The National Company Law Appellate Tribunal (NCLAT) has ruled that state-owned Canara Bank and Indian Bank can pursue proceedings against former directors of Infrastructure Leasing & Financial Services (IL&FS) who are not part of the new board to declare them as wilful defaulters. However, those directors who are part of the new board of IL&FS and its subsidiaries after October 1, 2018, will remain protected.
The NCLAT bench, comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra, allowed the banks to make an application for proceeding against the former directors. The tribunal also granted protection to professional directors who were reappointed to the board of IL&FS and its subsidiaries after October 1, 2018.
The government had appointed a new board of IL&FS in October 2018 after a debt crisis, which sent shockwaves through the financial sector. NCLAT had also granted an interim stay on certain actions by creditors and other parties against IL&FS and its group companies.
IL&FS had argued that the directors are protected under the NCLAT order dated October 15, 2018, which restrained all persons from taking any coercive action against IL&FS and its group entities. However, the banks argued that the show cause notices were issued only to erstwhile directors of the companies, and the process needs to be completed as per the RBI circular.
The NCLAT ruling comes as a major relief to Canara Bank and Indian Bank, which will now be able to pursue proceedings against the former directors to declare them as wilful defaulters. The ruling is also a setback for the former directors, who will not be able to escape accountability for their actions.