The National Company Law Tribunal (NCLT) has approved the takeover of IL&FS board by government nominees.
The National Company Law Tribunal (NCLT) has 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.
A new six-member board led by veteran banker Uday Kotak will take charge of the company. The other members are former SEBI chief GN Vajpai, ICICI Bank chairman GC Chaturvedi, Tech Mahindra's Vineet Nayyar, and former bureaucrats Malini Shankar and Nand Kishore.
Over the past one month, IL&FS has defaulted on payments and is sitting on total liabilities of Rs 91,000 crore.
The crisis at IL&FS spilled over to bond and stock markets, with yields rising and stock prices tumbling.
The new IL&FS board will meet on October 8 to chart out to a roadmap for recovery. The Ministry of Corporate Affairs has been authorised a maximum of 10 board members and that four more board members will be appointed going forward.
According to a government press release, the government noted that the consolidated financial statement of the IL&FS holding company and its subsidiaries exaggerated the value of their non-current assets by showing intangible assets worth over Rs. 20,000 crore.
The statement also showed the bulk of their revenue to be in the form of receivables, close to 50 percent of which were held up over litigation issues. The release also noted that the company had negative cash flows from its operations, its net outflow being Rs. 7,020 crores in FY 18. IL&FS also saw a sharp increase in bank deposits held in lien, which rose by Rs. 1,681.59 crores in FY 18.
The government states that IL&FS Group and its engineering and transportation subsidaries faced major problems in 2012, leading to a lot of projects being stalled, hurting its financial performance in the process. The projects were carried out with more and more debt financing. "The net debt also increased more than two times from Rs. 13939 crore to Rs. 29961 crore in 2017-18. "
The Serious Fraud Investigation Office (SFIO) will also investigate into the company's business after serious complaints on some its companies surfaced.
The release stated that though IL&FS was strapped with large debt, it continued to pay dividends and large managerial packages, cloaking the debt "by misrepresentation of facts"
The excessive leveraging by the company also led to a "deep-rooted mismatch in the debt-equity ratio." A combination of all these factors led the government to come to the conclusion management had lost total credibility and moved the NCLT to supercede the management.
The release noted that IL&FS being a key player in the infrastructure realm needed to stabilize to ensure that projects run smoothly. It was stated that the , "The restoration of confidence of the money, debt and capital markets, the banks and financial institutions in the credibility and financial solvency of the IL&FS Group is of utmost importance for the financial stability of capital and financial markets."
This would entail, selling off assets, a restructuring of liabilities and "fresh infusion of funds by the investors and lenders."Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.