IL&FS Crisis : NCLAT Permits 22 Cos To Pay Debts; Justice D K Jain To Supervise Resolution Process [Read Order]

The National Company Law Appellate Tribunal(NCLAT) on Monday lifted morotorium over 22 companies of the debt-ridden Infrastructure Leasing &Financial Services(IL&FS) group, permitting them to service their debt obligations.

These 22 companies were classified as "Green" companies by the Ministry of Corporate Affairs(MCA), based on their repayment capacity. 

The MCA has classified the IL&FS group of companies into three categories - 'Green', 'Amber' and 'Red' and submitted a list of 302 subsidiaries of IL&FS, out of which 133 are incorporated outside.

Domestic companies which can meet their payment obligations to both financial and operational creditors are classified as 'Green'.

'Amber' group companies include those companies which are not able to meet all their obligations (financial and operational), but can meet only operational payment obligations and payment obligations to senior secured financial creditors.

Domestic Group Entities which cannot meet their payment obligations towards even senior secured financial creditors, as and when such payment obligations become due, are classified as 'Red'.

On February 5, the Tribunal had asked the Central Ministry to provide a classification of IL&FS group of companies based on their financial health.

Solicitor General Thushar Mehta appearing for the Union Government submitted that the consent of former SC judge Justice D K Jain was sought to supervise the resolution process. On the basis of consent expressed by Justice Jain, the Tribunal approved him as a supervisor of the resolution process.

"Taking into consideration the stand taken by 'Union of India' and 'IL&FS', we allow the Board of Directors of 'IL&FS' and to permit all "Green Entities" including the entities which may be declared 'Green' out of the 100 entities to service their debt obligations as per scheduled repayment, which should be within the 'Resolution Framework' as described in the affidavit dated 25th January, 2019 and subject to the supervision of the Hon'ble Justice (Retd.) D.K. Jain". 

The Tribunal headed by Justice S J Mukhopadhyaya also excluded 133 offshore companies of IL&FS groups from the morotorium imposed on October 15 last year.

"Taking into consideration the stand taken by the 'Union of India' asagreed by the 'IL&FS', we exclude '133 Offshore Group Entities' incorporated out of India as shown in Annexure D from the purview of ourorder dated 15th October, 2018. However, the resolution for those 'Offshore Group Entities' may be taken up by the Board of Directors of 'IL&FS' under the supervision of the Hon'ble Justice (Retd.) D.K. Jain", said the order.

The request  for permitting 10 Amber and 38 Red companies to service debt obligations to maintain them as 'going concerns' will be taken up by the Tribunal in the next hearing scheduled on March 12. The NCLAT will hear the views of the Union and the Board of Management of IL&FS regarding their plans to resolve the insolvency of Amber and Red group of companies. The bench asked them whether they intended to constitute a 'Committee of Creditors' for these companies, as is done usually in Corporate Insolvency Resolution Process.

The Solicitor General informed that certain lenders of IL&FS groups were exercising lien on moneys due to the group, and were withholding operation and maintenance payments, including salaries, which make the existence of companies as a 'going concern' difficult.

On this, the Tribunal expressed that "if any amount is payable by lenders to any of the members of the 'IL&FS Group Companies, they may release it". The failure to make such payments may invite orders  at the next sitting, indicated the Tribunal.

The Central Government took over the reins of management of IL&FS following an NCLT order last year 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.

The group with at least 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures and four associate companies is stated to be sitting on a debt of about Rs 91,000 crore.

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