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Cyril Amarchand Mangaldas, EC Agarwala, Luthra & Luthra, Khaitan & Co, JSA are some of the prominent law firms representing 76 Entities against IL & FS.
The National Company Law Appellate Tribunal (NCLAT) has approved Central Government’s resolution framework for debt-ridden ‘Infrastructure Leasing and Financial Services Limited (IL&FS). (Union of India vs Infrastructure Leasing & Financial Services Ltd. & Ors)
While accepting Centre’s framework which provides for a pro-rata distribution of assets, the Appellate Tribunal has opined that it was not inclined to follow the procedure of Insolvency & Bankruptcy Code in the case, including Section 53, due to public interest involved in the case.
The resolution plan according to the framework as suggested by the Central Government shall be implemented within 90 days, NCLAT has ordered.
The NCLAT has further held that the National Company Law Tribunal (NCLT) can follow the principles of Insolvency and Bankruptcy Code while dealing with a winding-up matter or a matter under Section 241 r/w Section 242, particularly in a case under Section 241(2) which relates to public interest.
The order was passed by a two-member Bench of Chairperson Justice SJ Mukhopadhaya and Member (Judicial) Justice Bansi Lal Bhat.
The Central Government had moved NCLT, Mumbai against IL&FS and its Group Companies on the ground that the affairs of the company were being conducted in a manner prejudicial to the public interest.
Apart from seeking an overhaul of the management, the Central Government had also moved an application for interim relief seeking moratorium qua IL&FS.
The request for a moratorium was rejected by the NCLT on the ground that the provisions of IBC did not apply to IL&FS - a financial service provider and therefore, an order of moratorium could not be passed under Section 14 IBC.
After the Centre moved an appeal before the NCLAT, an interim order was passed, inter alia, staying institution or continuation of suits etc by or against IL&FS and its 348 group companies. Vide order dated October 15, 2018, NCLAT also barred banks and other financial institutions from exercising any form of lien held against any dues of IL&FS.
Subsequently, a number of Intervention Applications were moved for one or the other reliefs and different interim orders were passed from time to time.
Several lenders of IL&FS broadly argued that the NCLAT, as well as the NCLT, could not have passed orders in the nature of imposing a moratorium while dealing with a case under Section 241 Companies Act.
It was added that under Section 242 of the Companies Act, 2013, the Tribunals had no power to interfere with the day to day management of the affairs of a company and the same has to be done by the shareholders and the new management, in their commercial wisdom.
After considering the submissions made by the parties, the NCLAT observed that the Central Government had made a prima facie case that the affairs of IL&FS & Group Companies were being conducted in a manner prejudicial to the public interest and there was a likelihood of the winding up of the Company.
Therefore, for regulating the conduct of the company’s affairs, it was open to the Tribunal to pass interim orders which are just and equitable, the NCLAT stated.
The NCLAT opined that in view of Section 424 of the Companies Act which gave power to the Tribunal/ Appellate Tribunal to follow the procedure of Insolvency and Bankruptcy Code, 2016, in addition to the procedure laid down in the Companies Act, 2013, it could not be said that while dealing with winding up matter or a matter under Section 241 r/w Section 242, the principle of Insolvency and Bankruptcy Code could not be followed.
Noting the positive changes that the interim order brought, the NCLAT stated,
“.. because of interim order, resolution plan of Rs.40,000 crores has offered and there is likelihood of getting Rs.10,000 crores to Rs.20,000 crores more. It has also been noticed that all the 133 Off-shore Companies (incorporated outside India) have been released out of the interim order and are now doing good business. 169 Entities incorporated in India, out of them about more than 33 Entities have been made ‘Green Entities’ and are paying to their Secured Creditors, Financial Creditors and other Creditors. Out of the 13 ‘Amber Entities’, 3 have already been turned ‘Green Entity’ and 4th is also going to be a ‘Green Entity’ because of the interim order and is now in a position to pay the dues of all the Secured Creditors, Financial Creditors and other Creditors. The other ‘Amber Entities’ are also in a position to pay the Secured Creditors and other Creditors. Out of more than 55 ‘Red Entities’ there are purchasers, who have given highest bid in one or the other case and in some cases transfer of asset has also taken place.”
The NCLAT further observed that since the concept of Group Insolvency is alien to the Indian law, there would be number of cases before the Tribunals as well as courts and muliplicity of proceedings against IL&FS and its Group companies would consume much time.
In view of the above, the NCLAT opined,
As mentioned before, while setting a 90-days deadline for its implementation, the NCLAT also accepted Centre’s framework of a pro-rata distribution of assets.
The development should be brought to the Notice of this Appellate Tribunal every month, NCLAT has ordered.
Here are the list of lawyers who represented 76 companies.
Read the order: