NCLAT grants interim relief to IL&FS against lenders' claims

The National Company Law Appellate Tribunal (NCLAT) on Monday stayed all proceedings by banks or companies against debt-laden Infrastructure Leasing and & Financial Services (IL&FS) and it 348 subsidiaries in any court of law or tribunal, barring the High Court and Supreme Court.

"The company (IL&FS) and 348 group companies, there shall be stay of…the institution or continuation of suits or any other proceedings by any other party or person or bank or company etc against IL&FS and 348 group companies in any court of law/tribunal/arbitration panel…any action by any party, person or bank or company etc to foreclose, recover or enforce any security interest created over the assets of IL&FS, including any action…," according to the NCLAT order.

It also set aside the earlier order of the tribunal that refused to grant a moratorium of 90 days in favour of the company.

The Ministry of Corporate Affairs (MCA) had filed for a moratorium of up to three months at the National Company Law Tribunal (NCLT) so that the debt-laden company is ring-fenced from creditors. It will protect the company from further legal and regulatory proceedings.

NCLAT has also asked IL&FS' five largest lenders to respond on the government's request for a moratorium. The next hearing on the matter has been fixed for November 13.

The government has sought a three-month relief so that the parent company's new board can roll out its turnaround plan for the debt-laden group.

"IL&FS board taking every possible measure to stop contagion. NCLAT has allowed the moratorium to pay dues as an interim measure. Serious Fraud Investigation Office (SFIO) action will follow if erstwhile directors are not found for and proper," MCA Secretary Injeti Srinivas said.

The government sought interim relief so that IL&FS' new board headed by veteran banker Uday Kotak could create a speedier resolution plan for the debt-laden company.

The board had previously written to the government, saying the mounting litigation against the company is a matter of concern.

According to the government, IL&FS Group, has infrastructure and financial assets exceeding Rs 1.15 lakh crore and is struggling to service around Rs 91,000 crore in debt, led by 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 the Ministry of Corporate Affairs' (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.

Towards this, MCA is working on a "well-defined settlement framework", along with a roadmap and will present it to the companies’ tribunal in its next hearing on October 31.

The immediate challenge for the company’s board is to ensure an efficient management of cash flow, avoiding any leakages and unnecessary expenditure, the official said.

In the last 12 days, the board has already met twice and has made considerable progress to resolve the crisis at the company.

Meanwhile, IL&FS said in a statement, "In addition to providing much needed relief from precipitative creditor actions against different entities within the IL&FS group, the moratorium enables value preservation of the group’s assets and will also assist the newly constituted board of directors of IL&FS in its effort to evaluate and prepare a resolution plan keeping various stakeholders in mind."