Mumbai/New Delhi (IANS)" Under all-round attack over the crisis in the IL&FS, the Central government on Monday superseded the management of the beleaguered company by appointing a six-member Board led by banker Uday Kotak to restore the financial solvency of the debt-stricken conglomerate.
"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," an official statement said.
"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," said Ministry of Corporate Affairs in a statement.
"The new Board shall take up its responsibility with immediate effect, after following due procedures."
The development comes after the NCLT Mumbai ordered the supersession of the existing Board on a plea moved by the Ministry of Corporate Affairs (MCA) to prevent any "further mismanagement in order to protect the public interest".
In Delhi, Economic Affairs Secretary S.C. Garg said the government in public interest moved NCLT to supersede the management of Infrastructure Leasing & Financial Services (IL&FS) on grounds of mismanagement.
"NCLT has allowed the appointment of a new Board comprising people with a 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 percent and 6.42 percent stake in the firm which has around Rs 91,000 crore in long-term debt.
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 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 crisis has dented equity investors' confidence in the entire NBFC space.
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, 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 Corporation of Japan and Abu Dhabi Investment Authority (ADIA).
As on March 31, 2018, LIC and ORIX Corporation are the largest shareholders in IL&FS with their stakeholding at 25.34 percent and 23.54 percent, respectively. Other prominent shareholders include ADIA (12.56 percent), HDFC (9.02 percent), CBI (7.67 percent) and SBI (6.42 percent).