 23, National Palace, Takka Panvel, Panvel (in Raigad, near Navi Mumbai). The shutters for this shop were closed, but it turned out Shop No 22 also belonged to KIPL, but the persons present there refused to answer any questions about the company, only admitting that the company is working on something in the Jawaharlal Nehru Port Trust area.
A shuttered Shop No. 23 (R) and the other office of KIPL at Shop No. 22 (L)
(Photo: Sanjoy Deb & Ankita Sinha, The Quint)
They insisted we speak to their bosses, but refused to say who their bosses were, or how to contact them. We were able to get a number for the boss who sometimes comes in to this office from one of the neighbouring shop-owners, but this number couldn’t be reached.
We also reached out to one of the directors of the company (according to the Ministry of Corporate Affairs’ information about KIPL), who said he wouldn’t be able to help us understand the company’s business, and also that he had resigned from the company in February 2016. However, the company’s annual report dated 30 September 2017, available on the Ministry of Corporate Affairs website, bears his signature. He refused to comment any further.
As can be seen, attempts to inquire about the company’s business in good faith were stonewalled, for no apparent reason. Instead, we have to piece together what we can about the company from publicly available information, which doesn’t paint a very favourable picture.
In the years since Blackstone Capital Limited acquired it, KIPL has bought land near Navi Mumbai, in the Raigad district of Maharashtra, which appears to be close to the Jawaharlal Nehru Port area. According to their own statements of accounts, the value of this land and other fixed assets is no more than Rs 49 crore or so, and their income in the last financial year was only Rs 62.6 lakhs.
The company’s income has been consistently low over the years and it has never earned money through any of its own operations. For years, its only earnings came from interest on fixed deposits, though this suddenly changed to earnings from the share market in 2016-17.
KIPL’s highest revenues ever came in 2014-15 when they earned Rs 4.7 crore – though they still made a loss of Rs 52.3 lakhs. They even went through two consecutive financial years (2012-14) with no income whatsoever. All in all, this does not appear to be a company with any business or source of proper income at all.
The only noteworthy prospect that the company has, according to its own documents, appears to be a proposed Free Trade Warehousing Zone (FTWZ) facility (a kind of SEZ) on its land near Navi Mumbai. According to a share valuation report dated 15 April 2015, KIPL had received formal approval from the government for setting up the FTWZ from the Government of India, and this was going to benefit from the development of the Port. This approved FTWZ was going to be key to the company’s revenues in the years to come, according to the share valuation report.
However, there is no mention of a KIPL FTWZ in either the list of operational SEZs or the list of SEZs which have received in-principle approval from the government as of 1 December 2017. Which throws cold water on that lone noteworthy prospect.
Again, you might ask, why does any of this matter? KIPL is just not very successful; not all business ventures succeed. What makes KIPL any different?
That is also valid scepticism. Until you realise that despite its lack of assets or commercial revenue, KIPL has somehow become a saviour for debt-ridden private defence companies.
The Mysterious Ability to Prop up Debt-Ridden Defence Companies
From 2013 onward, KIPL has mortgaged its own property at least six times, standing as a guarantor for loans by Yes Bank and IDBI to companies in the private defence sector. The total value of the loans which are secured on KIPL’s property or guaranteed by them (which means the banks get ownership of their property or they become liable to the banks if the loans are not repaid) is Rs 1,452 crore. Two of those loan obligations have closed in the interim, so the current value of loans which KIPL has secured, whether by mortgage or bank guarantee, is at least Rs 905 crore.
We say “at least”, because this figure is based on KIPL’s charge documents submitted to the Ministry of Corporate Affairs. However, The Quint has seen board resolutions of KIPL which indicate at least one other guarantee was provided for a loan by Yes Bank of Rs 135 crore in 2015, which is not included in the charge documents on the Ministry of Corporate Affairs website.
Who are the beneficiaries of these guarantees? It’s a motley crew, including E-Complex Private Limited, Fastlane Distriparks and Logistics Limited, Horizon Country Wide Logistics Limited, Pipavav Defence and Offshore Engineering Company Limited, and Pipavav Engineering and Defence Services Limited. Never heard of them? Can’t blame you – after all, India’s private defence sector is neither very transparent nor very reputed.
Are there any connections between KIPL and the companies who’ve benefitted from their guarantees?
There is something which connects these companies though – Gujarati entrepreneur Nikhil Gandhi. Gandhi entered the private defence sector in the 1990s and these companies were all part of his network of companies that he established back then, directly or indirectly. KIPL also has links to the Nikhil Gandhi network, including companies it owns stakes in, such as SKIL Infrastructure Limited.
A more esoteric connection appears on its incorporation documents from 2004 – the contact address provided by both founding shareholders of the company (no longer associated with it) is one “Pipavav House” in Mumbai.
At least two of the companies for which KIPL has provided guarantees are also now part of Anil Ambani’s Reliance defence companies portfolio. The two Pipavav companies mentioned earlier were acquired by the Reliance group in 2015, and KIPL created and modified charges on its assets for loans in their favour in 2016. Milan Mandani, who owns 0.22% of KIPL, is Manager (Infrastructure Services) at SKIL Infrastructure Limited, and used to hold a position in Reliance Naval and Engineering till March 2017 (when it was known as Reliance Defence and Engineering Limited).
KIPL also had another connection to Reliance until very recently: Retired Navy Commander Shantanu Sukul. As we pointed out in a recent story, Shantanu Sukul was a consultant for Reliance Naval and Engineering from September 2015 till at least September 2018, and before that had been a General Manager at the company when it still had its Pipavav name. He was also a DGM at Reliance Defence Ltd, which is one of the holding companies in the Reliance defence portfolio, including for Reliance Aerostructure Limited (which has set up a JV with Dassault for Rafale offset contracts).
Shantanu Sukul has also been a director at KIPL ever since April 2014, after which KIPL created at least three charges on their assets. He claims to have resigned from the board of KIPL.
Why are the guarantees problematic?
The problem with providing these guarantees isn’t necessarily because of the companies who have benefitted from them. None of them had healthy finances – take, for example, Reliance Naval and Engineering Limited, which has been recently taken to the insolvency court by IDBI. This means that KIPL was facilitating loans to companies which were and still are at serious risk of default.
That risk doesn’t mean that no company can guarantee loans to them or that loans should never be provided to them. However, for a company with only Rs 62 crores worth of fixed assets, providing guarantees for loans to these companies makes little sense for KIPL or for the banks.
In fact, there is no way the banks should have been willing to accept these guarantees – KIPL’s other assets are all long-term and outmatched by even larger long-term liabilities. At least four of the guarantees were provided in 2013 and 2014, and yet KIPL reported zero revenues for the financial years 2012-13 and 2013-14. This should have proved a red flag as big as a continent for the banks, and should have led to an outright rejection of the guarantee proposals and the loans.
And yet the guarantees were accepted.
The Mysterious Long-Term Debts
Speaking of long-term liabilities, KIPL’s annual reports also show another curious detail. As of 31 March 2015, the company had zero unsecured debts – that is, debts for which it hadn’t provided some form of guarantee to the lender.
In the corporate world, it is quite unusual for a company to have large unsecured debts, since lenders aren’t willing to provide large sums of money to them without some way to recover the money if the borrower doesn’t cough up. Guarantees either need to be provided by the borrower, in the form of mortgages of their property, or by an external guarantor. The latter option is of course something KIPL had done for other companies.
And yet in the financial year 2015-16, KIPL all of a sudden took on a huge amount of unsecured debt, Rs 374.7 crore or thereabouts. Where did the money come from? They don’t say. Why did they need this money? We don’t know. What have they done with all that money? We don’t know that either, though we do know that’s nowhere near their expenses in the year, which were Rs 1.5 crore or thereabouts.
What makes this even more confusing is that even though the company is supposed to have had no unsecured debts before 2015 on their balance sheets, there have long been large sums as long-term liabilities (that roughly come out to the same value). We traced these long -term liabilities all the way back to 2008, when around Rs 366 crore was given to KIPL by two companies: Equity Overseas Pvt Ltd, and Orange Lifestyle Pvt Ltd.
Neither company is in existence at this point of time, and they don’t appear to have been Indian companies in the first place. Yet their loans to KIPL continue on the books, and they don’t tell us who this money is owed to in their current accounts, contrary to standard practice.
For a company with such low share capital (15 crores paid up, 50 crores authorised), these are astronomical sums of money, and make little commercial sense. Loans of this size to a company this small normally only come from two legal sources: banks, or companies within the same corporate group.
However, KIPL’s balance sheets show that only Rs 5 lakh from this sum of over Rs 370 crore comes from banks, and they also declare that they have no transactions with related parties. So why would some other companies randomly give them money?
KIPL’s auditors’ report for the financial year 2016-17 also mentions that no interest is either payable or accrued on those large loans. This raises even more questions about the loans, because ever since the Companies Act 2013, it has been illegal for companies to get loans on which they pay no interest.
Still want more? How about this: the unsecured loans were taken on in the financial year 2015-16, or at least this is the year their older debts suddenly got noted down as unsecured debts. For some reason, KIPL did not file its returns for that year when required to, only filing them in 2018. The documents submitted in 2018, however, have signatures from 2016 and 2017.
Go figure.
What Can This Mystery Tell Us?
So to come back to our very first question, why does KIPL exist? It doesn’t seem to be carrying out any business, and doesn’t have much by way of revenue. Why does it have such huge loans on its books? And why is it willing to bet the house (quite literally) to prop up these private defence companies with parlous finances?
As we’ve mentioned, nobody seems to want to answer this question about KIPL’s business, and that is perhaps the point here.
KIPL continues to exist, and in its own way, thrive, despite all common sense saying this shouldn’t be the case. So it is obviously serving some purpose in the circles it operates, ie, the private defence sector. Which leaves us then with a lot of things to ponder about that sector and the role of companies like KIPL there.
What on earth is so special about KIPL? Where is it really getting its money from? Why do banks accept its guarantees to loan money to others? What kind of ‘business’ does a company like this really help with?
And how many more companies like KIPL are out there?
(With inputs from Ankita Sinha and Sanjoy Deb)
The Quint reached out to the Blackstone Group, Karanja Infrastructure Private Limited, Shantanu Sukul, Yes Bank, IDBI Trusteeship Services Limited, the Anil Ambani Reliance Defence Group and Nikhil Gandhi for responses on this story. Apart from the Blackstone Group’s denial of investment in Blackstone Capital Limited, we only received a response from Shantanu Sukul, the relevant section of which has been incorporated in the story above. We will update the story with any further responses as and when we receive them.
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