The National Company Law Appellate Tribunal (NCLAT) has passed an order allowing state-owned Canara Bank and Indian Bank to proceed with declaring former directors of Infrastructure Leasing & Financial Services (IL&FS) as willful defaulters, but only if they are not part of the new board. The tribunal granted leave to the banks to make an application against the former directors who were not part of the new board, which was constituted by the government in October 2018.
The NCLAT bench, comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra, said that the protection extended to the former directors would not extend to those who are part of the new board. The tribunal also protected Professional Directors who were reappointed in IL&FS and its subsidiaries after October 1, 2018.
The crisis in IL&FS was triggered by a massive debt of Rs90,000 crore, which sent shockwaves through the financial sector of the country. The government had appointed a new board of IL&FS in October 2018, and NCLAT had passed an interim stay on certain actions by creditors and other parties against IL&FS and its group companies.
IL&FS had argued that in view of the stay order, all directors, including the erstwhile ones, were protected from legal proceedings. However, the banks emphasized that only show-cause notices were issued to the erstwhile directors, and the process needs to be completed as per the RBI circular.
The NCLAT order allows the banks to pursue proceedings against the former directors who are not part of the new board, but protects those who are part of the new board and have been reappointed as Professional Directors. The order is seen as a significant development in the IL&FS saga, which has been marked by controversy and legal wrangles.