Corporate Affairs ministry readying detailed report on IL&FS ahead of NCLT hearing on Oct 31

The ministry of corporate affairs (MCA) is working on a comprehensive report that will spell out the details of the actual status of and misrepresentation of facts surrounding the debt-laden Infrastructure Leasing & Financial Services (IL&FS).

The report will be prepared by the end of the month as the National Company Law Tribunal (NCLT) will next hear the matter on October 31, sources told Moneycontrol.

Ahead of the next board meet on October 12, the newly constituted board headed by veteran banker Uday Kotak is also expected to meet MCA secretary Injeti Srinivas in New Delhi on Wednesday.

The board held its first meeting on October 4 in Mumbai and listed down three-four alternatives to fix the debt-mess surrounding IL&FS.

While a statement from the finance ministry last week mentioned that the infrastructure development and financing company has 169 group companies, as of 2017-2018, including subsidiaries, joint venture companies and associate entities, Kotak said that it turned out that the group has 348 subsidiaries, more than twice the figure of 169 that the company had disclosed.

“There are 348 entities in the group, significantly larger than we expected. So, it is big task...the first objective is to work towards a comprehensive roadmap on the way forward…we have listed down about three-four alternatives available to us as the next steps,” chairman of board Uday Kotak had said last week.

MCA is assessing the situation and trying to ascertain the reason why details of 179 companies were not disclosed to the public, sources said.

Additional companies in the group also imply that suggested the debt levels could increase from here on.

According to the government, IL&FS has infrastructure and financial assets exceeding Rs 1,15,000 crore and is currently facing tremendous debt pressure and struggling to service around Rs 91,000 crore in debt, a result of ‘mismanaged borrowings in the past’.

On October 1, the National Company Law Tribunal (NCLT) approved the takeover of IL&FS board by government nominees, saying mismanagement at the crisis-ridden financier makes it a fit case of supersession of the board under Article 241 of the Companies Act.

The decision to supersede the existing board was taken after MCA’s Regional Director, Mumbai submitted a report from that brought out serious ‘corporate related deficiencies’ in the IL&FS holding company and its subsidiaries.

The board was suspended and a new six-member board led by Uday Kotak was constituted. The other members are former Securities and Exchange Board of India (SEBI) Chief GN Vajpai, ICICI Bank Chairman GC Chaturvedi, Tech Mahindra's Vineet Nayyar, and former bureaucrats Malini Shankar and Nand Kishore.

A series of defaults on short-term deposits, commercial paper and non-convertible debentures by IL&FS group companies in the last two months, as well as rating downgrades impacted financial markets causing redemption pressure on the mutual funds that held these financial instruments. This also had a negative impact on the on the stock markets, money markets and debt markets.