IL&FS resolution may suffer setback if NCLAT lifts moratorium

The government efforts to resolve stressed assets issue of IL&FS may face a setback if the bankruptcy court lifts its moratorium against any regulatory and legal proceedings in this matter.

As on October 26, 2018, over 130 creditors issued notices to IL&FS group entities for recovery of their loans. Even on Tuesday, private sector lender IndusInd Bank approached the National Company Law Appellate Tribunal (NCLAT) to recover its outstanding interest amount of Rs 25 crore to avoid being classified as a non-performing asset (NPA) account.

If the moratorium is lifted at this juncture, sources said, there would be total `anarchy’ with all efforts to resolve the bankrupt entity coming to a nought.

In a bid to protect the infrastructure conglomerate from the ongoing crisis, last month a two-member NCLAT team had granted a moratorium till further orders. The next meeting of NCLAT is scheduled on November 13, where sources said the tribunal could lift the moratorium. The tribunal is said to have also ordered that certain lenders of the IL&FS group and its 347 subsidiaries appear on the same day.

The problem for the infrastructure group is mounting every day with new claimants coming for recovery of their dues. The IndusInd Bank’s claim is also just one among the top five lenders to IL&FS Group with a huge exposure to the extent of about Rs 3,000 crore. Another 130 lenders have also come with their claims. 

Anticipating some relief from the creditors, a source privy to development also said that moratorium is expected to be lifted soon to make the resolution possible. Even the new board in its report believes that the board requires a ‘calm period’ and continuation of the moratorium to achieve the final resolution is critical.

With a total debt of over Rs 94,000 crore, IL&FS has been hit by financial crisis after it defaulted on its debt obligations in early September. The creditor profile of the IL&FS Group is spread across different categories and verticals.

As on October 26, 2018, over 130 creditors have issued notices to IL&FS Group entities. Individual creditor action is unlikely to realise value for creditors, making an orderly resolution impossible.
It has requested the NCLT to extend the moratorium so that legal action can’t be taken by creditors against IL&FS or its 347 group entities. As per new board’s report, given that the final resolution, at the threshold, needs to ensure orderly recovery for the creditors, a piece-meal approach may not work as it will not recover due value for the creditors.

“The IL&FS Group is receiving legal notices and threats of legal action from substantial number of creditors,” it had said. The new board even considers that given the complexities surrounding the IL&FS Group, individual creditor action is unlikely to realise any value for the creditors and would also make an orderly final resolution impossible to achieve. “Therefore, larger public interest requires that the rights of individual creditors are suspended pending final resolution,” the report had said.