The Supreme Court on Tuesday allowed Serious Fraud Investigation Office (SFIO) to reopen and recast the accounts of Infrastructure Leasing & Financial Services Limited (IL&FS), IL&FS Financial Services Limited (IFIN), and IL&FS Transportation Networks Limited (ITNL) of the past five years. The order by the top court came on a plea moved by the Ministry of Corporate Affairs (MCA), which had sought to examine the books of the company between financial year 2012-13 and 2017-18 (April-March).

The MCA had initially approached the Mumbai bench of National Company Law Tribunal (NCLT) with a plea to reopen the accounts of IL&FS, IFIN, and ITNL. In its plea before NCLT, the MCA had said that on the basis of prime facie reports during the SFIO investigation, it had emerged that the affairs of the company and its subsidiaries were mismanaged between FY13 and FY18.

Though the NCLT had not expressed any opinion on the submissions of MCA against the then auditors of the company, it had allowed them to reopen the books of the three companies and asked the central government to give the name of the person, or firm, they wished to appoint as auditors to recast the accounts. The NCLT had also clarified that while it was not expressing any opinion against the auditors, this did not mean that proceedings against them before the Institute of Chartered Accountants of India were to be affected by it.

“We further clarify that this order is without prejudice to the right of the auditors and all the parties present and will not affect the proceedings before ICAI in any manner, which will be decided independently on its own merits,” the NCLT had said.

Following the NCLT order, the former Vice-President and Director of the company Hari Sankaran had moved the NCLAT alleging that the NCLT had passed the orders ex-parte and without hearing his arguments. In its judgment on January 31, the NCLAT had, while dismissing Sankaran’s plea against the NCLT order, said that it found no merit in his plea that Section 230 of the Companies Act is a 'draconian section'.

“Such submission cannot be accepted till any person challenges the provisions before the court of competent jurisdiction such as the high court and supreme court,” the NCLAT had said.

Following the NCLAT judgement, Sankaran had approached the Supreme Court, which had initially stayed the NCLAT order on April 29. However, the MCA again moved the court seeking a vacation of its stay, which was granted on Tuesday. In its fresh plea, the MCA said that they needed to reopen and recast the accounts to get a fair picture of the financial position of these three firms.

Debt-laden IL&FS and its subsidiaries owe nearly Rs 90,000 crore to their lenders. After the government takeover of the company’s board last year, the new board of the company has prepared a roadmap to pay off the company's debts. The new board at IL&FS had classified IL&FS group companies into three categories, namely ‘green’, ‘amber’, and ‘red’ based on their financial health and ability to service debt obligations to secured and unsecured creditors.

Companies with no cash and not in a position to pay any creditor were classified as red, while those with enough to pay secured creditors, but not unsecured ones, were put under the amber category. The firms which have enough money to service all their debts, to secured, as well as, unsecured creditors, were classified as green. So far, the companies under the green category have been allowed to service their debts.

During a hearing on May 30, the NCLAT had said that if companies placed under the amber category were not able to be reclassified into the green category by the next date of hearing on July 12, the appellate tribunal would pass orders asking such companies to service 100 per cent debt obligations of the provident and pension funds. For other lenders, the NCLAT may ask the amber companies to service the debt on a “proportionate basis”, the two-judge bench headed by Chairperson Justice S J Mukhopadhaya said. The NCLAT had also hinted that once the debt situation of green and amber companies was resolved, it may ask the companies under the red category to face insolvency proceedings.