Fixing IL&FS: New board gets protection cover, NCLT gives legal immunity to work freely

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Mumbai | Published: October 8, 2018 5:25:08 AM

IL&FS, with a complex web of 348 subsidiaries, joint ventures and associates, owes lenders a whopping Rs 91,000 crore while its total liabilities are in the excess of Rs 1 lakh crore.

IL&FS, in an exchange filing, said it has defaulted on principal and interest on loans from banks, inter-corporate deposits and commercial papers totalling Rs 33.9 crore for the period from September 30 to October 4. (Reuters)

The Mumbai bench of the National Company Law Tribunal (NCLT) has accepted the ministry of corporate affairs’ plea, which was filed last week, seeking immunity for the newly appointed board of IL&FS from any potential legal action against them by numerous creditors and investors of the company.

Accepting the petition, the NCLT said since the appointment of the new directors have been made in the larger public interest, “sufficient ground exists to provide certain immunities to the newly appointed directors, so that they can discharge their functions independently”.

The NCLT, in its order, also referred to the case of Satyam Computer Services in 2009 when the Company Law Board had suspended the board of directors and based on an application filed by the government at that time, had passed orders to protect the new board from legal and punitive action.
In addition, the NCLT also said IL&FS’ new board ought to be given the powers which were earlier being exerted by the suspended board.

In arguments presented on Friday by Sanjay Shorey, joint legal director, on behalf of the government, it was pointed out that IL&FS has received several notices from its creditors, demanding repayment of their dues and that the creditors may initiate legal proceedings, not only against IL&FS and its group companies, but also against the newly appointed directors. The government pleaded that, therefore, no action should be initiated against the new board for the past wrongs of the company and the previous board, without the prior permission of the NCLT.

Shorey told FE the government has also requested the NCLT to allow the new board to sack and replace the directors and management of the subsidiaries of IL&FS, wherever required.

On Friday, IL&FS, in an exchange filing, said it has defaulted on principal and interest on loans from banks, inter-corporate deposits and commercial papers totalling Rs 33.9 crore for the period from September 30 to October 4. Prior to this, the company had defaulted on payments of Rs 3,761 crore till September 28.

Addressing the media in Mumbai last week, a seven-member board of directors, headed by Uday Kotak, MD & CEO, Kotak Mahindra Bank, termed the crisis at IL&FS as very difficult and very challenging but not impossible to resolve. Vineet Nayyar, the new VC and MD of IL&FS, who was also a part of the board that was reconstituted a decade ago to save Satyam Computer Services, said the situation is not comparable. “Bad as it was, Satyam was a case of simple felony. We do not have reason or evidence to suggest this is the case here. However, given the sheer size and scale of IL&FS, we do not underestimate the challenge we are faced with. This is a very complicated company,” he had said.

IL&FS, with a complex web of 348 subsidiaries, joint ventures and associates, owes lenders a whopping Rs 91,000 crore while its total liabilities are in the excess of Rs 1 lakh crore.

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