The National Company Law Appellate Tribunal (NCLAT) Monday stayed all proceedings against IL&FS and 348 group companies till its further order on an urgent petition moved by the government. The Ministry of Corporate Affairs swiftly approached the appellate tribunal after the Mumbai bench of the National Company Law Tribunal (NCLT) turned down its plea to grant 90 days moratorium over the loans taken by IL&FS and its subsidiaries.
Passing an interim order over the government's plea, a two-member NCLAT bench headed by Justice S J Mukhopadhaya stayed all the proceedings "taking into consideration the nature of the case, larger public interest and economy of the nation and interest of IL&FS and 348 group companies". IL&FS in a statement said that the NCLAT order was a "much-needed relief" from creditors and would assist its newly-constituted board to evaluate and prepare a resolution plan keeping various stakeholders in mind.
"In addition to providing much-needed relief from precipitative creditor actions against different entities within the IL&FS group, the moratorium enables value preservation of the group's assets and will also assist the newly constituted board of directors of IL&FS in its effort to evaluate and prepare a resolution plan keeping various stakeholders in mind," IL&FS said. The NCLAT also directed to implead the top five lenders of IL&FS and asked to submit their replies over the government's plea seeking 90 days moratorium.
"There shall be a stay of the institution or continuation of suits or any other proceedings by any party or person or bank or company, etc against IL&FS and its 348 group companies in any court of law/tribunal/arbitration panel or arbitration authority," the appellate tribunal said. There would also be a stay on "any action by any party or person or bank or company etc to foreclose, recover or enforce any security interest created over the assets of IL&FS and its 348 group companies including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002".
The appellate tribunal has also put suspension of temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits and any other financial facility by the IL&FS and its 348 group companies. It has also stayed all banks, financial institutions from exercising the right to set off or lien against any amounts lying with any creditor against any dues. The appellate tribunal has directed to list the government's appeal on November 13 "for admission".
Meanwhile, the NCLAT also clarified that the interim order will not be applicable to any writ petition filed before high courts or the Supreme Court. During the proceedings of the appellate tribunal, the government side was represented by Additional Solicitor General Tushar Mehta. A moratorium period is a time during which the borrower is not required to make any repayment towards the loans.
The government, in its application filed before the NCLT, had sought three months' moratorium over "institution or continuation" or any other proceedings against IL&FS and any of its group companies in "any court of law/tribunal/arbitration panel or arbitration authority". It also asked for moratorium over any action by any party "to foreclose, recover or enforce any security interest" created over the assets of IL&FS or its group firms under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.
The Mumbai bench of the NCLT had on October 1 suspended the board of IL&FS on the government's plea and authorised reconstitution of the board by appointing seven directors two days later. The government had stated that the newly appointed board is "likely to face certain problems" relating to IL&FS and its group companies and there may be a need to "rationalise/rethink" business process and strategies that may ensure effective and more efficient manner of functioning.
It had further contended that the newly elected board required "status quo to be preserved qua the business and assets" of IL&FS and group companies. "In the light of the financial crisis which IL&FS was undergoing, the applicant (govt) is given to understand that a large number of creditors have threatened and some creditors have instituted legal proceedings against IL&FS and its group companies. Some proceedings sprouted against IL&FS and its group companies," the government said.
It further added "by a letter dated October 11, 2018, the applicant (MCA) has been informed by ILFS Transport and IL&FS and its group companies have received letters or written communications from 49 different creditors including bondholders, many of whom have accelerated payments under financial facilities extended and demanded payment forthwith under threat of legal proceedings against IL&FS and the corresponding group companies."
However, a two-member NCLT bench had said that moratorium sought by the government under the Insolvency & Bankruptcy Code cannot be extended under section 241-242 of the Companies Act, under which the NCLT had dissolved the IL&FS board. "In the circumstances, we are of the considered view that the moratorium which has been sought by the Union of India by an application u/s 242 of the Companies act 2013 cannot be granted," said the NCLT.
Copyright©2022 Living Media India Limited. For reprint rights: Syndications Today