IL & FS INSOLVENCY: The Journey so Far

July 15, 2020

Shashank Pandey

Shanshank is one of the founders of The Law Culture. He is a final year student at RMNLU. He is primarily interested in Intellectual Property Rights, Labour Laws, Arbitration and Constitutional Law.

IL&FS or Infrastructure Leasing and Finance Service, India’s leading infrastructure finance company, defaulted on payment to lenders triggering panic in the market. The dues stand at more than 91000 Crore. A default of such magnitude could trigger the financial crisis in the Indian market, like collapse of Lwhman Brothers in 2008 that triggered Global crisis.In this article we will try to trace the major events that have happened in the IL&FS insolvency case.


What is IL&FS?

Infrastructure Leasing & Financial Services Limited (IL&FS) is a systemically important Core Investment Company with the Reserve Bank of India and is engaged in the business of giving loans and advances to its group companies (and holding investment in such companies). IL&FS has a large number of group companies across various sectors such as Energy, Transportation, Financial Services, etc. IL&FS was initially promoted by the Central Bank of India, HDFC Limited and the Unit Trust of India.

S.No. Name of the shareholder Percentage
1 Life Insurance Corporation of India 25.34%
2 ORIX Corporation – Japan 23.54%
3 IL&FS Employees Welfare Trust 12%
4 Abu Dhabi Investment Authority 12.56%
5 Housing Development Finance Corporation Limited 9.02%
6 Central Bank of India 7.67%
7 State Bank of India 6.42%
8 UTI – Unit Linked Insurance Plan – UTI Asset Management Company Limited 0.82%
9 India Discovery Fund 0.86%
10 Others 1.77%
TOTAL 100%
The shareholding pattern of IL&FS, as on March 31, 2017, as derived from the Annual Report of the Company for the year 2018


Liquidity crisis in the IL&FS Group

It came to the knowledge of the Central Government that IL&FS Group, which has over approx. INR 91,000 Crore in debt, is facing a severe liquidity crisis. During the period July 2018 to September 2018, two of the subsidiaries of IL&FS Group reported having trouble paying back loans and inter-corporate deposits to Banks/Lenders. In July 2018, the road arm of IL&FS was facing difficulty in making repayments due on its bonds. Further, in early September 2018, one of the subsidiaries of IL&FS Group was unable to repay a short-term loan of INR 1,000 Crores taken from Small Industries Development Bank of India (‘SIDBI’). Also, certain group companies defaulted in repayments of various short and long-term deposits, inter-corporate deposits, and commercial papers.

Central Government intervenes in the matter

Due to continuous failure of IL&FS to service its debt and the imminent possibility of a contagion effect in the financial market, the Central Government moved an application under Sections 241 and 242 of the Companies Act, 2013 before the NCLT, Mumbai Bench seeking immediate suspension of the board of directors IL&FS and appointment of specified new directors, on the grounds of massive mismanagement of public funds by the erstwhile board of IL&FS Group and the affairs of IL&FS being conducted in a manner prejudicial to the public interest. [Central Government Press Release]  

Suspension of Board of Directors (NCLT order)

By way of an order dated October 1, 2018, the NCLT invoked its powers under Sections 242, 242, 246 r/w 339 of the Companies Act and granted the interim prayer of suspending the existing board of directors of IL&FS as on October 1, 2018 and reconstituting the same with the six persons proposed by the Union of India. The NCLT further restrained the suspended members of the Board from alienating their personal assets. Mr. Uday Kotak is the chairman of the new Board of Directors. The new Board of IL&FS has been tasked with the orderly resolution of the IL&FS and its group companies.

The NCLT also directed the filing of progress reports till resolution, which is a continuous process. As such, to date, the Central Government has filed four reports, last one being on 16/01/2019.

Appointment of additional directors on the IL&FS board (NCLT order)

By way of a subsequent order dated October 3, 2018, NCLT upon the proposal by the Central Government, allowed the appointment of one additional person to the Board of Directors of IL&FS.

Again by order dated December 21, 2018, NCLT further allowed the appointment of two more directors on the Board of IL&FS, bringing the total number of Directors on the Board of IL&FS to nine.

Grant of immunity to Directors (NCLT order)

In order to ensure independent functioning of the said Directors individually and collectively, immunity was granted to the newly appointed Directors by the NCLT vide order dated October 5, 2018.  The NCLT directed that for the past actions of the suspended Directors or any of the Officers of the IL&FS Ltd. and the past wrongs of the suspended Directors and its officials, no action should be initiated against the newly appointed Directors, without prior approval of the Tribunal. The Tribunal further directed that the newly appointed Directors shall not be subject to disability or disqualification as provided in Section 164 and 167 of the Companies Act 2013, on account of them being appointed as directors of IL&FS Ltd.

Taking control of group entities of IL&FS (NCLT order)

Being cognizant of the fact that the mismanagement existed across the IL&FS Group, on an application by the Central Government, the Hon’ble Tribunal, by an order dated October 9, 2018, permitted the newly appointed Directors to appoint themselves as Directors on the group/subsidiary/associate/jointly controlled entities or operations of IL&FS.

Grant of moratorium (NCLAT order)

Further, in order to ensure a period of calm during the resolution process, a moratorium was sought moratorium qua IL&FS and its group companies against certain creditor action on the basis that considering the impending threat of adverse legal actions by creditors and the absence of a legal framework to address the financial crisis of the IL&FS Group, the New Board would require the status quo to be preserved in respect of the business and assets of IL&FS and the IL&FS Group in order to effectively implement the orders of the NCLT and arrive at a fair resolution for the IL&FS Group. This was declined by the NCLT by its order dated October 12, 2018.

However, upon appeal, the National Company Law Appellate Tribunal (NCLAT) granted a moratorium on an interim basis until further orders, vide its order dated October 15, 2018. The matter is sub-judice.


Addition of respondent before NCLT

Initially, there were 11 Respondents in the original petition moved by the Central Government before the NCLT. However, the NCLT, vide its order dated October 31, 2018, directed the Central Government to implead all the group companies of IL&FS as Respondents. In compliance with the said order, the Central Government filed an affidavit dated December 3, 2018 arraying the group companies of IL&FS as Respondents, as per information provided by the company.

SFIO interim report and NCLT order

The Serious Fraud Investigation Office (SFIO submitted an interim report dated November 30, 2018. On the basis of said interim report, the Central Government vide its aforementioned affidavit dated December 3, 2018, also sought impleadment of further persons as Respondents in the original petition filed under Section 241 and 242 of the Companies Act, 2013.

Additionally, application was also filed by the Central Government for seeking orders, qua the additional respondents, to restrain them from mortgaging or creating charge or lien or creating third party interest or in any way alienating, the movable or immovable properties owned by them, including jointly held properties.

The NCLT was pleased to grant relief to the Central Government, vide order dated December 3, 2018, which are still in operation and as on date, there are a total of 318 Respondents in the petition before the NCLT.

Prima facie enquiry into role of statutory auditors by ICAI

Simultaneously, in view of the negative impact that the IL&FS Group had on the financial markets at large and that there was considerable allegations in respect of the financial statements of the said companies, the Disciplinary Directorate of the Institute of Chartered Accountants of India (ICAI), in the interest of the profession, suo moto sought to consider the performance of the statutory auditors of the said Companies.

Pursuant to an enquiry conducted in respect of the statutory auditors of the IL&FS Group Companies, the ICAI found that there were key lapses, shortcomings and manipulations on the financial statements by the statutory auditors of the said companies. Most significantly, it was noted that the condition of the said companies as a result of mismanagement reflects upon the statutory auditors of the said companies. The ICAI has held the statutory auditors of the said Companies prima facie guilty of professional misconduct.

Meanwhile, in a spur between ICAI and National Financial Reporting Authority (NFRA), a recently formed regulator under the Ministry of Corporate Affairs, has raised questions as to who is going to look into the role of the auditing firms. As per sources now NFRA has initiated a probe in the IL&FS matter.

Tribunal ordered reopening of Books of Account (NCLT order)

As such, in view of the prima facie findings of ICAI and the SFIO interim report dated November 30, 2018, the Central Government filed a petition before the NCLT, Mumbai Bench on December 21, 2018 under Section 130 of the Companies Act, 2013 seeking to reopen the books of account of IL&FS, IL&FS Financial Services Ltd. (IFIN) and IL&FS Transportation Networks Ltd. (ITNL) for the past five financial years, viz. from Financial Year 2012-13 to Financial Year 2017-2018, and for recasting the financial statements of the said companies.

The NCLT vide its judgment dated January 1, 2019 allowed the petition of the Central Government


GREENEntities which can repay all financial debt obligations as and when due and no default subsists •      These entities have been declared as solvent
•      These entities to continue with payments towards financial debt to all lenders (principal and interest payments) as and when they are due
AMBEREntities which are not able to meet ALL obligations (financial and operational), but can meet operational and senior secured financial debt •      These are subject to the payment protocol i.e. no servicing of financial debt till the time the resolution process is completed
•      In-line with the process followed in cases which are admitted into and are undergoing insolvency, under IBC
•      However, even in these cases, seniority of lenders will be protected in-line with Section 53 of the IBC which is proposed to be followed for distribution of sale proceeds to creditors
REDEntities which CANNOT fully repay even senior secured financial debt obligations as and when due


Relief from NPA classification (NCLAT order)

Upon an application filed by PTC India Financial Services Ltd., the NCLAT has without going into the rival contention of the parties, vide its order dated February 25, 2019, made it clear that due to non-payment of dues by IL&FS or its entities including the ‘Amber Companies’, no financial institution will declare the accounts of IL&FS or its entities as Non Performing Assets (NPA) without prior permission of the NCLAT.

NCLAT order dated 2nd May 2019

NCLAT by its order dated 2nd May 2019 allowed the banks to declare as non-performing assets the accounts of IL&FS and its group companies that have defaulted on payments. However the tribunal clarified that the banks cannot initiate recovery process and debit money.


SFIO submitted the chargesheet on 30th May 2019 against the 30 people including the two auditor firms  for concealing information by not flagging the alleged criminal conspiracy and misreported the financial statements of IL&FS firms.

MCA moved against the auditor, Deloitte Haskins and Sells as well as BSR and Associates LLP and their former auditors, under section 140(5) of the Companies Act, for their role in “perpetuating the fraud” at IFIN, a subsidiary of Infrastructure Leasing & Financial Services (IL&FS) for debarment of these audit firms and their audit partners. It sought interim attachment of their properties, including bank accounts and lockers.


The Supreme Court in its order May stays the NCLAT order for the reopening of the past books of IL&FS and its group companies. Supreme Court by its order dated 4th June 2019 allowed reopening of the IL&FS for the last 5 years.



Preferred Citation: Pandey, Shashank., “IL&FS INSOLVENCY: The Journey so Far”, The Law Culture (2020)




Shashank Pandey

Shanshank is one of the founders of The Law Culture. He is a final year student at RMNLU. He is primarily interested in Intellectual Property Rights, Labour Laws, Arbitration and Constitutional Law.

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