IL&FS crisis: Independent directors to ask why nominees still on board

Ousted independent directors of the Infrastructure Leasing & Financial Services are planning to question the logic of the government in not seeking suspension of the shareholder nominees to the board. 

They plan to raise this issue in their response to the government petition in the National Company Law Tribunal (NCLT). After pronouncing its interim order, the tribunal has given respondents up to October 15 to file replies.

“It is a mystery as to why the nominee directors of the key shareholders have been left out in the superseding of the board, when they have a higher stake in the running of the company and all the powers to raise capital. Independent directors can only advice,” said a former independent director. 

He also pointed out nominee directors represented financial institutions such as Life Insurance Corporation of India (LIC), State Bank of India, Central Bank of India, and Orix Corporation, Japan. All of these are key shareholders of IL&FS. 

“All of them had the clout to raise equity capital, as it was clear that there was no leeway to raise more short-term loans,” the director added. 

The government plea has asked for suspension of seven members of the board, and appointment of 10 directors. Those identified for ouster are Hari Sankaran, former managing director; Arun Kumar Saha, whole-time director; and independent directors R C Bharagava, Michael Pinto, and Jaithirth Rao, among others. 

The NCLT order had allowed suspension of the board and replacing it with a six-member board, with banker Uday Kotak as the non-executive chairman. 

It is still not clear whether or not the nominee directors representing the shareholders will continue to be part of the board or new representatives will be appointed. 

Independent directors have said nominee directors did not endorse numerous suggestions made to raise capital. They pointed out that they were aware of the looming crisis nearly two to three years back and had suggested various options, including the sale of ILF&S.

Ajay Piramal, chairman of the Piramal Group, had even made an offer, but was stalled by LIC. 

Suggestions had also been made for an initial public offering, but the shareholder nominees did not support it either. Senior LIC executives, however, said they were open to all means of monetisation.