IL&FS group companies labeled green allowed to start servicing debt

NCLAT says if amber companies do not turn the corner by July 12 it could ask for proportionate payment to its lenders.

The National Company Law Appellate Tribunal (NCLAT) on Wednesday said that if the Infrastructure Leasing & Financial Services (IL&FS) companies placed under the amber category were not able to be reclassified into the green category by the next date of hearing on July 12, the appellate tribunal will pass orders asking such companies to service 100 per cent debt obligations of the provident and pension funds. For other lenders, the NCLAT may ask the amber companies to service the debt on a “proportionate basis”, the two-judge Bench said.

The other companies of the IL&FS which are or get re-classified under the green category in future can automatically start servicing their debts. The new board of directors of IL&FS can permit such firms to service their obligations to lenders, a two-member Bench led by Chairperson Justice S J Mukhopadhaya said.

Such companies will service their debts in accordance with the February 11 order of the appellate tribunal in which it had allowed companies placed under the green category to start servicing debt within the resolution framework under the supervision of retired Supreme Court judge Justice D K Jain, the NCLAT said on Wednesday.

The new board at IL&FS had classified IL&FS group companies into three categories, namely ‘green’, ‘amber’, and ‘red’ based on their financial health and ability to service debt obligations to secured and unsecured creditors. Companies with no cash and not in a position to pay any creditor were classified as red, while those with enough to pay secured creditors but not unsecured ones were put under the amber category. The firms which have enough money to service all their debts, to the secured as well as unsecured creditors, were classified as green.

The appellate tribunal also asked the government to provide an updated report on the classification process of all IL&FS group companies. So far, 55 companies have been placed under the green category and 13 have been placed under the amber category. A total of 82 companies have been placed under the red category, while 11 are yet to be classified, the counsel appearing for the new board of IL&FS said.

For the companies under the red category, the appellate tribunal could ask the lenders to initiate insolvency processes once the resolution of green and amber companies is complete, the two-member Bench observed.

In October last year, the NCLAT had placed a moratorium on any action by the IL&FS or its group companies’ lenders. The NCLAT had then debarred bankers and financiers of IL&FS and its subsidiaries from exercising their right to set off their dues against current accounts and other deposits the company had. Earlier this year, the moratorium was lifted later but only for companies placed under the green category.

Later on February 25, the NCLAT had also barred banks and other financial institutions from declaring IL&FS accounts as non-performing assets (NPA) until further orders. However, after a plea moved by the Reserve Bank of India seeking to review the order, the NCLAT allowed banks to classify these accounts as NPA on their books but said that they could not take any action against such companies.  

IL&FS defaulted on debt instruments including loans, bonds and commercial papers (CPs) of more than Rs 41 billion as of October 1. The outstanding loan of the IL&FS group is about Rs 60,000 crore, while the debt is over Rs 91,000 crore.