IL&FS Denies Conflict of Interest by NTADCL Nominee Directors Discussing Its Loan
Moneylife Digital Team 08 April 2024
Asserting that its new board and nominee directors are officers of the national company law tribunal (NCLT) Mumbai bench, Infrastructure Leasing & Financial Services (IL&FS), has denied any conflict of interest by nominee directors participating in the deliberations concerning the IL&FS senior loan of its subsidiary New Tirupur Area Development Corporation Ltd (NTADCL).
 
Replying to a complaint filed by the managing director (MD) of NTADCL with the registrar of companies (RoC) at Coimbatore, IL&FS says, "...since the new board and consequently, the IL&FS nominee directors are officers of the NCLT, Mumbai bench who are discharging their mandate of resolving the IL&FS group (which includes NTADCL) in good faith and in terms of the orders of the NCLT, including the immunity orders, for the benefit of public and private sector banks, financial institutions and public fund creditors as well as the public at large, the question of conflict of interest in the IL&FS nominee directors participating on the deliberations concerning the IL&FS senior loan, cannot and does not arise..."
 
In the complaint, the MD of NTADCL had requested the RoC to issue a directive to prevent nominee directors of IL&FS—its parent company—from voting on resolutions of NTADCL, where they have a conflict of interest and a reference to the serious fraud investigation office (SFIO) for investigation. Specifically, it wanted the nominee directors not to have a say in any matters pertaining to the United States Agency for International Development (USAID) -IL&FS loan issue which is subject of litigation pending before the NCLT. 
 
The MD is understood to have filed the complaint without any discussion or approval of the NTADCL board of directors. 
 
In its response, IL&FS says, "...the present complaint has been filed by the management of NTADCL as a reaction to the assertion of legal rights by IL&FS, wherein material legal and factual submissions have been completely and blatantly glossed over including concealed by the management of NTADCL to mislead your (ROC's) good offices. As such, the management of NTADCL as approached your good offices with unclean hands in their continued endeavour at forum shopping to eventually fritter away authority vested by the NCLT, Mumbai bench in the IL&FS nominee directors and further cause grave harm and prejudice to IL&FS."
 
On 22 March 2002, NTADCL entered into a common loan agreement with all its lenders, including IL&FS, in terms of which IL&FS was to contribute to NTADCL's total project financing to the extent of Rs180 crore (IL&FS senior loan). Of the total amount of the IL&FS senior loan, Rs90 crore was raised and further disbursed to NTADCL by raising long-term borrowings through debt securities of 30 years’ tenor in the USAID program (USAID Portion).
 
As per the agreement, IL&FS was entitled to make certain charges and deductions while disbursing the USAID portion to NTADCL. While disbursing the funds on 25 September 2002, IL&FS deducted Rs41.24 crore from Rs90 crore. On 8 October 2002, NTADCL acknowledged receiving Rs90 from IL&FS which was disbursement towards loan proceeds of the USAID portion for its project. 
 
On 29 March 2012, NTADCL signed a master restructuring agreement (MRA) with its lenders. As part of the MRA, NTADCAL made an irrevocable acknowledgement that the total dues payable to IL&FS senior loan were Rs180 crore as of 1 April 2011. It also paid Rs8.18 crore of the loan to IL&FS. 
 
"At the time of restructuring of IL&FS senior loan, the principal amount of Rs171.82 crore was outstanding as of 1 October 2011. In terms of the restructuring contemplated in the MRA, inter alia 30% debt to IL&FS amounting to Rs51.55 crore was to be converted into equity share capital of NTADCL and the IL&FS senior loan repayable to IL&FS was reduced to Rs120.27 crore," IL&FS says in its reply to the RoC.
 
In November-December 2022, NTADCL unilaterally stopped servicing the USAID-IL&FS loan without waiting for a decision by NCLT as part of IA 511/2020. IL&FS alleges that its action of having unilaterally written down the USAID-IL&FS loan would constitute interfering with the IL&FS claims process, including unilaterally implementing a part of NTADCL's claims set-off prayer which is pending a decision.  
 
IL&FS claims that it has not only pressed NTADCL to continue servicing the USIAD-IL&FS loan, including to write back or continue to recognise it in its books, but has also expressed its willingness to resolve this issue amicably within the parameters laid down by the resolution framework that covers all group entities. However, it alleges that "the NTADCL management has not only been just intransigent but buccaneering enough to disregard judicial processes." 
 
Most of the senior debt, Rs90 crore, came from USAID. NTADCL regularly made payments but suddenly stopped repaying the IL&FS loan in December 2022. In fact, NTADCL wanted to prepay Rs47.12 crore and ignored Rs52.92 crore, claiming it wasn't owed. Court documents show NTADCL called for reconciliation and considered the debt disputed. (Read: IL&FS Subsidiary NTDACL Claims Conflict; Wants RoC Coimbatore To Stop Nominee Directors of Parent from Voting on Resolutions)
Comments
parimalshah1
2 months ago
This is a fig leaf argument.
There definitely is conflict of interest.
IL & FS better watch out and resist such temptation.
If not, likely, someone or some people will either go to jail or commit hara-kiri.
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