The infrastructure financing company IL&FS made several defaults over the last month, signaling towards the bigger crisis.
Back in February 2009, the then Manmohan Singh government superseded the board of infamous Satyam Computers Ltd, a few days after its founder Ramalinga Raju had confessed to committing fraud to save the company. A similar rescue plan underwent on Monday when the Narendra Modi government seized control of cash-strapped L&FS, superseding its board with one led by India’s richest banker Uday Kotak. The infrastructure financing company made several defaults over the last month, signaling towards the bigger crisis.
Upon Ministry of Corporate Affairs’ plea and support from IL&FS investors, the Mumbai-bench of National Company Law Tribunal (NCLT) approved six directors, including Kotak Mahindra Bank MD Uday Kotak, former SEBI chairman G N Bajpai and ICICI Bank chairman G C Chaturvedi, to take over the board.
“The government stands fully committed to ensuring that needed liquidity is arranged for the IL&FS from the financial system so that no more defaults take place and the infrastructure projects are implemented smoothly,” the Finance Ministry said in a statement in after NCLT’s approval.
The finance ministry said that the government moved the court to supersede the board as “serious corporate related deficiencies” were found in IL&FS holding company and its subsidiaries. A probe by the Serious Fraud Investigation Office (SFIO) was also ordered into the financial irregularities.
The company would require a combination of measures like asset sales, restructuring of some liabilities and a fresh infusion of funds by investors and lenders to prevent defaults, news agency PTI reported. IL&FS has over Rs 91,000 crore in debt and needs capital infusion of Rs 3,000 crore
The crisis in ILFS came to light when it defaulted on a short-term loan of Rs 1,000 crore from Sidbi at the beginning of September. Amid the crisis, CEO Ramesh Bawa resigned, along with four independent directors and a non-executive director.