In a likely blow to the government and the newly constituted board of Infrastructure Leasing & Financial Services (IL&FS), the Mumbai NCLT Bench rejected the plea of a three-month moratorium against any legal proceedings by any party against the stressed infrastructure financier and its 348 subsidiaries.
The government had sought moratorium seeking relief after 49 creditors, including bondholders, demanded payment under threat of legal proceedings. SIDBI has filed a petition against IFIN, and Enso Rail Infrastructure against IL&FS Rail.
“In the circumstances, we are of the considered view that the moratorium which has been sought by the Union of India by an application u/s 242 of the Companies act 2013 cannot be granted,” Ravikumar Duraisamy and VP Singh said in the order, rejecting the federal request.
On October 1, the existing board was suspended under the powers of section 242 of the Companies Act 2013. The court said the government is seeking relief on the basis of IL&FS being a financial service provider and IBC does not apply to it.
However, the Mumbai NCLT ruled that section 241 or 242 of the Companies Act, 2013, can be in no way compared with the provision of moratorium order given under IBC.
The government had argued that the newly appointed board is likely to face certain problems relating to IL&FS and its group companies spanning across various sectors.
“There may need to rationalize/rethink business processes and strategies that may ensure effective and more efficient manner of functioning,” the government had said in its application to NCLT Mumbai. “Assets would need to be assessed, rationalized and steps taken to make a roadmap to preserving the fair value of assets, rebuilding trust of different stakeholders by providing a fair mechanism.”
The govt had said that IL&FS operates as a holding company across various businesses through more than 348 group companies, primarily including industries such as roads, power, engineering, financial services, maritime and urban development.
It argued that the company and its subsidiaries are facing a liquidity crunch with no immediate source of funding, which has led to its inability to service debt obligations.
ITNL has been in default since June 30, and IL&FS Financial Services since September 12. In FY18, IL&FS had a net loss of Rs 2,670 crore and borrowings of Rs 91,000 crore against equity share capital and reserves of Rs 6,950 crore.
Source: Economic Times