After defaulting on a series of loan repayments, Infrastructure Leasing and Financial Services Ltd ( IL&FS) is planning to approach the National Company Law Tribunal (NCLT) with a plea to not admit a bankruptcy case against the group, said two people directly aware of IL&FS’s plans. The company will inform the tribunal that the group is already in the process of settling its dues through monetization of IL&FS’s assets and through other capital-raising programmes.
“One of the options is to file a plea at NCLT asking the court not to admit any insolvency case by IL&FS’s creditors against the group or any of its subsidiaries, because IL&FS has already begun working on concrete plans to settle the dues with interest. This has also been conveyed to its lenders and shareholders,” said the first person, requesting anonymity.
IL&FS has appointed Cyril Amarchand Mangaldas as the counsel to approach the tribunal. The NCLT will open on Tuesday after a vacation.
Under Section 230 of the Companies Act, 2013, a financial group is allowed to cushion itself from legal battles involving settlement of dues. It also empowers a financial services company to negotiate or make arrangements with creditors and members.
In simple words, IL&FS wants to convey to the creditors that the group is facing a temporary liquidity crisis, but assures the creditors that it will pay their dues shortly and, therefore, the lenders should not approach the tribunal or court with any litigation or recovery process in the meanwhile, said the second person, also requesting anonymity.
According to Ashish K. Singh, managing partner of law firm Capstone Legal, an application before the NCLT allows a company facing financial trouble to reach out to its creditors for seeking an amicable settlement. “In light of the IBC (Insolvency and Bankruptcy Code), Section 230 has gained importance and it is expected that many applications will be filed by companies facing financial trouble.”
IL&FS has also written to its creditors to hold a meeting with the group and settle the matters related to repayment without taking legal recourse. “Instead of hastily filing a suit against IL&FS with charges of insolvency, the creditors should meet IL&FS first and see its strategy. IL&FS has requested its creditors to hold a meeting with the group and assess its repayment roadmap before approaching the NCLT to initiate any litigation or recovery process,” the second person added.
IL&FS’s plea to NCLT comes close on the heels of a series of defaults by the group towards repayment of loans taken from Small Industries Development Bank of India (Sidbi). About 10 days ago, Sidbi had written to IL&FS, threatening it to either clear the dues immediately or face insolvency. IL&FS has defaulted on repayments worth at least ₹ 1,100 crore towards loans from Sidbi. Following defaults, the Reserve Bank of India ordered a special audit of the company.
According to IL&FS, the group is looking to monetize a large number of assets and divest stakes in its subsidiaries to raise sufficient money to repay the dues to the group’s creditors. On 18 September, Mint reported that it is looking to monetize assets as the group’s key shareholders have asked the management to table a comprehensive turnaround and deleveraging plan, before talks of a potential bailout can be initiated.
On 17 September, rating agency Icra Ltd revised the credit rating of IL&FS to default, after it failed to meet the repayment obligations of ₹ 12,000 crore in short-term and long-term borrowings. In fact, the company’s credit rating has been downgraded twice by agencies in the past two months.
As on 31 March, IL&FS’s total outstanding debt stood at ₹ 91,091.31 crore at the group level, an increase of 14% from the previous fiscal, according to its latest corporate filings.
Source : Livemint , September 24th 2018