Govt to Take Over Reins of Serial Defaulter IL&FS

New Delhi: Fearing a massive fallout of IL&FS’s serial defaults on the financial markets, the National Company Law Tribunal (NCLT) on Monday approved the government’s proposal to supercede the board of directors of debt-laden Infrastructure Leasing and Financial Services Limited (IL&FS) group under Article 241 of the Companies Act, appoint a new board.

According to a Bloomberg report, IL&FS’ suspended directors shall not represent the company anywhere, the NCLT ordered.

The new board will be headed by industrialist Uday Kotak, and will include Vineet Nayyar (Tech Mahindra), GN Bajpai (former Sebi chief), GC Chaturvedi (ICICI non-executive chairperson), Malini Shanker and Nand Kishore (both senior civil servants). According to Bloomberg, which said that the new board shall hold a meeting and report a roadmap before October 8.

The development comes a day after the IL&FS stated that its shareholders had approved the issue of secured non-convertible debentures worth Rs 4,500 crore to come out of its current financial crisis which had created a contagion in India’s financial markets in recent months.

Also Read: Is Serial Defaulter IL&FS Heading For A Rapid-Fire Sale of Assets?

On October 1, the Ministry of Corporate Affairs (MCA) petitioned that the IL&FS group had “failed to discharge its duties”, and urged the tribunal to pronounce its order without any delay, while proposing a new ten member committee headed by Uday Kotak, managing director of Kotak Mahindra Bank, to replace the existing board.

The government counsel had told NCLT that the MCA had ordered an investigation into the company's affairs through the Serious Fraud Investigation Office (SFIO).

As the ILFS crisis surfaced, the Centre had first lured its major stakeholders - Life Insurance Corporation of India (LIC), State Bank of India (SBI) to rescue the private entity. A similar plan has been considered in the IL&FS general body meeting held on September 29.

“The management aims to bring the group back to normalcy by selling shares through a rights issue, paring assets to raise funds and by getting new credit lines to repay debt due soon,” Hari Sankaran, managing director of ILFS was quoted as saying after the group’s annual meeting.

Following this, LIC, SBI and Japan’s ORIX Corporation, second largest shareholder of ILFS have also announced to subscribe to the proposed Rs 4500 crore  rights issue of the company. However, the latest NCLT order is a shocker to the capitalisation plans of the group.

Alongside, another case by the the Small Industries Development Bank of India (SIDBI) filed an insolvency application against IL&FS and its subsidiaries at the NCLT is pending.

IL&FS is saddled with a whopping long-term debt of over Rs 91,000 crore, due to public sector banks and other financial entities. As the balance sheets of the group of companies reveal that in the last four years, its  total debt has increased substantially by Rs 42,420 crore, despite a huge mismatch between the figures of liabilities and assets. Established in 1987, IL&FS has been a pioneer of public-private partnership models in India. At the end of March 2018, it has a total of 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures and four associate companies.