Mumbai/New Delhi, Oct 1 (IANS) As the debt-stricken IL&FS Group moved from crisis to crisis, the Central government on Monday superseded the management of the beleaguered company by appointing a six-member board led by banker Uday Kotak to restore its financial solvency.
"The NCLT (National Company Law Tribunal) suspended the existing board and directed that the suspended members should not represent the company in any form with immediate effect," said Ministry of Corporate Affairs (MCA) in a statement.
"The NCLT approved the induction of six directors recommended by the government, in the first instance, consisting of Uday Kotak, MD & CEO of Kotak Mahindra Bank, as Non-Executive Chairman and Vineet Nayyar, IAS (retd.), G.N. Bajpai, former Chairman, SEBI, G.C. Chaturvedi, Non-Executive Chairperson, ICICI Bank, Malini Shankar, IAS and Nand Kishore, IA&AS (retd.) as directors."
"The new board shall take up its responsibility with immediate effect, after following due procedures."
The development comes after the NCLT Mumbai ordered supersession of the existing board on a plea moved by the MCA to prevent any "further mismanagement in order to protect public interest".
In Delhi, Economic Affairs Secretary S.C. Garg said the government in public interest moved NCLT to supersede the management of IL&FS on grounds of mismanagement.
"NCLT has allowed appointment of a new board comprising people with proven record of managing financial and infrastructure institutions...(It is) not a takeover," Garg said.
Key public sector lenders and undertakings such as LIC and SBI have a 25.34 per cent and 6.42 per cent stake, respectively, in the firm which has around Rs 91,000 crore in long-term debt.
Besides, institutional investors, infrastructure projects, mutual funds and other lenders were at risk from the collapse of the company. The crisis has dented equity investors' confidence in the entire NBFC (Non Banking Financial Company) space.
According to government sources, the new board will meet within this week.
The board is expected to submit a report on the company's financial woes after assessing the liquidity position and reviewing the decisions taken by the previous management in the next 15 days.
As per some industry estimates, the company has an urgent liquidity requirement of around Rs 5,000 crore.
The move is reminiscent of an earlier decision in which the Central government had appointed a new board of the IT major Satyam.
Earlier, the government said in a statement that after analysing the emerging situation of the IL&FS Group, it has come to the conclusion that "the governance and management change in IL&FS is very necessary for saving the group from financial collapse, which required an immediate change in the existing board and management and appointment of a new management".
"Continuance of the present Board had become prejudicial to the interests of the company and its members and this management was affecting public interest because of its adverse impact on financial stability and making capital markets so adversely affected."
Lately, the credit crunch has led a few of the company's subsidiaries to default in servicing some of the inter-corporate deposits.
Subsequent to defaults, rating agency ICRA downgraded the ratings of its short-term and long-term borrowing programmes.
IL&FS Ltd is a core investment company and serves as the holding company of the IL&FS Group, with most business operations domiciled in separate companies which form an ecosystem of expertise across infrastructure, finance and social and environmental services.
Initially promoted by the Central Bank of India (CBI), Housing Development Finance Corporation Ltd and the Unit Trust of India, IL&FS was incorporated in 1987.
Over the years, it has inducted institutional shareholders including SBI, LIC, ORIX Corp of Japan and Abu Dhabi Investment Authority (ADIA).
As on March 31, 2018, LIC and ORIX Corp are the largest shareholders in IL&FS with their stakeholding at 25.34 per cent and 23.54 per cent, respectively. Other prominent shareholders include ADIA (12.56 per cent), HDFC (9.02 per cent), CBI (7.67 per cent) and SBI (6.42 per cent).
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