IL&FS Requests NCLAT To Direct Banks To Release Funds

The Ministry of Corporate Affairs has approached the National Company Law Appellate Tribunal after certain banks failed to release funds needed to maintain ‘going concern’ status of companies within the Infrastructure Leasing and Financial Services group.

In an affidavit filed before the NCLAT on Tuesday, the MCA, on behalf of the IL&FS group, sought directions from the tribunal to certain banks that are refusing to release funds. The banks include Bank of India, Punjab National Bank, Union Bank of India, Oriental Bank of Commerce and Allahabad Bank.

BloombergQuint has seen a copy of the affidavit. Emails sent to the lenders seeking clarity were not immediately answered.

The IL&FS group has been undergoing a resolution process after the government superseded the company’s board in October 2018. As part of the process, the NCLAT, in a Feb. 11 order, had 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).

While the tribunal didn’t lift the moratorium on the ‘Amber’ and ‘Red’ entities, it directed them to make necessary payments to maintain and preserve their ‘going concern’ status. The accounting term ‘going concern’ refers to the assumption that a company will remain in business for the foreseeable future, and not be forced to halt operations.

The affidavit suggests that not all banks are complying with this order.

From Escrow To Fixed Deposits

The issue seems to stem from requests by IL&FS group entities to redirect funds lying in escrow accounts.

According to the affidavit, some IL&FS group entities have sought to invest amounts lying in escrow and other accounts by creating fixed deposits. This money could be used to earn interest and make payments, the affidavit said. However, Bank of India, Punjab National Bank, Union Bank of India, Oriental Bank of Commerce and Allahabad Bank have not acted on these requests.

The five IL&FS special purpose entities that have made such requests include:

• Road Infrastructure Development Company of Rajasthan Ltd.
• Pune Sholapur Road Development Co. Ltd.
• East Hyderabad Expressway Ltd.
• Jharkhand Road Projects Implementation Co. Ltd.
• ITNL Road Infrastructure Development Co. Ltd.

The total amount that these companies were seeking to transfer stood at Rs 183.47 crore.

The corporate affairs ministry has requested that the tribunal direct the concerned banks to release the necessary funds to make ‘going concern’ payments, while also allowing certain SPVs to create interest-earning assets like mutual fund units or fixed deposits.

In addition, the affidavit stated that Allahabad Bank has refused to release funds related to the payments due by the Road Infrastructure Development Company of Rajasthan Ltd, an IL&FS group entity.

While the bank released payments for invoices between October 2018 and February 2019, totaling around Rs 98.23 lakhs, some payments for the same period around Rs 52.5 lakh have been not released by the bank, the affidavit said.

Progress Under The Resolution Process

The affidavit also provides an update on the resolution process, which has been underway for eight months now.

Out of 169 entities in the group, the new board of directors and its advisors have been able to classify around 158 companies into the three categories approved by the NCLAT.

Fifty five companies are classified as ‘Green’ and are in a position to make payments. The debt of these companies is estimated at Rs 11,000 crore. Thirteen companies with debt of Rs 16,373 crore are classified as ‘Amber’ and are only able to partially meet their payment requirements. The majority of IL&FS group companies—82 entities with debt of Rs 61,376 crore—are categorised as ‘Red’ and are unable to make payments.

Eight entities are facing insolvency proceedings. Eleven companies are yet to be classified and have a total debt of Rs 469.6 crore.

The IL&FS Group has Rs 94,215 crore in fund-based exposure to financial institutions.

Sale Process

According to the affidavit, the sale process for 10 entities is underway. These 10 entities represent 99 percent of the total debt of the ‘Green’ entities in the company, at around Rs 11,563 crore.

GAIL India Ltd. has emerged as the highest bidder for seven operational wind power plants with a combined capacity of 874 megawatt. At an offer price of Rs 4,800 crore, IL&FS said there will be no haircut to the lenders of the wind power SPVs who have a total exposure of Rs 3,700 crore. The company expects the sale process of these assets to be completed by the end of June 2019.

Orix Corporation Ltd. of Japan, a 49 percent shareholder in IL&FS Wind Energy Ltd. which holds these assets, has decided to exercise its right to purchase the remaining shares IWEL and match the bid offered by GAIL India, the affidavit said.

Other entities where sale processes are underway include IL&FS Securities Services Ltd., IL&FS Education Ltd., IL&FS Transportation Networks Ltd., IL&FS Thermal and IL&FS Investment Managers, among others.

The NCLAT has set May 27 as the next date of hearing for the case.