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The Centre, on Monday, asserted that it was fully committed to ensure that liquidity is arranged for IL&FS Group from the financial system so that more defaults do not take place and infrastructure projects are implemented smoothly.
Putting out a detailed official statement to justify its action of moving NCLT Mumbai for superseding the board of debt-ridden IL&FS, the Modi government said that it was compelled to take this “extraordinary step” under Section 241(2) of the Companies Act 2013 to apply to the tribunal for an order to prevent further mismanagement and in public interest.
“The decision to supersede the existing board was taken after careful consideration of a report received from the regional director, Mumbai, under the Corporate Affairs Ministry, which clearly brought out serious corporate-related deficiencies in IL&FS holding company and its subsidiaries,” an official release said.
Has lost credibility
The fact that the company continued to pay dividends and huge managerial pay-outs regardless of the looming liquidity crisis shows that the management had lost total credibility, the release added.
There have been serious complaints on some of the companies for which an SFIO investigation has been ordered into the affairs of IL&FS and its subsidiaries, the release said.
Meanwhile, Department of Economic Affairs Secretary, Subhash Chandra Garg, clarified in a tweet that the government had not taken over IL&FS.
“The government, in public interest, moved the NCLT to supersede the management of IL&FS on the grounds of mismanagement. The NCLT has allowed the appointment of a new board comprising people with proven record of turning around and managing financial and infrastructure institutions. Not a takeover,” said Garg’s tweet.
What really happened
A series of defaults by IL&FS Group companies in August and September on term deposits, short-term deposits, inter-corporate deposits, commercial paper and non-convertible debentures, coupled with rating downgrades in some, and default on certain other financial instruments, have impacted sentiments in the stock markets, money markets and debt markets, causing redemption pressure on mutual funds, which held these financial instruments.
The redemption pressure on mutual funds has created a large systemic risk, leading to quality papers being sold at steep discounts to meet the redemption demand. The debt market shocks got transferred to the equity market, sparking a sell-off, particularly in NBFC stocks, and sectors linked to NBFC financing.
IL&FS Group, which has infrastructure and financial assets exceeding ₹1.15 lakh crore, presently faces tremendous debt pressure and is struggling to service around ₹91,000 crore in debt.
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