HEADLINES:
October 16 2019
Further defaults will not take place: Govt.
02 October 2018

NCLT approves induction of 6 directors to IL&FS board

The government on Monday made clear its commitment to ensuring that the ailing Infrastructure Leasing & Financial Services (IL&FS) receives the liquidity it needs from the financial system, and that no further defaults take place, terming the company a large Systemically Important Non-Deposit Accepting Core Investment Company.

The National Company Law Tribunal (NCLT) had, at the request of the government earlier on Monday, approved the induction of six directors to the board of IL&FS.

“The government stands fully committed to ensure that needed liquidity is arranged for the IL&FS from the financial system so that no more defaults take place and the infrastructure projects are implemented smoothly,” the Finance Ministry said in the statement.

Restoring confidence

 “The restoration of confidence of the money, debt and capital markets, the banks and financial institutions in the credibility and financial solvency of the IL&FS Group is of utmost importance for the financial stability of capital and financial markets,” the statement added. 

“There is an emergent need to immediately stop further financial defaults and also take measures to resolve defaulted dues to the claimants,” it said.

This, the Finance Ministry said, would require a combination of measures, including asset sales, restructuring of some liabilities, and a fresh infusion of funds by the investors and lenders. In addition, the statement justified the government’s action regarding the IL&FS board, saying that the confidence of the financial markets and the credibility of the IL&FS management needed to be restored.

 “The government, after analysing the emerging situation of the IL&FS Group [has] come to the conclusion that the governance and management change in IL&FS Group is very necessary for saving the Group from financial collapse, which required an immediate change in the existing board and management and appointment of a new management,” the statement said.

“Continuance of the present board had become prejudicial to the interests of the company and its members and this management was affecting public interest because of its adverse impact on financial stability and making capital markets so adversely affected,” it added.

The government approached the NCLT under Section 241 read with 242 of the Companies Act, 2013 to order the supersession of the present board of directors of IL&FS and its substitution by the new board of directors.

The Finance Ministry further said that the fact that IL&FS continued to pay dividends and “huge managerial pay-outs regardless of looming liquidity crisis” shows that the management had lost total credibility.

Serious deficiencies

A report received from the Regional Director, Mumbai under the Ministry of Corporate Affairs had clearly brought out “serious corporate related deficiencies in the IL&FS holding company and its subsidiaries.” 

The report noted that the consolidated financial statement of IL&FS holding company and its subsidiaries, associates and joint ventures projected a highly exaggerated picture of non-current assets in the form of intangible assets amounting to over ₹20,000 crore.

 

 

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