IL&FS Scam: NCLAT Lifts Moratorium, Orders Foreign, 'Green' Subsidiaries to Service Debt Obligations

Moneylife Digital Team 12 February 2019

The National Company Law Appellate Tribunal (NCLAT), while lifting the moratorium, has asked Infrastructure Leasing and Financial Services (IL&FS) and its group companies to service their debt obligations.

Earlier, the NCLAT had imposed a 90-day moratorium on loan recovery from all 133 off-shore entities and some 22 domestic companies of IL&FS group.

The group with a consolidated long-term debt of around Rs91,000 crore has 133 entities which have been incorporated or located outside the country's jurisdiction including IL&FS Africa Infrastructure Development Company, IL&FS Global Finance Services (UK) Ltd and IIML Fund Managers (Singapore) PTE Ltd.

Accordingly, some of these companies would either have to service their obligation as per the agreed terms with lenders. However, many of these entities are said to be deep in the red and these could face liquidation.

In addition to the foreign entities, 22 firms out of the 169 subsidiaries, which have been incorporated in India, have also been taken out of the moratorium.

At present, only 22 companies from the IL&FS group have been categorised under the green category. The companies under this category include IL&FS Investment Managers, IL&FS Securities Services and IL&FS Paradip Refinery Water, among others.

Subsequently, a classification of entities into 'green', 'amber' and 'red' has been done by the resolution consultant appointed by the new board based on the 12-month cash flow based solvency test.

Until now, out of 169 companies of the group that have been incorporated in India, only 69 have been classified into the three categories.

As per the classification norms, 'Green' entities are those companies, which can service their debt obligations, while firm in 'Amber' group can partly meet their obligations and 'Red' are those which cannot make any payment obligations

Further, NCLAT has appointed former Supreme Court Judge Justice DK Jain to supervise the 'resolution process' of the IL&FS Group and its subsidiaries.

Last year, the Central government superseded the management of the beleaguered company via a NCLT order and appointed a six-member board led by Uday Kotak, managing director and chief executive (MD&CEO) of Kotak Mahindra Bank, to restore its financial solvency.

Key public sector lenders and undertakings such as Life Insurance Corp of India (LIC) and State Bank of India (SBI) have a shareholding of 25.34% and 6.42%, respectively, in IL&FS. The credit crunch has led a few of the company's subsidiaries to default in servicing some of the inter-corporate deposits.

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