The National Company Law Appellate Tribunal (NCLAT) on Monday ruled that accounts of Infrastructure Leasing & Financial Services (IL&FS) and its subsidiaries would not be classified as Non-performing Asset (NPA) by financial institutions such as banks without prior approval from the appellate tribunal.
“Without going into the rival contention of the parties, we make it clear that due to nonpayment of dues by the ‘Infrastructure Leasing & Financial Services Limited’ or its entities including the ‘Amber Companies’, no financial institution will declare the accounts of ‘Infrastructure Leasing & Financial Services Limited’ or its entities as ‘NPA’ without prior permission of this Appellate Tribunal," a two judge bench led by Chairperson Justice S. J. Mukhopadhaya said in its order.
Hearing a plea moved by lenders to certain companies under the amber category who wanted that accounts should not be declared NPA, the two judge bench observed that the step was being taken in interest of the resolution plan being carried out by the newly appointed board of IL&FS.
During the last hearing on February 11, the central government and the new board of IL&FS had submitted an affidavit detailing the three categories, namely green, amber, and red under which they had placed IL&FS and its domestic subsidiaries. As many as 69 out of the 169 firms of the IL&FS group incorporated in India have been placed under three categories based on their ability to service routine debt obligations to secured financial and operational creditors.
The companies which are currently operating with a positive net worth and have sufficient cash flows to meet their year-long debt obligations have been placed under the green category, while those which are not in a position to repay even the secured and senior secured financial creditors have been placed under the red category. A third category of amber companies are those which have enough cash flow to repay debts of secured creditors but not enough to meet claims of unsecured creditors.
The firms under green category have been allowed by the NCLAT to service their debt obligations. The appellate tribunal had during the hearing on February 11 also approved the appointment of former Supreme Court judge Justice D K Jain to supervise the resolution process.
Of the subsidiaries of IL&FS, while 170 are domestic companies, nearly 133, incorporated outside India. The NCLAT had during the last hearing lifted the moratorium placed on these companies and allowed their resolution plan to go on as planned.
Hearing an urgent petition moved by the Ministry of Corporate Affairs, the NCLAT had on October 15 stayed all proceedings against IL&FS and 348 group companies till its further orders. The moratorium, the two-member bench led by Justice Mukhopadhaya had then said was being placed "taking into consideration the nature of the case, larger public interest and economy of the nation and interest of IL&FS and 348 group companies".
The appellate tribunal has also suspended temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits and any other financial facility by the IL&FS and its group companies.
The ministry had moved the appellate tribunal after a plea for moratorium was rejected by Mumbai bench of National Company Law Tribunal (NCLT). The government, in its initial application filed before the NCLT, had sought three months' moratorium over "institution or continuation" or any other proceedings against IL&FS and any of its group companies in "any court of law/tribunal/arbitration panel or arbitration authority".
The NCLAT had in its October 15 order made it clear that the interim moratorium order would not be applicable to any writ petitions 0d before high courts or the Supreme Court.