IL&FS Employees Welfare Trust holds 12 percent in the company.

IL&FS Accounts Not To Be Tagged As NPAs, Says NCLAT

The National Company Law Appellate Tribunal has ordered that Infrastructure Leasing and Financial Services and its group companies will not be declared as non performing assets until further orders. The order will continue to be in effect even if there is a default, the appellate tribunal said.

The order was passed today by a bench headed by NCLAT Chairperson Retired Justice SJ Mukhopadhyay on an application moved by certain lenders.

In a short order, which didn’t offer any explanation as to the rationale, the tribunal said that lenders cannot declare any of these accounts as NPAs without prior permission from the NCLAT.

... we make it clear that due to non-payment 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.  
NCLAT Order Dated Feb. 25 

IL&FS first defaulted on debt securities in September 2018. Subsequently, the government dismissed the board of the group and appointed an interim board to finalise a resolution plan. While the total debt of the group stood at Rs 91,000 crore, most of this is on the books of subsidiaries and special purpose vehicles. While some of these entities have the ability to pay, others do not.

On Feb.11, the NCLAT said that subsidiaries of IL&FS would be divided into three categories — Green (firms that can meet all debt obligations), Amber (firms that can meet some debt obligations), and Red (firms that can’t meet any debt obligations). The tribunal went on to say that entities classified as green can continuing servicing debt obligations, while others would wait until a resolution plan is finalised.

On Monday, the appellate tribunal went a step further and said that none of the entities would need to be classified as NPAs, even if they are not making payments as scheduled. As per banking regulations, an account is tagged as a NPA when payments are overdue by 90-days.

BloombergQuint had earlier reported that a number of these accounts were scheduled to be tagged as non performing in the current financial year. An appeal by bankers to the RBI to allow special dispensation for IL&FS had been rejected.

The NCLAT’s intervention will come as a relief for lenders but dilutes banking regulations.