The Centre has taken control of the management of IL&FS that has roiled markets by defaulting on debt, stepping in to check a contagion that could have impacted the financial sector.
The Mumbai NCLT allowed the ministry of corporate affairs to take control of the board.
The swift move before sunset will see the old IL&FS board being replaced by a new one with 6 members in the helm. The new board will meet before October 8. The new board will have: Kotak Mahindra BankNSE -1.72 % managing director Uday Kotak, former IAS officer & Tech Mahindra boss Vineet Nayyar, former Sebi chief G N Bajpai, former ICICI Bank chairman G C Chaturvedi, former IAS officers Malini Shankar and Nanda Kishore.
An AAA-rated entity for decades, the IL&FS, over the last few years, saw an increase in its debt levels. The situation worsened in the last two months with both the parent company and its subsidiaries defaulting on a number of repayment obligations. IL&FS has over Rs 16,500 crore of standalone debt and Rs 91,000 crore of consolidated debt. Banks and insurance companies have the largest exposure to IL&FS.
India has rarely stepped in to take control of a private company. A bid by the government to take control of debt-laden realty firm Unitech Ltd in late 2017 was stalled by the Supreme Court after the move was challenged.
The government did take control of Satyam Computer Services in 2009, when an accounting scandal at the firm shook investor confidence in the information technology sector. Satyam’s board was dissolved by the government after its chairman and founder, Ramalinga Raju, revealed India’s biggest corporate accounting fraud.
The government then set up a new board to stabilise the struggling software company, which was later sold to Tech Mahindra.
LIC, IL&FS’ biggest shareholder with a more than 25 percent stake, had said last week that it would participate in the rights issue. IL&FS’s other large investors are Japan’s ORIX Corp with a 23.54 percent stake and Abu Dhabi Investment Authority (ADIA) with 12.56 percent. India’s biggest lender by assets, State Bank of India (SBI), also owns a 6.42 percent stake in IL&FS.