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Govt Takes Control of Debt-ridden IL&FS, Uday Kotak Made Head of Six-Member Board

The decision was taken after the government moved National Company Law Tribunal (NCLT) on Monday. The government claimed that the incumbent directors failed to discharge their duties.

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Updated:October 1, 2018, 5:24 PM IST
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Govt Takes Control of Debt-ridden IL&FS, Uday Kotak Made Head of Six-Member Board
File photo of Uday Kotak.
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A six-member board headed by Kotak Mahindra Bank boss Uday Kotak will take over debt-ridden IL&FS with immediate effect as the National Company Law Tribunal on Monday allowed the union government's interim prayer to reconstitute the board due to mismanagement.

A Mumbai bench of judges M K Shrawat and Ravikumar Duraisamy approved the takeover of Infrastructure Leasing & Financial Services Ltd (IL&FS) by government nominees, saying the mismanagement at the crisis-ridden company 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.

Apart from Kotak, retired IAS officer Vineet Nayyar, former Sebi chairperson G N Bajpai, ICICI's non-executive chairperson G C Chaturvedi, IAS officer Malini Shankar and senior bureaucrat from CAG Nand Kishore will be part of the board.

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 October 8 this year, and to submit a report on its finding and a roadmap before the bench by October 31, 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 October 15 this year.

Malini Shankar told CNBC-TV18 that the new board will have to look at the bad assets at IL&FS & try to come up with solutions. “It’s clear that the accounts of IL&FS need to be looked at and worked upon,” she said.

The company owes between Rs 55,000 and 60,000 crore to banks out of the total debt, the management had informed earlier. The total long-term exposure of the IL&FS group stands at around Rs 91,000 crore.

The group is facing a serious liquidity crisis and has defaulted on interest payment on various debt repayments since August 27.

The government superseded IL&FS board as foreign shareholders were hesitant in putting more money unless there is a change in the management. The domestic shareholders had also expressed their concerns in lending to the same management at the helm, the sources said.

After the NCLT decision, the finance ministry said IL&FS continued to pay dividend and huge managerial payouts regardless of liquidity crisis. “The management has lost total credibility. The government stands committed to ensuring that liquidity is arranged for IL&FS to avoid any default,” it said.

The government had told the law tribunal that many mutual funds will collapse if IL&FS collapses and the company has been showing a rosy picture of its balance sheet.

Shares of IL&FS group companies surged up to 20 per cent Monday after the government pushed for change of management at the crisis-hit firm.

The scrip of IL&FS Engineering and Construction Company surged 20 per cent, IL&FS Transportation Networks shares zoomed 19.51 per cent and IL&FS Investment Managers soared 10 per cent on BSE.

Debt defaults by certain group entities of diversified IL&FS have triggered fears of liquidity crisis in the financial markets and RBI has been taking steps to improve the overall cash situation.

A similar sort of situation had played out at the time of Satyam crisis during the UPA term. A management reorganisation was the best way to allay concerns as well as provide some sort of blueprint going forward, sources said.
| Edited by: Aakarshuk Sarna
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