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Following a series of defaults by IL&FS caused due to severe illiquidity, the company applied under provisions of the Companies Act, 2013 to reorganize its debt. Today, it got interim relief from the National Company Law Appellate Tribunal (NCLAT), in the nature of a moratorium under the Insolvency and Bankruptcy Code (IBC).
IL&FS had earlier resorted to the Companies Act route as insolvency cannot be triggered against a financial service provider under provisions of the IBC. In the absence of a specific resolution framework for financial service providers, IL&FS chose the schemes and arrangement route under the Companies Act.
Earlier this month, the National Company Law Tribunal (NCLT), while disposing of an application filed by the Union, suspended the IL&FS Board and permitted seven nominee Directors to take charge. Subsequently, the NCLT also allowed the newly appointed Board to elect a Managing Director from amongst themselves and to appoint Directors in subsidiaries, joint ventures, and associate companies of IL&FS.
This is the first time after the Satyam case that the Companies Act has been used by the Centre to replace the Board of Directors of a company. Simultaneously, the Serious Fraud Investigation Office (SFIO) of the Union Ministry of Corporate Affairs is also investigating IL&FS.
More recently, the Union approached the NCLT under Sections 241 and 242 of the Companies Act, 2013 for declaration of a moratorium, much like the one IBC provides for when a company enters into insolvency. The Union argued that IBC does not provide for the resolution of financial service providers and even if Central government used its power to notify IL&FS for being referred to IBC, the law does not provide for joint resolution. However, the NCLT dismissed the Centre’s application.
The Union appealed against this ruling at the NCLAT, where it got relief. The NCLAT noted that the question before it is whether the NCLT has the power to pass an order analogous to the provisions of IBC, in particular, issuing a moratorium on all proceedings against the company. While the final decision is yet to be pronounced, the NCLAT in its interim order stated:
|Taking into consideration the nature of the case, larger public interest and economy of the nation and interest of the Company and 348 group companies, there shall be stay of |
1. The institution and continuation of any proceedings against IL&FS and its 348 group companies in any court of law/ tribunal/ arbitration;
2. Any action by any party to foreclose, recover or enforce any security interest created on the assets of IL&FS and its 348 group companies;
3. The acceleration or premature withdrawal, invocation of any term loan, corporate loan, commercial papers, etc. and other financial facilities availed by IL&FS and its 348 group companies;
4. To suspend temporarily the acceleration of any term loan, corporate loan, commercial papers, etc. and other financial facilities availed by IL&FS and its 348 group companies as of the date of first default;
5. Any and all financial institutions from exercising the right to set off any amounts lying with any creditor against any amounts lying in the bank accounts of IL&FS and its 348 group companies.
The NCLAT also directed the Union and IL&FS to implead the 5 largest creditors, in a representative capacity for all creditors, in the referenced appeals.
Solicitor General for India Tushar Mehta was present on behalf of the Union. IL&FS was represented by Ramji Srinivasan, Senior Advocate, who was briefed by Cyril Amarchand Mangaldas Partners Gauri Rasgotra and L Viswanathan along with Raunak Dhillion, Vikash Kumar Jha, Karan Khanna, Aditya Sikka, Ananya Dhar Choudhury and Bunmeet Singh Grover.
Cyril Amarchand Mangaldas are also the legal advisors for IL&FS and the team includes Managing Partner Cyril Shroff, Partner L Viswanathan, Anchal Dhir, Abhijeet Das and Pranay Chandran.
The matter has been kept for ‘admission’ on November 13, 2018.
(Read the order)