NCLT extends immunity to new board-appointed members at IL&FS firms

In a development that could help the IL&FS group, in trouble for months over loan defaults and resulting probes for suspected breach of law, the National Company Law Tribunal (NCLT) has clarified that legal immunity would be extended to board-appointed members at its various subsidiary entities.
 
“We hereby clarify that the immunity granted by this court not only covers the directors appointed by this court but also such of those directors to whom the IL&FS board would appoint for subsidiaries, other group companies and trustees of IL&FS Employees Welfare Trust,” said the Tribunal.
 
The earlier order extended immunity to directors appointed by NCLT, also known as the ‘New Board’. This board has Uday Kotak, Vineet Nayyar, C S Rajan, G N Bajpai, G C Chaturvedi, Malini Shankar, Nand Kishore, Bijay Kumar and N Srinivasan.

 

 In its latest annual report, IL&FS said, “NCLT directed that no action should be initiated against the New Board for past actions and past wrongs of suspended directors and officials of IL&FS without prior approval of the NCLT and granted immunity to the directors on the New Board.”  This immunity will now be applicable to all directors and nominees appointed by the new board.
 
“Till now, only government-appointed board members had the immunity. This had created a sense of insecurity among professionals and independent board members across IL&FS group companies and impeded decision making,” said a person with knowledge of the development, who did not wish to be identified.

 
The annual report added: “Challenges are being faced by the respective subsidiaries in terms of valuation of underlying assets, inadequate number of directors on the boards of a few companies, dealing with casual vacancy of statutory auditors and extended timelines for finalising and adopting audited financial statements.”
 
The person quoted earlier says this latest NCLT order will pave the way for better debt resolution. “Most ILFS companies do not have the requisite independent directors…This was creating compliance challenges and bottlenecks for resolution.”
 
The annual report similarly says: “The Group has been facing capacity issues due to loss of key employees while meeting the need for servicing information requirements and providing clarifications to multiple investigating agencies, providing information to enable the ongoing asset monetisation and restructuring activities, and meeting ‘going concern’ requirements.” 

 
IL&FS had 116 employees as of end-March 2019, against 134 a year before. At the group level, the total number on the former date was 4,331, against 5,579 employees a year ago.