The government finally intervened in the IL&FS crisis on Monday, superseding its board and appointing new members, with banker Uday Kotak as chairman.
After a report from the Ministry of Corporate Affairs concluded that the affairs of the IL&FS holding company and its group companies were being conducted in a manner that was prejudicial to public interest, the government moved the National Company Law Tribunal(NCLT) for superseding the Board, which was granted with immediate effect.
The NCLT also approved the induction of six directors recommended by the government. “The new Board shall take up its responsibility with immediate effect, after following due procedures,” the Finance Ministry said in a statement.
A probe by Serious Fraud Investigation office has also been ordered into IL&FS and its subsidiaries following complaints.
“The government stands fully committed to ensure that needed liquidity is arranged for the ILFS from the financial system so that no more defaults take place and the infrastructure projects are implemented smoothly,” the Finance Ministry said.
Headed by Uday Kotak, MD & CEO of Kotak Mahindra Bank as non-executive chairman, the other members of the revamped IL&FS Board are Vineet Nayyar, IAS (retired); G.N. Bajpai, former Chairman, SEBI; G.C. Chaturvedi, non-executive chairperson, ICICI Bank; Dr. Malini Shankar, IAS; and Nand Kishore, former IA&AS officer.
The crisis in IL&FS started with a series of loan defaults in August and September by the company and some of its subsidiaries as it faced a severe liquidity crunch.
The IL&FS Group has infrastructure and financial assets of over ₹1,15,000 crore but is facing tremendous debt pressure and struggling to service around ₹91,000 crore — the outcome of its mismanaged borrowings in the past.
“The government stands fully committed to ensure that needed liquidity is arranged for the ILFS from the financial system so that no more defaults take place and the infrastructure projects are implemented smoothly,” the Finance Ministry said.
While justifying the move to appoint a new board, the government noted the fact that the company continued to pay dividends and huge managerial payouts regardless of the looming liquidity crisis shows that the management had lost total credibility.
