IL&FS: Supreme Court Asks HDFC Bank, HDFC To Submit Details of Funds Withdrawn from Escrow Account

Moneylife Digital Team 01 August 2022

The Supreme Court (SC) has asked HDFC Bank Ltd and Housing Development Finance Corporation Ltd (HDFC) to submit details of funds withdrawn from the escrow account of Infrastructure Leasing and Financial Services Ltd (IL&FS).

A bench of justice UU Lalit and justice S Ravindra Bhat says, "… the respondents shall file their responses within two weeks. The responses shall indicate the status of the amounts withdrawn from the escrow account, if any, pursuant to the judgment and order which is presently under challenge."

HDFC Bank has to submit its response within two weeks and provide details of funds withdrawn from the IL&FS escrow account from 15 October 2018, when the National Company Law Appellate Tribunal (NCLAT) had passed prohibitory orders.

The SC also gave an interim stay on an order passed by the Tribunal on 15th May this year. It says, "Pending further consideration, there shall be ad-interim stay of the judgment and order presently under challenge."

In May 2022, while disposing an appeal filed by IL&FS, the NCLAT had stated, "We having come to the conclusion that the lender (HDFC) has right to instruct the escrow bank (HDFC Bank) to debit the amount sufficient to cover interest and principal deposited in the escrow account out of the receivables, no direction can be issued to reverse the said amount to the borrower."

The apex court listed the matter for disposal on 2 September 2022.

In June 2018, IL&FS had obtained a loan facility of Rs400 crore from HDFC, which was repayable within 96 months. An escrow account was created with HDFC Bank to facilitate the repayment of principal and interest as per the repayments schedule.

IL&FS approached NCLAT seeking directions to HDFC to reverse Rs112.79 crore from its accounts towards debt service payment. However, it was rejected by the Tribunal. It, however, says, "The part of receivables in excess of payment of interest and principal payable which was assigned to the lender after adjusting any shortfall in the amount payable need to be reversed to the borrower."

The Tribunal also asked HDFC Bank to revisit all its debits after 15 October 2018 to find out whether any amount, in excess to the amount payable to cover principal and interest subject to adjustment of any shortfall in earlier payment, have been debited and reverse it to the borrower.

In May 2019, NCLAT had restrained banks from moving to recover any dues from the beleaguered group or group companies till their resolutions are undertaken.

IL&FS was incorporated in 1987 with the objective of promoting infrastructure projects in the country. IL&FS was promoted by the Central Bank of India (CBI), Housing Development Finance Corp Ltd (HDFC) and Unit Trust of India (now SUUTI).

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