Govt supersedes board, seizes control of IL&FS
MUMBAI: The government seized control of the Infrastructure Leasing & Financial Services (IL&FS) and its units on Monday, only the second time ever that it has taken over a company, as worries spread that the lender’s defaults could set off a bigger economic turmoil.
The corporate affairs ministry was granted approval to oust IL&FS’s board and a new sixmember board will meet before October 8, the National Company Law Tribunal said on Monday. India’s richest banker Uday Kotak and ICICI Bank chairman GC Chaturvedi will be part of the proposed board, which will elect a chairperson themselves.
Previously, the corporate affairs ministry has sought to take control of a company on just two prior occasions, and only followed through once, with Satyam Computer Services Ltd in 2009. The dramatic move unfolded within a hectic day in Mumbai. The move sends multiple signals. One, with the government now in control, it is a clear reassurance to lenders that their outstanding loans to IL&FS will be repaid. Two, it will go some way in quelling rumours that debt mutual funds had started facing redemption pressures from jittery investors.
Three, it effectively stops the spread of systemic instability in an inter-connected financial system, especially as panic had started spreading across the financial, money and capital markets.
Finally, there is clarity on the way forward: finalisation of a restructuring plan, identification and valuation of assets, sale of the assets and repayment of outstanding loans.
The crisis already triggered a political spat with Congress president Rahul Gandhi tweeting about it on Sunday, targeting the government for the problems. Finance minister Arun Jaitley responded to those comments on Monday, calling Gandhi’s party a “national saboteur” trying to spread disinformation about the developments in debtridden IL&FS. The government also committed to arrange adequate liquidity for IL&FS to obviate future defaults and to ensure smooth implementation of infrastructure projects.