NCLAT Stays NCLT Order Denying Three-Month Moratorium To IL&FS Group
An appellate tribunal stayed the company law court’s order that denied the IL&FS group a moratorium against legal action even as a government-picked board seeks to rescue the systemically important builder and financier of highway and metro projects.
The National Company Law Appellate Tribunal has granted interim relief till the next hearing in November, said Corporate Affairs Secretary Injeti Srinivas today.
The moratorium is effective immediately and will continue till further orders, IL&FS said in a media statement. It helps in preserving the value of the group’s assets and will assist the board in its efforts to evaluate and prepare a resolution plan, keeping stakeholders in mind, it said. The next hearing is scheduled on Nov. 13.
IL&FS was taken over by the government after it defaulted on debt payments multiple times, sparking fears of a contagion in India’s financial markets. The new board found that the group, with a debt of about Rs 90,000 crore, is far more complex than expected with a maze of 348 subsidiaries and associate companies. It has to submit a road map to the National Company Law Tribunal by Oct. 31.
The board of and the government moved the NCLT seeking a three-month moratorium under the Companies Act, according to the order on its website. They sought protection for IL&FS and its 348 subsidiaries from legal proceedings—including action stemming for debt defaults—by any court, tribunal, arbitral panel or authority. The NCLT on Oct. 12 denied that relief.
“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,” the tribunal said in its order.
Why NCLT Rejected Plea
The IL&FS group had sought relief similar to the moratorium provided under Section 14 of the Insolvency and Bankruptcy Code, which protects companies against lawsuits, and prevents corporate debtors from taking over assets and banks from initiating recovery.
But since IL&FS group is a financial services provider, it can’t be covered under the insolvency code unless the government issues a separate notification, the NCLT order said.
Moreover, no such provision of moratorium is provided under the Companies Act, 2013 to protect the financial services providers in case of restructuring of debts, the tribunal said.
The NCLT also said that insolvency code doesn’t provide joint resolution of the group companies. Some of the IL&FS subsidiaries, according to the order, are already undergoing a corporate insolvency resolution process. An application to initiate resolution has to be made for each company, and a blanket moratorium order can’t be passed against all 348 companies, the NCLT said.