NCLAT allows banks to proceed against ex-IL&FS directors not on new board

The appellate tribunal said those directors who are part of the new board of Infrastructure Leasing & Financial Services (IL&FS) and its various subsidiaries after October 1, 2018, would be protected

The National Company Law Appellate Tribunal (NCLAT) has allowed state-owned Canara Bank and Indian Bank to pursue proceedings against former IL&FS directors, who are not part of the new board, to declare them as wilful defaulter.

However, the appellate tribunal said those directors who are part of the new board of Infrastructure Leasing & Financial Services (IL&FS) and its various subsidiaries after October 1, 2018, would remain protected.

"We are of the view that this protection shall extend to Professional Directors who have been reappointed in IL&FS and its subsidiaries who are the part of the present board. With respect to IL&FS and IL&FS Group...we grant leave to the bank to make an application for proceeding against them," said a two-member NCLAT bench comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra.

The government had appointed a new board of IL&FS on October 1, 2018, after a Rs 90,000 crore debt surfaced, which had then sent shock waves to the financial sector of the country.

Besides, NCLAT on October 15, 2018 passed an order granting an interim stay on certain actions by creditors and other parties against IL&FS and its group companies, citing the nature of the case, larger public interest, and the economy of the nation. It had granted a stay on the institution and continuation of suits or any legal proceedings against the IL&FS Group.

During the proceedings, last week, IL&FS had submitted that in view of the order dated October 15, 2018, restraining all persons from taking any coercive action against IL&FS and its group entities, the directors of the company are also protected.

However, counsel for the Canara Bank and Indian Bank opposed the submissions and submitted that only show cause notices were issued to erstwhile directors of the companies with regard to their acts who were at the helm of the affairs at the relevant time and said process needs to be proceeded and completed as per the RBI circular.

On this, senior advovate Ramji Srinivasan, appearing for IL&FS submitted that IL&FS cannot have any objection with regard to proceeding against erstwhile directors provided they are not part of the current board which has approval of NCLT.

"It is further submitted that certain professional directors who were earlier in the company have been reappointed in the board," said NCLAT directing to protect these reappointed directors.

IL&FS Group as of October 2018, had availed fund-based debt of Rs 94,215 crore out of the total outstanding external debt of Rs 99,355 crore.

Out of this, Rs 48,000 crore, which is nearly 51 per cent, was availed by four key holding companies -- IL&FS Group, IFIN, ITNL, and IEDCL.

On October 1, 2018, NCLT superseded the existing board of IL&FS on the recommendation of the central government after the mega-crisis in IL&FS.

It had also granted protection to the IL&FS companies against recovery of any further dues and immunity to the newly-appointed directors of IL&FS against any proceedings for the past actions of suspended directors or any of the officers thereof.