NCLT Allows Govt to Take Over IL&FS, Replacing All Board Members
The National Company Law Tribunal allowed the government’s petition to replace all IL&FS board members.
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The government will take over Infrastructure Leasing & Financial Services Ltd (IL&FS) as defaults by the infrastructure group and its subsidiaries triggered fears of a contagion in the financial markets.
The new board shall hold a meeting and report the road map for IL&FS before 8 October, it said.
Here are the members of the new board:
- Uday Kotak
- Vineet Nayyar
- GN Bajpai
- GC Chaturvedi
- Malini Shankar
- Nand Kishore
The new board will elect a chairman among themselves.
“This is the largest bankruptcy that India has seen. This is a fairly decisive action and welcome at this stage,” Amit Tandon, founder and managing director of Institutional Investor Advisory Services, told BloombergQuint in an interaction.
IL&FS and its subsidiaries, with a combined debt of more than Rs 91,000 crore, defaulted on obligations multiple times in the last couple of months. That led to concerns about non-bank lenders as fears spilled over to the equity markets.
This will be the first such rescue of a private company since 2009 when the government took control of the erstwhile Satyam Computer Services and subsidiaries following India’s biggest accounting scandal.
In fact, the government, during its arguments, cited the precedence of Satyam to press for immediate takeover of IL&FS.
Earlier in the day, the government had argued
- Suspension of board of directors at the interim stage.
- Proposal to appoint 10 nominee directors who will report to the NCLT for relevant plans for way forward.
- The government has identified a few prominent persons who are proposed to head the board, including prominent banker Uday Kotak as chairman and non-executive director.
- Power to replace board of subsidiary companies as well.
- Urged the NCLT to pass an order today itself.
- The government cited the precedence of the 2009 takeover of erstwhile Satyam Computers, Maytas (subsequently acquired by IL&FS) and its subsidiaries.
On Saturday, IL&FS increased its authorised share capital and reiterated its plan to raise additional capital via a rights issue and fresh lines of credit. It also said that it would seek a moratorium under a provision of the Companies Act so that it can work out a revival plan that meets the needs of creditors and shareholders.
As on 31 March, Life Insurance Corporation of India held 25.34 percent in IL&FS, while ORIX Corporation Japan held 23.54 percent.
Other prominent shareholders include Abu Dhabi Investment Authority (12.56 percent), Housing Development Finance Corporation Ltd. (9.02 percent), Central Bank (7.67 percent) and State Bank of India (6.42 percent).
The Story so Far
IL&FS is a conglomerate which boasts of providing services from “concept to execution” in the infrastructure segment. For decades, the firm was a AAA-rated entity.
However, over the last few years, the group has seen an increase in its debt levels at a consolidated level, due to which it saw a ratings downgrade in August.
IL&FS has over Rs 16,500 crore of standalone debt and Rs 91,000 crore of consolidated debt. Banks and insurance companies have the largest exposure to IL&FS.
(This story was first published in BloombergQuint and has been republished here with due permission.)
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