**NCLAT Allows Banks to Pursue Action Against Former IL&FS Directors**
The National Company Law Appellate Tribunal (NCLAT) has granted permission to Canara Bank and Indian Bank to initiate proceedings against former directors of Infrastructure Leasing & Financial Services (IL&FS) who are not part of the current board, aiming to classify them as wilful defaulters. However, the tribunal clarified that directors who joined the new board after October 1, 2018, will be protected from such actions.
A two-member NCLAT bench, consisting of Chairperson Justice Ashok Bhushan and Member Barun Mitra, stated, “We believe this protection should also extend to Professional Directors who have been reappointed to IL&FS and its subsidiaries and are part of the current board.” The new board was appointed by the government on October 1, 2018, following the revelation of a staggering ₹90,000 crore debt, which significantly impacted the financial sector.
In a previous ruling on October 15, 2018, the NCLAT had issued an interim stay on certain actions by creditors against IL&FS and its group companies, citing the case’s nature and its implications for public interest and the economy. This stay included a prohibition on initiating or continuing legal proceedings against the IL&FS Group.
During recent proceedings, IL&FS argued that the October 15 order protects its directors from coercive actions. However, representatives from Canara Bank and Indian Bank contended that only show cause notices had been issued to former directors regarding their actions during their tenure, and that the process should continue as per the Reserve Bank of India (RBI) guidelines.
Senior advocate Ramji Srinivasan, representing IL&FS, indicated that the company would not oppose actions against former directors, provided they are not part of the current board approved by the National Company Law Tribunal (NCLT). The NCLAT emphasized the need to protect reappointed professional directors.
As of October 2018, the IL&FS Group had incurred a fund-based debt of ₹94,215 crore out of a total external debt of ₹99,355 crore, with four major holding companies—IL&FS Group, IFIN, ITNL, and IEDCL—accounting for nearly 51% of this debt.
The NCLT had intervened to supersede the existing board of IL&FS on the central government’s recommendation amid the financial crisis, providing protection to the company against legal actions.
**FAQ**
*What is the significance of the NCLAT’s ruling regarding IL&FS directors?*
The NCLAT’s ruling allows banks to take action against former directors of IL&FS who are not part of the current board, potentially holding them accountable for financial mismanagement while protecting those who have been reappointed.
