IL&FS crisis: Govt supercedes management; 6-member board appointed with Uday Kotak as chairman

The National Company Law Tribunal (NCLT) has allowed the government to take over the debt-laden IL&FS Board in a Satyam-style takeover. A Mumbai bench of judges M K Shrawat and Ravikumar Duraisamy approved the takeover of IL&FS board by government nominees, saying the mismanagement at the crisis-ridden IL&FS made the present case a fit one for invoking Article 241 (2) of the Companies Act-2013, that provides for the suppression of the existing board.

The bench said going by the Centre’s petition, it was apparent that the “affairs of IL&FS were being conducted in a manner prejudicial to public interest”. It, thus, approved the Centre’s proposal to let a six-member team take over the IL&FS board.

The new members nominated on the board include Uday Kotak of Kotak Bank, GN Bajpai ex Sebi chief, GC Chaturvedi - ICICI Bank chairman, and three retired IAS officers, viz, Malini Shankar, Vineet Nayyar and Nand Kishore. More members will be inducted on the board as Ministry of Corporate Affairs is authorised  to appoint 10 members.

The new board members have been given the liberty by the bench to unanimously elect a chairperson from among themselves.

The new board has been directed to hold its first meeting on 8 October this year, and to submit a report on its finding and a roadmap before the bench by 31 October, the next date of hearing.

The bench also issued a notice to IL&FS, directing it to respond to all points raised by the Union government in its plea by 15 October this year.

The next hearing of the IL&FS case is on 31 October.

#ILFSMess | Six member board headed by Uday Kotak to take over IL&FS@udaykotak pic.twitter.com/wGODCsZQWA

— CNBC-TV18 (@CNBCTV18Live) October 1, 2018

IL&FS case similar to Satyam fiasco

The government said that a precedent was set by the 2009 Satyam case.

The NCLT has approved the dismissal of the members of the current board of IL&FS. The government said the directors had failed to discharge their duties and the affairs of the board have been prejudicial to the public.

Preliminary probe shows severe mismatch in books similar to what happened in the 2009 Satyam Computer Services case. In the Satyam case, the firm’s chairman Ramalinga Raju had confessed to the then bluechip’s firm’s accounts being fudged and inflated. The government through the Company Law Board took control of Satyan’s board and appointed 10 nominal directors. It nominated Deepak Parekh -banker, Kiran Karnik - former NASSCOM chief and C Achuthan - former SEBI member to Satyam’s board. 

‘This is the best govt can do for IL&FS’

With regard to the IL&FS case, the NCLT said this is the best it could do in the IL&FS case.

#ILFSMess | NCLT says 'This is the best which the govt can do in a situation like IL&FS' pic.twitter.com/SN5Cee72uB

— CNBC-TV18 (@CNBCTV18Live) October 1, 2018

Sources close to IL&FS said it is likely to support the application as it will help resolve all the pending issues and reach a comprehensive solution for the benefit of all stakeholders.

The key shareholders of IL&FS include Life Insurance Corporation of India (LIC), State Bank of India (SBI) and Central Bank of India.  IL&FS, where LIC is the largest shareholder with 25.34 percent stake, has a debt burden of over Rs 90,000 crore. Other shareholders include Abu Dhabi Investment Authority with 12.5 percent stake, IL&FS Employees Welfare Trust with 12 percent, HDFC with 9.02 percent, Central Bank of India with 7.67 percent and State Bank of India (SBI) with 6.42 percent at the March-end 2018.

The government decided on the move after the cash-strapped firm, and its subsidiaries defaulted to lenders. Earlier in the day, media reports said that the government was contemplating this move.

#Govt likely to move #NCLT in Mumbai for change of management of IL&FS, learns @ShereenBhan & JN Gupta, Fmr ED, SEBI says unfortunate that the IL&FS issue is being politicised pic.twitter.com/MCcE4PBXF5

— CNBC-TV18 (@CNBCTV18News) October 1, 2018

Meanwhile, lenders have refused to provide around Rs 3,000 crore additional funds to IL&FS unless it explains how it will repay the debt, a report in the Business Standard said.

The debt-laden IL&FS said on Saturday it is working on a detailed restructuring plan and will appoint Alvarez & Marshal to formulate a turnaround strategy.

The decision was taken by the crisis-ridden company’s board after the AGM on Saturday.

“We will develop a comprehensive plan for restructuring so as to be able to demonstrate to the creditors and the shareholders that the intrinsic value of the group is sufficient in repaying its liabilities. We have decided to appoint a specialist agency – Alvaraz & Marshal–to take this plan forward,” vice-chairman and managing director Hari Sankaran said in a video released late evening to the media after the board meeting.

Financial advisory firm Alvarez & Marshal will develop the plan, seek approvals from the board and all stakeholders, and then proceed to implement it, Sankaran said.

He said the company would continue to pursue its application under the relevant section of the Companies Act to ensure that it gets a moratorium to detail out revival plans in a manner that can satisfy both creditors and shareholders with its capacity to service debt and equity, he said.

The company will implement the asset monetisation plan in a manner that is consistent with the comprehensive restructuring plan, he added.

The group has lined up a plan to divest as many as 24 projects to raise around Rs 30,000 crore and pare its mount of debt, which as of the June quarter stood at over Rs 91,000 crore, of which over Rs 57,000 crore is from state-run banks.

IL&FS defaults

On 4 September, it came to light that IL&FS had defaulted on a short-term loan of Rs 1,000 crore from Small Industries Development Bank of India (SIDBI), while a subsidiary has also defaulted on Rs 500 crore dues to the development financial institution, which reportedly forced SIDBI to ask its chief general manager in charge of the risk management department to resign.

In a letter to its employees, IL&FS had claimed that if funds worth Rs 16,000 crore stuck with concession authorities were released on time, it would not have landed in this mess.

“Our monies were used to fund the cost and time overruns caused by concession authority delays in handing over right of way.

“It is our case that if concession authorities released our monies, around Rs 16,000 crore of IL&FS group liquidity and stuck in claims and termination payments, we would not be in the situation that we are in,” IL&FS had said in its letter.

IL&FS, which is credited for building the longest tunnel in the country (the Chenani-Nashri tunnel), is sitting on a debt pile of around Rs 91,000 crore and had been downgraded to junk status by rating agencies following the default. Of this, Rs 57,000 crore are bank loans alone, most of which are from state-run lenders.

While IL&FS Transport Network, the holding firm of the group’s road assets, has nearly Rs 35,000 crore consolidated debt, IL&FS Financial Services has Rs 17,000 crore of debt, which sits as standard asset for most banks, according to a Nomura India report.

--With PTI inputs