L&T Finance has moved the Supreme Court challenging the National Company Law Appellate Tribunal’s (NCLAT) ruling that allowed `16,000 crore of IL&FS debt to be categorised as ‘amber’. It said that the appellate tribunal has no powers to categorise debts and modify the contracts with the lenders and this will have “catastrophic implications for infrastructure financing” in the country.
L&T Finance, which has over `1,612 crore of debt exposure to six special purpose vehicles (SPV) of IL&FS, says that the contract has no room to qualify the stressed financier’s outstanding loans based on solvency. The amount of loan that will fall under the amber category is around `16,000 crore.
A bench led by Justice RF Nariman adjourned the case as senior counsel NK Kaul said the parties are “arriving at an amicable settlement in two of the companies.” The appellate tribunal had on February 11 approved three loan categories – green, amber and red – based on the ability of a particular company to repay debt and interest. Those able to meet all payment obligations are categorised as ‘green’ while companies able to meet only operational payments and senior secured debt obligations are categorised as ‘amber’. Others are categorised as ‘red’.
The NCLAT had permitted only the “green” entities to make payments to their project lenders without permitting the same for “amber” entities, which are also capable and have adequate cashflows to service the outstanding debt of their project lenders, L&T said in its application.
L&T Finance, in its application, had said that NCLAT had no power and couldn’t have bypassed the NCLT, Mumbai, while classifying loans. The appellate tribunal erred in assuming jurisdiction while passing the orders in the garb of larger public interest. It had in effect modified the contracts entered into by the IL&FS’s subsidiaries.
Besides, such classification will adversely affect its rights as no notice was issued to it on the Framework Resolution Plan submitted by IL&FS and this is also against the principles of natural justice, it added.
According to the infrastructure financing company, IL&FS is seeking to tamper with validly executed and binding contracts. The liquidity crunch or default which exists at the holding company level can’t be used as a shield by these defaulting subsidiaries to avoid making the regular repayment of principle and interest despite generating uffcient cash flows of their own and despite there being sufficient cash in the escrow accounts on the payment date, it added.
Source: Financial Express, July 19, 2019