NCLAT Lifts Moratorium on 22 Domestic and 133 Foreign Entities of IL&FS

National Company Law Appellate Tribunal on February 11 passed an order lifting moratorium on 22 domestic and 133 foreign entities of the beleaguered Infrastructure Leasing and Financial Services (IL&FS) Group, as proposed by Uday Kotak-led government appointed board.

The appellate tribunal also appointed retired Justice D.K. Jain to supervise the operation of the resolution process of the debt-laden Group.

Of the total 348 subsidiaries including IL&FS standalone company of the group, 46 entities are classified as either closed or struck off or divested or liquidated. And of the remaining 302 companies or entities, 169 are domestic group entities, and 133 are foreign entities.

As per the framework resolution plan proposed by Kotak’s board, the domestic entities are classified under three categories – Green, Amber and Red Entities. Green Entities are entities which can continue to meet all their payment obligations; Amber entities are entities which are not able to meet all their obligations (financial and operational), but can meet only operational payment obligations and Red Entities are those companies which cannot meet their financial and operational obligations. So far, 70 domestic companies have been classified into these categories by the new board, and the remaining entities are still under assessment.

In its Monday order, NCLAT lifted moratorium on 22 domestic companies classified as “Green Entities” and 133 foreign entities, hence these companies are now required to service their debt obligations as per their earlier debt agreements. Furthermore, the NCLAT asked the IL&FS board and the Ministry of Corporate Affairs how they intended to resolve the Amber and Red entities. The next hearing in this matter will commence on March 12.

On the other side, regulatory bodies such as SEBI and SFIO are probing the fraudulent affairs inside the IL&FS which threatened its lenders and rattled India’s markets. Securities and Exchange Board of India, is currently probing the role of three rating agencies – CARE Ratings, ICRA Ratings and India Ratings, which had rated the debt instruments of IL&FS and its subsidiaries. These agencies rated IL&FS a high AAA rating until the group began defaulting its debt obligations. Serious Fraud Investigation Office had earlier stated the government that a set of persons who were at the helm of controlling all significant affairs of the Group as responsible for the crisis inside the group. SFIO revealed that the then directors of the Group had procured funds from the market through short term instruments and invested in group companies while hiding possible defaults fraudulently, thus caused indebtedness over 91000 crore of the group.

Earlier, it has been reported that the Institute of Chartered Accountants of India (ICAI), which probed the role of IL&FS statutory auditors has found that the premier auditing companies -- Deloitte Haskins & Sells LLC, EY affiliate SRBC & Co., LLP and KPMG affiliate BSR & Associates LLP -- have failed in their duty, were “negligent” and prepared incorrect financial statements of IL&FS parent company and its subsidiaries IFIN and ITNL.