The government-appointed board of Infrastructure Leasing and Financial Services (IL&FS) group is considering to file contempt proceedings against nine banks including public sector banks for unauthorised withdrawals of about Rs 800 crore during the group’s moratorium period, Economic Times reported.
The banks include State Bank of India, Bank of Baroda, HDFC Bank, Yes Bank, Allahabad Bank, Punjab and Sind Bank, Punjab National Bank and Indian Overseas Bank. Reportedly, the board will also seek refunds.
Quoting sources, the report stated that the banks made “unauthorised auto-deduction from Il&FS escrow accounts towards debt recovery” violating the protection (Moratorium) granted to the group by the National Company Law Appellate Tribunal (NCLAT).
Also read: Banks Can Now Declare Defaulting IL&FS Accounts as NPAs: NCLAT Order
“Unauthorised deductions affected cash flow and it is also likely to affect timelines, which is detrimental to overall resolution framework being followed by the board towards speedy resolution,” said the aforesaid source.
Auto Debits from Escrow Accounts
The banks have allegedly auto debited from escrow accounts of IL&FS projects or special purpose vehicles (SPVs) -- Chenani Nashri tunnel highway, Jharkhand Road Projects Implementation Company Limited, Hazaribagh Ranchi Expressway, Barwa Adda Expressway, Karyavattam sports facility, East Hyderabad Expressway and Baleshwar Kharagpur Expressway.
In January this year, credit rating agencies have degraded the ratings of two of these SPVs, Jharkhand Road Projects Implementation Company Limited (JRPICL) and Hazaribagh Ranchi Expressway. Rating agency CRISIL in January had degraded JRPICL non-convertible debentures (NCD) from ‘BB (SO)’ to ‘D’, when the SPV stopped meeting debt obligations. CRISIL backed its move stating that there is “heightened risk of default due to reversal in the IL&FS management’s earlier stance of maintaining the integrity of JRPICL’s ring-fenced structure and structured payment waterfall. This had spawned untested legal risks for bankruptcy-remote SPVs.”
This suggests that there have been varying stands between the banks and the IL&FS board on whether the moratorium can be applicable for SPVs. however, the period when the banks have made unauthorised deductions is not clear.
After the dubious affairs of IL&FS began emerging in September last year, when the group companies were not able to meet their debt obligations, the central government had replaced the IL&FS board with a new one under Uday Kotak’s chairmanship in October.
Following this, on October 15 last year, NCLAT had granted moratorium to IL&FS and its subsidiaries, restricting its lenders from initiating recoveries against debts, giving time for the new board for working out a resolution plan for IL&FS. Later, on February 11, NCLAT passed an order lifting moratorium on 22 domestic entities which were then classified as ‘green entities’ and 133 foreign entities of IL&FS group. The next hearing on the moratorium is on July 12.
Also read: IL&FS: 82 Entities with Rs 61,375 Crore Outstanding Debt Cannot Fulfil Debt Obligations
IL&FS group with 348 subsidiaries had an outstanding debt of over Rs 94,000 crore. As per the new board’s resolution plan, domestic entities are classified under three categories – Green, Amber and Red Entities. Green Entities are entities which can continue to meet all their payment obligations; Amber entities are those which are not able to meet all their obligations (financial and operational), but can meet only operational payment obligations and Red Entities are those companies which cannot meet their financial and operational obligations.
So far, 55 companies with total debt of Rs 11,022 crore are categorised as ‘Green Entities’ and 13 entities with debt of Rs 16,372 crore are ‘Amber Entities’ while 82 entities with a combined outstanding debt of Rs 61,375 crore, are classified as ‘Red Entities’.